As I discussed last month, MRO (maintenance, repair and overhaul) inventory and purchasing organizations must balance the cost of carrying spare parts and the cost of downtime. What are the steps necessary to develop a financially balanced MRO inventory and purchasing function that can support maintenance planning and scheduling?
The first step is to develop MRO storeroom locations and to organize the storeroom. While this sounds simple, initially, the MRO locations must reflect the realities of the maintenance organization’s structure to keep travel time to a minimum, thus maintaining good craft productivity. As the organization matures, and delivery systems are utilized, the MRO stores’ geographic locations will be less critical.
The next step should be to identify all of the spare parts that are going to be stocked in each of the MRO store locations. If there is only one location, then a system that allows for quick and easy identification of each of the spare parts should be developed. If there are multiple locations, the spare parts for the equipment in the geographic area should be carried in the closest location. If the spare parts are used on multiple equipment items, then a proper stocking level should be determined for each location.
The stocking policies for each of the spare parts can be determined using several methods. They can be based on historical usage or can involve the utilization of some advanced statistical calculations to determine proper stocking policies. Once the quantity of spares to be stocked is determined, the storage areas and the equipment to move the spare parts in and out of the storage areas can be determined.
With a sizable inventory and possibly multiple locations, manually tracking the data can become rather cumbersome. For this reason, most organizations have computerized their inventory and purchasing systems.
Most MRO inventory and purchasing will use some form of corporate or plant-level system that is already established. In the event that the tracking system is not at the corporate or plant level, a departmental system can be used. However, departmental systems are not as cost effective because the data is kept at a low departmental level rather than at the plant or corporate level. This makes cost tracking, discounting, blanket purchasing and strategic partnering with vendors more difficult.
“What service level can you afford?”
When a company sets their safety stock (the stock necessary to cover order processing and delivery time) at a high level (reorder point = minimum on hand quantity + safety stock), it will incur higher costs. However, a higher investment cost generally corresponds to a higher MRO stores service level, with fewer stock outs, which increases maintenance planning and scheduling metrics.
The question facing companies is “What service level can you afford?”
The typical ranges are:
- 100%: The investment will be too expensive for almost any plant
- 95 – 97%: A good target for most companies, especially if they are focusing on improving their planning and scheduling efficiency and effectiveness
- 90%: Downtime cost will be too high for almost any plant and maintenance planning and scheduling will be negatively impacted.
In summary, there are two general rules that balance MRO inventories. They are:
1. The larger the safety stock,
The lower the risk of stock out and
The higher the cost of holding inventory
2. The smaller the safety stock,
The higher the risk of stock out and
The higher the cost of purchasing and
The lower the cost of holding inventory
Applying some of the points we have covered, most companies will increase the efficiency and effectiveness of their MRO stores functions. This will allow them to focus on improving their planning and scheduling practices, which will be the topic of the next few newsletters.