Gain Control Of MRO Inventory
EP Editorial Staff | May 14, 2020
Lack of effective and sustained parts management has a negative impact on your production planning and scheduling.
By Jim Clifford, Performance Consulting Associates Inc.
Despite decades of discussion among facility management and teams about the cost and disruption of equipment failures, many organizations still are not effectively managing their MRO (maintenance, repair, and operations) inventory. Even in highly regulated industries, where non-compliance with mandates can result in significant fines and penalties, MRO inventory management remains an issue. In the average company, disorganization—from faulty procurement practices to lax storeroom management—can be so deeply ingrained that it’s accepted as a cost of doing business. In the modern era, where margins are shaved razor thin, MRO inventory mismanagement can literally make the difference between profit and loss.
Another problem that we haven’t quantified, but that every shop floor or inventory manager understands at some level, is that MRO technicians tend to requisition more parts than they require over a purchasing cycle because they are frustrated by not having them when needed. This behavior is often tacitly endorsed as another cost of doing business.
If you are involved with MRO at any level, you are probably nodding your head right now, thinking, “Yes, we’ve experienced these issues and tried to resolve them, but the changes never stick!” These problems can be permanently resolved and, while there is no magic bullet, there is a secret to success. Eliminating common challenges doesn’t require tons of time, money, or effort.
Change can be achieved by following basic best practices. Best of all, such an approach also helps insulate your firm from unexpected downturns in demand while positioning you to quickly ramp back up.
Inventory Management Evaluation
Pull together a cross-functional team to explore whether your inventory-management practices are sound. If not, make a list of deficiencies and start fixing them. Common issues include:
• MRO technicians grabbing parts out of the storeroom because it isn’t properly safeguarded or they’re allowed to circumvent the requisition process.
• Old MRO parts are retained in inventory even after equipment design changes render them obsolete.
• Purchasing procures parts from “favorite” vendors rather than following competitive evaluation best practices.
• Stockouts and spot purchases are not tracked, and there are no scheduled evaluations to address them.
The MRO inventory storeroom may need a retooling to ensure that inventory routinely includes the range and volume of parts required to maintain equipment in its validated state. There may also be a benefit in changing the location and/or configuration of the storeroom to make parts retrieval more efficient.
Knowledgeable individuals, such as the Procurement Engineer, Purchasing Manager, and Storeroom Manager, can collaborate on this effort to ensure a realistic, yet functional, outcome. Once the storeroom is in top operating condition, access must be restricted to authorized individuals only, and all parts must be formally signed in and out, preferably through a computerized system such as a CMMS (computerized maintenance management system).
Vendors should be informed that substitutions of any kind, including materials of construction, are not permitted without appropriate review and approval. Purchase orders should have unambiguous language explaining this requirement. Parts manufacturers should be notified that they are expected to alert all stakeholders to any changes in materials.
Master Schedule Coordination
A well-organized and maintained master production schedule (MPS) is vital to efficiency, yet it often doesn’t take MRO parts into consideration. This is ironic, since one of its core functions is to eliminate production bottlenecks—a consequence of unplanned equipment failure. MPS personnel should coordinate closely with MRO inventory managers and planners, communicating predicted demand swings so MRO inventory will be adequate for corresponding spikes in equipment maintenance needs.
Over time, any production facility—even those with mature practices and well-trained staff—can experience a reduction in efficiency. This is especially common with inventory management because so many different departments have input into its processes. Every five years or when stockouts increase, equipment failures are traced to failed parts, and/or other indicators suggest inventory practices are slipping, management should confirm that existing best practices are being followed.
This effort requires scrutiny of staff activities and processes and therefore is best handled by a well-respected “evangelist for excellence” and not upper management. The storeroom manager is often not the best choice for this function, as that person may be too invested in their current processes. Once the leader is identified, they should create a series of benchmarks, which can be vetted by others, and then start comparing current activities against them.
Create or Update Benchmarks
Once these efforts have been completed, it is vital that MRO management creates (or updates, if they exist) KPIs (key performance indicators). Anything that is important enough to track should also be measured. Metrics are invaluable not only to help the refresh stay on track but also to provide evidence of the effort’s quantifiable benefits.
This data can then be fed into a CMMS/EAMS (computerized maintenance management system or enterprise asset management system) and processed to identify problems and opportunities. Metrics to consider include on-hand inventory (days or months), the number and frequency of stockouts, the ratio of rush orders to planned orders, and rates/statuses of parts and their obsolescence.
Beyond the Basics
After your firm addresses these problems, you’ll be in a much better position to expand your efforts. For example, if you have a CMMS/EAMS, you can start using it for much more than monitoring MRO parts conditions. CMMS/EAMS systems have proven value for boosting equipment reliability yet are often underutilized in that regard.
Even production improvements, such as automated scheduling, are easier to implement with best-practices MRO inventory management. In essence, it’s the foundation of reliability that, in turn, is at the heart of facility excellence. EP
Jim Clifford is Director of MRO Services, Performance Consulting Associates Inc., Duluth, GA, pcaconsulting.com. He is a 45-year veteran of MRO management and travels the country helping clients realize maximum value from best-practices and program development.