April 10, 2003
The quickest boost for most organizations' bottom line is finding opportunities for decreasing costs without sacrificing quality. An area frequently overlooked is the inventory of parts kept for maintenance, repair, and operations (MRO).
Typically, managers hesitate to initiate a cost-cutting project in this area because they fear that critical parts may not be available when they are needed. And the number of parts that can be reduced—typically one or two—may seem too few to yield meaningful cost savings.
In fact, however, it is possible to minimize the capital invested in inventory without risking equipment and production downtime or disruption caused by cyclical preventive maintenance. To achieve this goal, managers must:
Two primary types of demand drive MRO parts inventory:
Typical inventories for planned replacement parts can be minimized through:
Many if not all of these processes already are in place in most companies that hold moderate to large parts inventories. But they frequently are not a high priority for rigorous administration, and they rarely are optimized. Thus, considerable opportunities exist for improvements that readily result in cost savings.
Experience shows that emphasizing these processes can result in significant initial reductions in MRO parts inventories; additional reductions almost always follow as staff confidence and expertise in the processes increase.
Recommending purchase orders to replenish stocked parts is a key function of an effective computerized maintenance management system (CMMS) or Enterprise Asset Management (EAM) program, which aims to minimize total equipment downtime. But while these programs trigger reorders when safety stocks sink below specified levels, they depend on manual input to determine what those safety stock levels should be.
Calculating the safety stock quantity involves multiple variables, such as:
In practice, systematic inclusion of these variables in the calculation is rare. Safety stock levels frequently are determined by maintenance engineers or information technology support staff using seat-of-the-pants or cover-every-instance estimates that exceed quantities actually needed.
Safety stock can be further optimized when staff have access to data and algorithms that can help them balance inventory costs against the risk of corporate loss. Developing such algorithms requires a clear understanding of the company's long- and short-term financial goals.
MRO inventories frequently contain major components of mission-critical equipment-an extra engine is common. These components frequently are purchased at the same time as the equipment and capitalized as part of the total purchase. All too often multisite facilities duplicate these rarely needed components and retain them until the equipment is retired, resulting in the need to discard essentially new components.
Comparing component stockpiles available at different sites and reducing component inventories as equipment nears its replacement date can minimize such expenditures.
Companies can realize cost savings when their sites compare and share this inventory. To maximize multisite sharing, staff must adhere rigorously to a common system of describing parts so that searches of multisite inventories return correct results quickly.Increasingly effective preventive maintenance programs reduce the demand for unplanned MRO parts inventories. Reality dictates, however, that the demand for such parts never falls to zero.
Ideally, each part would be ordered when the projected demand generated from a future scheduled maintenance work order exceeds the quantity on hand, minus safety stock. The purchase order due date is calculated as follows:
Cost-cutting opportunities in this area include
An inflated MRO inventory is an opportunity for cost reductions in most manufacturing organizations. And bringing it under control is not a one-time event. For instance, MRO inventory must be re-evaluated periodically to ensure that it is reduced appropriately following:
Joanne Kelley is managing director of TransFormance Group and senior vice president of SPL WorldGroup, 157 Headquarters Plaza, North Tower, 8th Floor, Morristown, NJ 07960, 404-888-9628, firstname.lastname@example.org. Karen Schneider is a TransFormance Group affiliate with SPL WorldGroup, www.splworldgroup.com/tg. The TransFormance Group helps its customers transform products, services, and processes to compete in fast-changing markets.
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