MRO Magazine


Maintenance Software: Using CMMS for improved materials management

For decades, many capital-intensive companies have instituted a plant shutdown to conduct major overhauls and preventive maintenance. This philosophy is shifting, albeit very slowly, as the focus on equipment reliability increases and supporting technologies such as CMMS, PdM, and HMI (Human Machine Interface) software packages improve. By constantly monitoring the condition of critical parts and equipment, reliability-based maintenance can predict specific maintenance requirements, thereby avoiding much of the mass disruption and huge costs associated with formal plant shutdowns.

A modern CMMS has numerous features and functions that can help you move to a more predictive, reliability-based philosophy, but also deal with plant shutdowns. In my experience, however, most companies use only about 15 to 30 percent of this rich functionality. Check to see if you are effectively using, or could use, some of the more advanced materials management features described below.

Service level analysis
Service level can be defined in many ways, but typically it is the percent availability of spare parts upon request. For example, a 95 percent service level means that 95 times out of 100, spare part requests were fulfilled.

Service levels are analyzed by part and by part category. This is because it would be completely impractical to maintain a service level of 100 percent across the entire inventory. The cost of carrying inventory to sustain 100 percent service would be astronomical, especially with thousands or even hundreds of inventory items. Typically, only certain parts or part categories require high service levels.

A sophisticated CMMS will track the cost of carrying a part or part category at a given service level. Note that the cost begins to rise dramatically for every one percent increase in service level beyond approximately the 96 percent service level. This is essential to keep in mind when determining a service level agreement with operations. A good analysis tool will provide operations with a sense of the dollar tradeoff when increasing service levels. Some of the more sophisticated inventory control systems will allow what-if analysis to strike a balance between inventory level and service level.

For proponents of plant shutdowns, service level analysis is a handy feature in that you can better control the availability of your critical parts for the shutdown period. This is important as stockouts are especially costly during the tight timing of a shutdown period.

For those who favour a reliability-based approach to avoid the disruption of shutdowns, service level analysis is also critical. This is because it increases the likelihood that the right parts are available at the right time, at an optimal cost/benefit throughout the equipment lifecycle.

ABC and XYZ analysis
Another means of categorizing inventory for optimization of service levels is using the ABC and/or XYZ classification systems. For ABC analysis, inventory items are classified into three groups:

  • ‘A’ class items constitute a small number of parts with a high volume usage (eg., 20 percent of the parts account for 80 percent of the volume),
  • ‘B’ class items have a larger number of parts but a lower volume usage (eg., 30 percent of the parts with 15 percent of the volume), and
  • ‘C’ class items are the balance of parts that do not turn over often (e.g., 50 percent of the parts having only 5 percent of the volume).

Similarly, XYZ analysis deals with dollar value, for example, ‘X’ class items may have 20 percent of the parts accounting for 80 percent of the inventory value.

Some systems will allow you to create more than three classifications (eg, ABCDE classification). This allows fine-tuning of the delicate balance between service-level and inventory value across the entire inventory.

For plant shutdowns, companies can establish special classification categories for parts requiring "special treatment", ie, specific lead times, reorder points, reorder quantities, etc. for the shutdown period.

As well, statistics can be gathered on usage history for these parts. The key is to have the proper parts available in adequate quantities for the shutdown period. For those companies anxious to avoid shutdowns altogether through increased reliability, it is important to properly classify and track parts in order to avoid excessive costs in over-inventorying parts.

The risk of not having a part available just-in-time is lower since the condition of the equipment is monitored, therefore downtime is more predictable, thus allowing more time to source parts as required.

Multiple costing methods
There are many methods for valuing inventory including LIFO (last-in, first-out), FIFO (first-in, first-out), average costing, and ABC (activity-based costing). By far the most popular is average costing, however, activity-based costing can significantly enrich the service level agreement with operations through better allocation of maintenance costs.

Activity-based costing ensures costs are allocated to a product based on a simple activity cost driver such as throughput time. This can be useful for tracking all the costs associated with an activity such as a plant shutdown.

Better inventory control systems will allow establishment of multiple warehouses for tracking inventory and service levels within a given warehouse, as well as on a consolidated basis. Drill-down capability provides a means for managers to zoom in quickly on the underlying cause of say, excessive service level or inventory turnover variances for a given period.

