Is the 21st Century MRO Storeroom a Potential Goldmine?
By Wally Wilson, CMRP, CPIM, Life Cycle Engineering
For organizations trying to stay competitive in today’s global market, treating the MRO storeroom as a business unit can yield a gold mine of cost savings opportunities. It’s time for our MRO operations to acknowledge that we’re not in the 20th century any more.
Many storerooms continue to use the same inventory management practices, warehouse racking and material handling equipment they were using when the plant was built. For example, many storerooms are still locating inventory by equipment asset, which was the best practice back in the 1970s and early 1980s. Locating inventory by equipment asset allowed the maintenance technician to go to an area in the storeroom and find all the stocked parts for that piece of equipment. This practice worked well before computers and software were available to manage inventory. Here are some of the areas in which storeroom operations have advanced significantly. Are your storeroom operations keeping pace with these advances?
The old way of locating the inventory by equipment asset creates duplication of inventory and added expense. If a bearing or motor is used on multiple assets that component will be stocked in each equipment location in the storeroom. Some of those items could be on the shelf for several years leading to increased inventory investment and decreased reliability when they are put in service. Another cost of this old method of organizing inventory is the valuable storage space that is consumed by the identical items stored in duplicate locations.
A more efficient method of locating and managing the MRO inventory is by commodity grouping. This method has a couple of obvious advantages. Grouping inventory by commodity eliminates stocking duplicate parts in multiple locations, helping reduce inventory investment. In addition, executing scheduled Preventive Maintenance (PM) of motors, large bearings, gearboxes and other items requiring a prescribed maintenance program becomes easier and more efficient.
Vendor Managed Inventories
As technology has advanced, suppliers have become more involved in the day-to-day business of inventory management of point-of-use items and consumable inventories. Suppliers are able to respond to unexpected spikes in usage by using demand-based inventory management software that reports real-time consumption of items in vending machines and other point-of-use programs. Demand-based inventory management creates a request to re-stock the item automatically when the re-order point is reached. The re-order is communicated to the supplier using an electronic replenishment request. The order is pulled, shipped and the inventory is re-stocked. The process can be further simplified by having an auto-pay system in place to pay the invoice when the inventory is stocked. Establishing a supplier partnership and implementing a demand-based software program offers the ability to reduce consumption and investment in these inventory items by up to 20%. Using this same technology for stocked inventory items and some critical spare parts can provide similar inventory savings for higher dollar items.
Critical Spare Parts
As production equipment has evolved to more automation and higher speed production the MRO storeroom has been lagging behind the curve when it comes to keeping the spare parts in a service-ready condition. Not having a critical spare part in inventory when it is needed for an equipment repair is bad, but even worse is having the part in stock but it has degraded while in storage and will not work when it is installed. The 21st century storeroom has to do more than just store spare parts and pass them out as they are requested. The MRO storeroom needs to be a partner to other business units in the organization. Validating a storeroom inventory to ensure the parts that are held in inventory are actually tied to an operating equipment asset is a group effort. An accurate Equipment Bill of Material (EBOM) is the starting point and is essential for the Maintenance Planners to request or order parts for an equipment repair. The Reliability Engineers and Maintenance Planners work together with the storeroom and Procurement to ensure the parts on the EBOM are correct and parts identified as critical components are available from a reliable supplier or are stocked on site and maintained in the MRO storeroom.
Critical components are spare parts that are one of a kind, have a very long replacement lead-time, and will have an immediate impact on safety, the environment, production or several other factors classifying these parts as needing to be available on site when and if they fail. To offset the risk of these components failing, a condition-based monitoring program of the operating equipment, paired with an accurate equipment maintenance history, identifies components that are approaching the end of their service life. Knowing the expected component service life and having the data from equipment performance monitoring reduces the probability that the component will fail unexpectedly.
Planned Job Kitting
Increasing the utilization of the Maintenance Craft employees and the employees that support Maintenance activities is a key goal for most Maintenance Managers. A planned work kitting program can increase the value-added efforts of the Maintenance Crafts, Maintenance Planners and the MRO storeroom attendants. An accurate Equipment Bill of Material (EBOM) is crucial to the success of a planned job kitting program. If the EBOM is accurate, the correct parts are pulled by the MRO storeroom and the kit can be delivered to the maintenance shop so the Maintenance Technician has the correct repair parts, tools and supplies they need to complete the job. Kitting planned maintenance work has a substantial payback because it increases the Maintenance Craft utilization. On average, a Maintenance Technician will spend 1 ½ to 2 ½ hours per day looking for parts to complete the job they have been assigned.
For the Maintenance Technician to be very effective in completing the required repair work, the Maintenance Planner must scope the equipment repair as part of the preliminary job analysis and put a job plan in place that identifies all the information that will be needed by the Maintenance Technician to do the repair. The Operations team must have the equipment clean and ready for Maintenance to do the work
Implementing a planned job kitting program produces benefits for the MRO storeroom. If the Maintenance Planners are able to plan maintenance work and the parts they need to do those repairs can be ordered as needed and not stocked on site, the net result is a reduction in inventory investment. With the parts ordered as needed the utilization of the storeroom attendants increases and foot traffic to the issue window decreases. Parts received for a job kit are placed in the kit as they are received, reducing the additional steps to place the parts in an inventory location. Due to the increased utilization of the storeroom, attendants can focus on more value-added activities like inventory cycle counts to maintain best-practice inventory accuracy of 98%.
