Lean Six Sigma

Get your stuff together, Part 2: Achieve storeroom excellence

In the conclusion of this two-part series, master efficiency in your storeroom.

By John Ross, Marshall Institute

Two years ago, our company, Marshall Institute, sat down to create a road map – a visual representation of what makes up a world-class storeroom. The genesis of this need was the simple fact that companies can’t build a clear route to a world-class storeroom without establishing where they are presently.

In Part 1 of this article, in Plant Services’ June issue, we focused on the sections of the map that include being effective at foundational and intermediate levels, as well as efficient at the foundational level. This month the focus will be on the remaining three areas: those moving us forward toward being efficient at an intermediate and advanced level and effective at an advanced level.

Let’s start Part 2 of this discussion with the section of the map that involves being efficient at an intermediate level.

The first grid is the intersection of intermediate-efficient.

The processes and practices within these coordinates are:

  • Bills of materials (BOMs)
  • Critical spares
  • Open stock
  • Reorder points/economic order quantity/min-max/order on request
  • Parts standardization
  • Obsolescence
  • Repair or replace
  • Materials scrap
  • Disposal of scrap
  • Salvage value

The center of the universe for all parties concerned in regard to MRO spares begins and ends with the bill of materials. The BOMs are the alpha and the omega.

To be clear, the demand for the BOMs from vendors and OEMs (original equipment manufacturers) should always be “as built” and not “as designed.” The difference is subtle: One reflects what we actually received, and one reflects what the OEM intended to build.

A BOM is a listing of all the components required to make the asset. Organizations are already experienced with the BOMs concepts and the processes by which we create and adhere to them. Consider the product or service that your company makes or delivers.

The significance of the BOMs to the storeroom is simple. The storeroom stocks only MRO items that appear on the BOMs for an asset, and a current asset in the plant, to be precise.

Here is an example to help you determine whether you have a BOM problem. Does this sound familiar?

Mechanic A: We need to replace the belts on the fan on the roof.
Maintenance supervisor: What size are the belts?
Mechanic A: I don’t know.
Maintenance supervisor: Go up to the roof and find out.
BOM problem!

Some of those components on the BOM may eventually be classified as critical spares. A critical spare part is anything we say it is: The problem is that we never really say what it is, not in detail. Common attributes of a critical spare are:

  • It is critical to production
  • It has a high cost
  • It has a long lead time

All of these are subjective. One attribute that critical spare parts almost always have is that they are parts we never want to use, ever! A part whose failure would cause catastrophic loss to production, has a replacement time to backfill stores of six months, and costs $150,000, should be undesirable to use.

There is also a much less-intensive category of parts commonly found in storerooms. These parts are often offered as open stock.

Open stock is a universally recognized term to indicate those items kept near (sometimes in) stores meant for general consumption. These items have many uses and are generally overseen by stores but are rarely inventoried or tracked with any level of cycle counting.

The different types and issue patterns of stocked items require a careful examination of the best manner in which to order the stocked items.

EOQ (economic order quantity)/min-max/OOR (order on request) are three different methods to manage stocked items. For items that have a stable history of issues, an EOQ process is recommended. This provides the best quantity and time frame for getting the most value for the company’s money. Items with a sporadic issue history are subject to min-max management, as their nature does not allow for much predictability. OOR is ideal for those items that are very predictable and whose supply line is well-established and guaranteed. In this instance, the part is ordered in advance of the need; the part is not kept in stock, but it does have a stock number.

ROP (reorder point) is simply the point at which the reorder quantity is reordered. This point is often the “min” point in our system, but for safety stock, it could be a value higher than the minimum desired.

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Once the BOMs are in place, an effort to attack parts standardization can be made. Ostensibly, after the BOMs building process, we’re left with a complete and thorough listing of all the parts that are needed to make up all the assets we own. Simple comparisons can be made between similar components to see whether they share significant attributes. If so, there could be savings by reducing redundant inventory. Likewise, after the BOMs process, more is known about what works in our plant and what we already have in stock. Engineers and maintenance leadership can make better decisions on equipment modifications or new equipment designs and incorporate components that are already proven to be robust enough to operate in a specific plant’s conditions, as well as components that are already stocked and available to get.

Obsolescence is the process of identifying items that no longer support our assets in the facility. Items become obsolete sometimes through no fault of our own. Technology advances make much of our inventory obsolete (think ice-cube relays), and factors such as engineering upgrades and elimination of assets can lead to honest obsolescence. What’s primarily important is to have a process to identify items that could potentially be obsolete; that process should describe how to remove and write off the component from inventory.

