Obsolete Inventory? Deal with It.
Jane Alexander | February 10, 2017
Obsolete. Everyone who has ever purchased a computer knows what that means. It describes your computer within a month or so of your purchase.
When the discussion turns to a plant’s MRO inventory, Roger Corley of Life Cycle Engineering (LCE.com) says it’s an entirely different type of conversation. That’s because some items are never used, yet continue to collect dust and take up valuable storeroom real estate. He has some tips for dealing with this obsolescence, starting with how to identify it.
Identifying obsolete MRO inventory, in Corley’s opinion, is the easy part, especially if a good set of parameters has been established. Most large storerooms, he says, apply these factors:
• items with movement (receipts or issues) in 3+years
• items that aren’t identified as critical spares
• items that aren’t on an active asset’s BOM (optional).
According to Corley, the more difficult (politically charged) challenge associated with obsolete MRO items is their disposal. That’s why storeroom managers must be involved in a site’s budget-preparation process. For one thing, there will need to be a line item in the budget for disposal of inventory. In addition, since writing off unused inventory can be damaging to a company’s bottom line, it’s crucial to prepare (and obtain approval) for doing so ahead of time.
Another issue involves disposing of what personnel believe “belongs” to them. As Corley put it, “I’ve seen maintenance supervisors and managers dig in their heels when a storeroom manager begins removing what they think of as ‘their’ MRO items.” His advice to storeroom managers is to take great care to ensure important items that might have been left off the list of critical spares aren’t eliminated from inventory. Some front-end work on the part of storeroom managers can smooth the process. Such work includes:
• investigating the history of the proposed item considered for disposal
• grouping items into specific operating areas on site and scheduling meetings to review (tip: buy lunch to get participation)
• allowing area managers to present a case for inclusion of a critical spare and being prepared to offer solutions such as vendor-stored inventory.
Once a list is developed and agreement among stakeholders reached, the obsolete items must be removed from inventory and disposed of. Corley notes that this phase will be less painful in plants that have investment-recovery departments. Smaller operations will sometimes list the obsolete inventory on bidding sites or, in the case of metals, recover money by scrapping items.
“Either way,” he cautioned, “sites shouldn’t expect to get anywhere near what the initial investment was when the items were purchased. In the case of scrap, they’ll recover pennies on the dollar. As for companies with multiple plants, it’s important for sites to check with other locations regarding possible use of obsolete items before disposing of them.”
To Corley’s way of thinking, dealing with obsolete MRO inventory, including identifying and disposing of it, needn’t be viewed as a daunting task. “That is,” he said, “if the process is managed properly and homework is done before the items are removed.”
Roger Corley is a Materials Management subject-matter expert with Life Cycle Engineering, Charleston, SC, and a certified facilitator for Maintenance Planning and Scheduling with the Life Cycle Institute. For more information, email rcorley@LCE.com and/or visit LCE.com.