Is MRO inventory management and reduction becoming a more important issue as companies seek new ways to reduce working capital and improve their ROI?

When the Stockroom Inventory value reached the one million dollar mark you bet it become an important issue !!!

This message has been edited. Last edited by: Eugene,

It's amazing how a seven figure number suddenly gets the attention!

Was the issue just the value of the investment or was there a bigger picture around working capital that just put your storeroom in the bean counter's sights?

"Bean counters" ussually apply all the rules and principles of inventory management with the goals of inventory reduction, etc. to MRO Inventory in the same way they applied them to raw materials, WIP, finished products inventories; and I think its is wrong. Any comments?

You are right, MRO inventory is different to other inventory types.

There are a number of reasons why - for example, the demand is less predictable, stock out costs are usually disproportionately high and low stock turns may be acceptable.

The other problem is that there is usually a mismatch between what the 'bean counters' and the maintenance people are trying to achieve. The 'beanies' want to minimize working capital while maintenace want to maximize availability.

My view is that resolving this needs a different approach to the standard supply chain/inventory management processes that most people apply. This approach needs to focus on the excess that exists in nearly every maintenance storeroom. Removing this excess doesn't impact the maintenance goals and keeps the 'beanies' happy!

There is a bunch of articles on this at my website www.InitiateAction.com

quote:

Originally posted by Phillip Slater:
Was the issue just the value of the investment or was there a bigger picture around working capital that just put your storeroom in the bean counter's sights?

It was something like: $ 1M at the stockroom but the part needed for the last failure/repair was not on the shelf ?!!!

Well, no wonder your inventory captured their attention!

If they are serious about reducing your inventory then you need to apply the approach mentioned previously to ensure that only the excess is eliminated and not parts that might actually be required.

This also creates what I call 'head space' to purchase the spares that are needed.

If the beanies start discussing that it is cheaper to buy 3 gaskets, when they are selled by the dozen, or that expensive part that you change almost every two years, cannot be part of their stock, you need to buy it direct charge, and they do not understand that once it is registered in the system, there is purchase history available...

If the maintenance rooms, cointainers, desks, lockers are full of parts, you know what is happening..

I hear what you are saying.
Really though, this is just another example of the 'tension' that exists in inventory reduction.

The beanies take an expense perspective and maintenace takes an engineering perspective. One wants less and applies ill fitting approaches and the other wants more and only counts one part of the cost.

I beleive that the only way for a win-win in that situation is to take an investment perspective. For example, if you buy spares and never use them then what is the return on investment? Zero! In my experience there is the opportunity to SAFELY reduce inventory in every storeroom - you just need to look in the right places.

The accountants rarely know where to look and maintenace is too busy going into 'protection mode' to make unbiased decisions.

What do you think?

quote:

You are right, MRO inventory is different to other inventory types.

Does Management know that?

I found that the people who worked their way up from the stores-floor to management, are far more better then the academic types.

These MBA's know the difference between project inventory, MRO inventory and all other stuff? Logistics is a special discipline and in my opinion there ought to be something like logistic/stock engineer. No more beanies who only know the inventory from behind a computer screen, and can't tell the difference between a fuse and a gasket.

That's a good idea (the logistic/stock engineer). What we all need to recognize is that the standard logistics training does not necessarily help if the differences of MRO inventory are not understood.

The other thing is that it is not all the beanies fault. Afterall who put the excess inventory in the storeroom in the first place? Engineers have as much to learn about managing their inevntory as the beanies do! In my view this ought to be a clear discipline in asset management training.

As an aside I recently presented on this topic to students doing an engineering management degree at Monash University. This is a graduate degree so they were all working engineers. It was great to be able to engage them directly in the debate. It was also a persoenal honor because I graduated with the same degree at that university 16 years ago!

I was involved in an inventory optimisation & realisation before. We reviewed all materials in the warehouse based on consumption histories etc and using some inventory formulae with impressive reductions.

It is always great to hear success stories.
Are you able to share any detail? I am thinking about what worked, what didn't work, what you found to be the main issues that created excess inventory, what you might change if you did it again, what % reduction you achieved.

I think that real life stories of success help everyone so if you can share any of that info we would all appreciate it.

Another aspect of reducing cost in the MRO is Purchasing's best intention to cut cost by substituting "like items" for what turns out to be inferior items for a particular application. Case in point, I was faced with Mold heaters failing right and left, with the frequent failures being pump motors and solenoid valves. Once I took care of a system supply that was grossly undersized, I found that Purchasing had substituted pump motors that were not designed to be mounted close to a 1kW heater housing and solenoid valves not designed to be subjected to the heat density these were, turning the seals to goo. I then had to convince the buyers that the inferior parts had to be replaced with the correct components, even though they were more costly up front, but from a reliability standpoint, extended the MTBF of the mold heaters and kept the presses running.

Lynn

Poor buyer, and he was hoping for a greater end of year bonus due to the cost savings he was getting with the lower price parts.

Got to watch those buyers!

How about this scenario: 'The system' says that a buyer needs to purchase 3 items. The seller offers a great deal to buy 10 at a reduced price per item (but obviously a higher overall cash expense). The buyer does this and puts 10 on the shelf instead of 3. The extra 7 don't get used and several years later are made obsolete.

The buyer looks like a hero for getting the initial lower price. The maintenance people don't really notice anything because their parts were always available (but they do thank the buyer for the lower charges to their budget). The company has however overspent money that could have been better used elsewhere (including buying that extra gadget that maintenace has been hanging out for).

The lesson: Everyone involved in managing MRO inventory needs to understand the impact of their decisions.

(By the way, that is a real life example and I have lots more where that came from)

Ripper yarn mate ... wouln't happen here in Oz would it?

Yes, that particular story is Australian but it doesn't matter. The systems in place to manage MRO inventory are more or less the same all over the world and I see the same mistakes and misalignments everywhere I go.

To anyone reading this post: Ask yourself whether you think that, in your company, everyone that makes decisions impacting your MRO inventory spend actually understands (or cares about) the impact of those decisions on a company wide basis.

9 times out of 10 the answer is no.

I am interested in your feedback so I invite you to join in the discussion.

I agree with your score Philip but recently I got some sweet revenge. For a long time we tried to put some battery clamps in the store. Fortunately we do not have that much equipment that uses them. On our other site, they burn down the place if there are no battery clamps (mostly mobile equipment).
To make a story short, I grounded the stores forklift truck, battery poles totally corroded, never time to do a descent maintenance, battery send outside to a specialist. Since they also do not have spare batteries in stock...
a $3 battery clamp, for not being available, generated a $50+ repair, on the only Forklift in the stores
If it was not for the electrical hazards my grin would have been bigger.
Now they are more cooperative

In another log a few minutes ago I wrote that nothing motivates like self interest. I think that you just proved the point!