Is Your MRO Inventory Obsolete?
By Roger Corley, Life Cycle Engineering
Obsolete. Everyone who has ever purchased a computer knows what that means. It describes your computer within a month or so of your purchase.
When we talk about MRO inventory, it is a completely different conversation. First, what is a good set of parameters for identifying obsolete inventory? Most large storerooms apply these factors:
- No movement (receipts or issues) in 3+years
- Not identified as a critical spare
- Not on an active asset’s BOM (optional)
The storeroom manager needs to make sure that they are involved in the budget preparation process. There will need to be a line item in the budget for disposal of inventory. Writing off unused inventory can be damaging to a company’s bottom line. Preparation and approval ahead of time can help to avoid this situation.
So, why should you care about obsolete items in your inventory? Storeroom managers know that carrying costs such as taxes, infrastructure, and insurance can be as high as 16%-25%. That, of course, is the primary reason. The other reason, and this may cause you more visible problems, is the lack of storage space in your storeroom.
Identifying the obsolete items is the easy part. With the parameters above, most systems can easily generate a list. This should be done at least annually so that the following year’s lists will be easier to manage. Often, the more difficult (politically charged) problem is disposal. I have seen maintenance supervisors and managers dig in their heels when the storeroom manager begins the process of removing these items (their items). As a storeroom manager, great care should be taken to ensure that an important item (that has been left off the list of critical spares) is not eliminated from inventory.
Some work on the front end by the storeroom manager can smooth out the process.
- Investigate the history of the proposed item up for disposal
- Group the items into specific operating areas on site and schedule meetings to review (buy lunch to get participation)
- Allow area managers to present a case for inclusion as a critical spare and be prepared to offer solutions such as vendor stored inventory
Once the list is identified and you’ve reached agreement with stake holders, the items have to be removed from inventory and disposed of. If you have an investment recovery department, this will be a little less painful. Smaller operations will sometimes list the obsolete items on bidding sites or, in the case of metals, money can be recovered from scrapping the items. Regardless, don’t expect to get anywhere near what the initial investment was when the items were purchased. In the case of scrap, you’ll recover pennies on the dollar. If your company has more than one site, make sure other locations are checked for possible use before disposal. Identifying and disposing of obsolete inventory needn’t be looked at as a daunting task if the process is managed properly and homework is done before the items are removed.
Roger Corley is a Materials Management Subject Matter Expert with Life Cycle Engineering. He has over 30 years’ experience in Maintenance Planning and Scheduling and Materials Management. Roger is a certified facilitator for Maintenance Planning and Scheduling with the Life Cycle Institute. You can reach Roger at rcorley@LCE.com.