Documented Work Processes
Reaching 21st century best-practice performance in the storeroom requires more than just having the correct parts. Like any retail business, the MRO storeroom needs to have documented work processes and a set of metrics to measure performance against industry standards for similar businesses. Here are the basic work processes:
- Purchasing process - identifies all the activities required to secure routine parts
- Expedited purchasing process - identifies all the activities to secure repair parts for emergency repairs
- Inventory receiving process - identifies the tasks required for a warehouse attendant to document and verify receipt of the shipment
- Incoming inspection process - identifies the activities required to assure the quality of incoming inventory
- Inventory stocking process - the activities required to locate store stock inventory items to ensure the parts are stored properly
- Inventory requisition process - the steps required to generate a material request for allocation of parts from the inventory management system
- Inventory issue process - the tasks required to allocate items from the storeroom inventory
- Inventory cycle count process - the activities required to verify and correct on-hand quantities discrepancies
- Return to inventory process - the activities required to return items to the storeroom to be credited to a work order
- Return to supplier process - the activities required for the return of items for warranty, credit or replacement of a defective part
- Obsolete inventory identification process - the activities required to identify items not attached to an operating equipment asset
- Planned work kitting process - the activities required to ensure all parts are on-site before the job is scheduled for completion
- Repairable component process - the activities required to track and manage the rebuild of selected components from removal from service to return to the MRO storeroom inventory
Key Performance Indicators
Key performance metrics that indicate lagging performance can shape strategies and action plans to drive continuous improvement. Here’s a list of key performance indicators that measure storeroom performance:
- Inventory Turns Ratio - The best-practice MRO inventory turns ratio is three to four turns annually
- Inventory Value - Best practice is 0.5 to 0.75 percent of the asset replacement value
- Inventory Issued - Dollar value of inventory issued
- Inventory Received - Dollar value of inventory received
- Inventory Transactions - Indicates the utilization of storeroom employees
- Incidence of Inventory Stock Outs - Best practice is less than two percent of total inventory requests
- Identified Obsolete Inventory - Expressed in dollars, the best practice is less than five percent
- Excess Inventory - Items over the maximum stocking level, expressed in dollars
- Inventory Accuracy - Best practice is 98 percent overall inventory accuracy
- Inventory Adjustments - From inventory cycle-count activities
Bar Codes and RFID Technology
Bar coding of inventory in the MRO storeroom hasn’t been implemented well by many organizations. SAP, Oracle and other software applications available have the capability (or interface software is available) to accept both the two-dimensional (2D) and three-dimensional (3D) bar codes. Grocery stores were the first to take advantage of this technology. The goal was to speed up customer check out and provide a real-time inventory management program of items sold. Since this was so successful the majority of retail organizations have implemented bar code technology to manage their inventory and their business.
Bar code applications are slowly being adopted by maintenance and manufacturing organizations to manage equipment health monitoring programs and the MRO inventory. Using the bar code tag attached to an equipment asset, the Maintenance Technician can perform vibration analysis of the equipment and the data is available in real time to the Maintenance Planners. Once the Planners have the data they can start planning the activities to replace the component before it fails.
Using bar codes in the MRO storeroom adds a second dimension to inventory management. Cycle counts are done in real time, items are received into inventory as they are processed and a real time inventory balance is available to the planners. All of these benefits of bar coding the MRO inventory increase the utilization of the storeroom attendants.
Radio Frequency Identification (RFID) is the next level of technology. Although RFID has been around for several decades, retail groups are just starting to use RFID tags to track certain items sold in their stores. When RFID tags first came out the cost was so prohibitive that they were used in a very limited capacity to track railroad cars, military shipments and very valuable livestock. RFID tags have come down in cost and are more readily available. Now that the cost has plunged, implementing RFID tracking of high dollar critical spares and the tool crib is a possibility. With RFID tags these components can be tracked while in the storeroom, installed on an equipment asset or in the rebuild cycle. Cycle counting of inventory that is RFID-tagged is done in a matter of seconds with complete accuracy.
Another technology that is becoming increasingly popular is three-dimensional (3D) printing. This technology is also known as additive manufacturing because the process lays down a very thin layer of material, mainly a plastic or metal material, then repeats the process layer by layer until the item is complete. The process is very slow and expensive and is not a candidate for an extended manufacturing process. However, the potential for 3D printing in the MRO world is very real. If you look at an equipment failure that will cost thousands of dollars in lost production time and the cost to produce a replacement part using the 3D technology, the answer does look more and more favorable. The technology is capable of reproducing a spare part or tool to exact specifications with the strength and functionality of a conventional manufacturing process. The cost of a 3D printer varies from around $5,000 for a printer for light plastics to more advanced printers for high-end or specialty plastics which can cost more than $50,000, to printers for metal products which can cost hundreds of thousands of dollars.
Is Your Storeroom Ready for 21st Century Technology?
One note of caution before you look to uncover some productivity improvements and cost savings by implementing some of these 21st century advances: start by nailing down basic storeroom best practices first. Create an action plan and timeline to develop and implement basic inventory and storeroom management best practices. Looking for a technology “fix” like bar coding the inventory to solve storeroom problems may be approaching the problem from the wrong end. Doing the basics of storeroom management well is what results in having the right part, in the right place, at the right time and at the right price.
Wally Wilson CMRP, CPIM, is a Senior Subject Matter Expert in Materials Management with Life Cycle Engineering, Charleston, South Carolina Wally has more than 25 years’ experience in plant management with three Fortune 500 corporations and has helped both domestic and international clients realize multi-million dollar savings through lean inventory management practices and Supply Chain optimization. You can contact him at wwilson@LCE.com.
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