This is a critical feature for multi-plant, distributed or decentralized maintenance departments in order to properly monitor their service level agreements with operations. Thus, understanding where the parts are within the enterprise is a key factor in reducing overall material costs, regardless of your support of plant shutdowns or not.

Economic order quantity (EOQ)
In order to optimize the cost of ordering, purchasing, and carrying inventory, one or more EOQ algorithms can be used to calculate the right quantity of spare parts to purchase. One CMMS vendor has 19 algorithms available for EOQ calculations. Because a plant shutdown creates an extraordinary demand for parts, having some sort of smoothing algorithm is well worth considering.

Supplier hierarchy
Better management of suppliers means better service for operations. One of the most impressive features is the ability to build a hierarchy of suppliers showing who supplies what by commodity grouping (eg., pumps).

Users can also build hierarchies of the parent-child relations between supplier companies, and which inventory classes apply to which supplier agreements (blanket purchase orders) for pricing a given item. Obviously this feature is useful regardless of whether or not you have formal plant shutdowns.

Supplier history analysis
Good supplier management requires proper records be kept. The following points showsome of the supplier history captured by a good CMMS:

  • parts purchased from a given supplier;
  • total volume purchased (year to date, last year);
  • average lead time;
  • number and duration of late shipments;
  • number of over-shipments;
  • number of short-shipments;
  • number and value of damaged goods shipped;
  • number of substitutions;
  • number of times improperly invoiced.

Rather than relying on gut feelings or vague recollections, analysis of supplier history is a powerful tool in negotiating with a supplier. However, such statistics can be skewed by the spikes or sharp valleys created by a plant shutdown. Thus, some CMMS packages have algorithms that can "smooth out" these anomalies.

Order policy
Here are some basic rules to keep in mind when ordering from suppliers, whether you have a formal shutdown period or not.

1. Spare parts

Every purchased piece of equipment seems to be accompanied by a spare parts list valued at three times the value of the original equipment. To avoid costly inventory:

– check to see if the part is common to another piece of equipment;
– check for generic alternatives from cheaper, local sources;
– ask about reconditioned or used parts;
– investigate tooling an expensive part in-house or at a local machine shop (for example, a shaft), and;
– weigh the cost of stocking the part versus the net cost of downtime plus a possible premium for a rush order.

An analysis of parts usage history obtained from your CMMS can assist in making these decisions.

2. Expensive items (capital expenditures)

Try to obtain at least three quotes, making sure every vendor is quoting on exactly the same specifications.

Just weigh the added labour cost of 20 minutes to a full day required to process additional quotations with the potential savings of thousands of dollars — it’s worth the trouble. Also, don’t buy a Rolls when what you need is a wheelbarrow. For example, determine the life remaining on a piece of equipment and avoid buying expensive replacement parts that will out-last and out-perform the equipment itself. A CMMS can help compare maintenance costs associated with different vendors’ equipment.

3. Contractors

Whenever possible, try to obtain three quotations prior to contracting work. If time is of the essence, at least get a verbal estimate of the total cost. If this is not possible, obtain a verbal estimate of the contractor’s per diem rate and probable expenses. If you forget all of the above, do not forget to obtain and discuss a written confirmation of work performed, materials used, and expenses incurred prior to the contractor’s departure, while the details are fresh in everyone’s mind.

By recording this information on the CMMS, contract work can be better controlled. Following a plant shutdown, all too often the breakdown of contractor hours expended and parts they used is undisclosed or buried somewhere on a PO rather than recorded in equipment history. Some CMMS packages allow users to track contractor hours and dollars separately.

4. Expediting

This is a must for critical parts, expensive items, or items with long lead times. Expeditors are a nuisance to suppliers, but invaluable to you for ensuring that deadlines are met and downtime is minimized.

A CMMS can act as a tickler file for triggering key dates for expediting. This is an especially useful feature to ensure all critical parts are received in preparation for a plant shutdown.

David Berger is with Western Management Consultants and is the founding president of the Plant Engineering and Maintenance Association of Canada (PEMAC). David also writes the regular CMMS column for PEM Plant Engineering and Maintenance magazine. You can reach him at