For storerooms, the most powerful tool to use in identifying candidates for obsolescence is the “last used” report. Items with no movement in as little as 400 days should be scrutinized.

Building on that last point, the maintenance department is also responsible for communicating to stores what items should be considered for repair or replacement. There are a few general rules to consider:

  • All repairable spares will have individually unique serial numbers.
  • All repairable spares, when sent out, will be accompanied by a work order (listed on the purchase order for the repair).
  • All repairable items, when removed from service, will be taken to the storeroom in a clean, safe, and complete state for shipment to the repair facility.

Materials scrap and disposal of scrap go hand in hand and are a logical follow-on conversation once decisions about obsolete and replacement items have been made.

The stores stock committee (SSC), described in Part 1 of this story, should be tasked with determining what types of material will be collected. Examples of these include cardboard/paper and ferrous and nonferrous metals. The SSC should further identify collection points around the site and (this is very important) who is responsible to keep those collection sites clean and orderly.

Typically, the purchasing department will establish the necessary relationships with vendors that collect the materials, including a collection schedule and an agreed-upon rate (the recycler pays you). But, it is often the case that the storeroom runs this practice from an oversight position, making phone calls about service and establishing additional needs for projects and such.

Obsolete MRO items and project or repair materials that remain after a job still have inherent value, so long as the items are serviceable. To wring as much value from these components as possible, seek to realize salvage value rather than scrapping the components.

Here are common routes for obtaining salvage value from an item:

  • The supplier can take the item back (without a fee, or with an acceptable restocking fee)
  • The item can be sold through an equipment broker
  • The item can be sold via the internet
  • The item can be donated to a technical school or college for tax credits

Our road map now will lead us forward to the next grid, which involves the principles that make our storeroom advanced-effective.

This intersection involves:

  • Inventory turn rate
  • Materials lay-up program

Inventory turn rate is a storeroom metric that provides an indication that the storeroom is effectively using the company’s capital. It tells us if we’re stocking the right types of parts in about the right quantity.

The formula to calculate inventory turn rate is as follows:

(Dollar value of inventoried items issued out per month, quarter, or year), divided by
(Dollar value of total inventory) – (dollar value of critical spare parts)

The materials lay-up program is the PM program for items that are being stocked in the storeroom. Not unlike the asset PM process, the PM program in the storeroom must be designed and executed to maintain a component’s reliability. Typical activities executed in this category include:

  • Rotating motor shafts
  • Ensuring a FIFO policy for bearings and belts
  • Not hanging belts from hooks
  • Keeping electronic components clean and dry

In both the effective and efficient portions of the map, the movement from intermediate to advanced is very slight. As seen above, only two additional actions were added. So it is with the last area. The final grid is advanced-efficient.

This intersection involves:

  • Strategic sourcing
  • Vendor-managed inventory (VMI)/consignment
  • Root-cause analysis (RCA)

There are tools available to the storeroom and the purchasing department that can reduce the cost of materials and parts purchased for the good of plant operations. Strategic sourcing is a commanding practice designed to generate savings and budgetary victories.

With strategic sourcing, parties seek to find relationships and agreements that allow both groups to go back to their camps and claim victory. The supplier can brag about sealing a big deal, and the customer can reap savings and realize improved service. Ideally, when establishing a strategic sourcing practice, it’s best to look for components and services for which the savings will likely be not only the greatest but also the easiest to capture.

Within the execution of strategic sourcing lie the dual practices of VMI and consignment, which are similar but which also have distinct and important differences:

  • With VMI, the customer owns the product; the supplier manages it.
  • Consignment is another practice altogether. With consignment, the supplier owns the stock, and the customer pays for it when it is used. The item may or may not be sitting on the shelf in the plant’s storeroom. Sometimes the item is kept at the supplier’s site.

The final element of our road map engages an activity that is brought to bear if all other activities go wrong: problem-solving through some formal process. Root-cause analysis (RCA) isn’t solely a storeroom tool, nor is it meant only to provide an understanding of total failures. Root-cause analysis is meant to be used when anything is trending unfavorably or when any undesirable situation has occurred.

We’ve now laid out the full road map to better maintenance storeroom. As you embark on your journey, work first to make your storeroom effective at a foundational level, and then progress from there. You’ll find that with this strategy, you won’t have to make frequent U-turns.