Material concerns

Right-size and leverage MRO inventory.

By Paul Studebaker, CMRP, Editor in Chief

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By now, most plant maintenance professionals know that enlightened MRO inventory management can cut costs, improve machine availability and boost maintenance productivity. But even those who realize they might be sitting on a gold mine of excess and obsolete parts and supplies, needless stock-outs, and wasted activity often don’t understand how easily they might harness the expertise, services and technologies of their existing supplier base to improve the situation.

A veritable army of experts is eager to help you rationalize inventory, reallocate or sell off unneeded items, automate and add intelligence to procurement, and put critical items closer to the right set of fingertips.

We spoke with part and supply vendors and distributors who are willing to invest their time and share their expertise for nothing more than the hope you’ll become a new, bigger and more committed customer. The sophisticated systems they recommend might have much shorter paybacks than you thought. And liquidating your excess stock could bring cash that’s especially handy in these uncertain times.

The experts’ advice adds up to four steps that can raise cash, improve overall equipment effectiveness (OEE) and help optimize wrench time while bringing your inventory management system into conformance with 21st century best practices.

Identify surplus inventory

Arguably the most difficult step is to identify surplus inventory. It’s not as though you don’t know you have surplus material. “Companies of all sizes come to us to see if we can help them stock what they need,” says Kevin Hartler, director, U.S. solutions development, Grainger Industrial Supply (www.grainger.com/inventory). “We surveyed the customers we counsel and 73% believe they have too much inventory, 87% see a substantial cost-saving opportunity in MRO inventory and 71% say they could improve inventory management.”

Figure 1: Only 6% of typical MRO inventory makes up 90% of throughput, and 58% essentially doesn’t move. Typically, 80% of the value is concentrated in 12% of this stagnant inventory.
Figure 1: Only 6% of typical MRO inventory makes up 90% of throughput and 58% essentially doesn’t move. Typically, 80% of the value is concentrated in 12% of this stagnant inventory. (EquipNet)

The average turnover of MRO inventory is a year or more, so at least half of it is commonly considered inactive. Only 6% of typical MRO inventory makes up 90% of throughput and 58% essentially doesn’t move (Figure 1), according to reallocation and liquidation company EquipNet (www.equipnet.com). Typically, 80% of the value is concentrated in only 12% of this stagnant inventory.

You might defend your “inactive” inventory as critical components with long lead times, seldom needed, but when they are, production can’t wait. And some of them are, but many aren’t. “We classify items as critical, fast, slow, or inactive,” says Hartler. “Critical items might not move, and that’s OK, but what is critical? We help define it.”

Inventories are driven by fear, not experience. “People are afraid of the consequences of a stockout, regardless of whether or not they experience stockouts,” Hartler says. “This fear drives demand and excessive supplies. The key is to understand the needs of the facility, not the individuals, and use the facility’s requirements to generate demand and manage supply.”

Stores are kept for convenience and insurance, but tend to be hoarded and piled up. “We find it in every crack and seam, in desk drawers and unmarked cabinets in distant recesses of the facility,” Hartler adds.

Even the best organized inventory costs a lot of time to place orders, receive, put away, cycle count and issue. “It takes an average of 90 minutes to replenish an item,” says Hartler. It also takes up floor space, cabinets, bins and racks.

Suppliers can help you baseline your facility and recommend management strategies and methods. Data such as usage, issuances, quantities and frequencies drives decisions about consumption and supply based on the facility’s needs rather than individual fears and preferences.

Fast moving inventory is accessed frequently and should be convenient. It’s a candidate for vending or placement in an area or location where it can be consumed without walking to a central storeroom. Slow moving items might be put in a central location, or left at your distributor’s warehouse until they’re needed.

“Inactive items are candidates for investment recovery through supplier buy-back or auction,” Hartler says. “We can typically take 25% of your inventory off the shelves with immediate savings.”

Reducing inventory levels also cuts carrying costs, says Alan Morris, vice president, business development, A3 Technologies (www.a3-tech.com). “Many people estimate annual inventory carrying costs to be 25 cents for every dollar of inventory.”

Redeploy excess

Companies that recycle, redeploy, resell and reuse their surplus or obsolete materials and equipment return millions of dollars to their corporate treasuries every year, says CAPS Research (www.capsresearch.com). The organization reports that each dollar spent on investment recovery returns $31, based on research sponsored by the Investment Recovery Association.

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