This is the third article in a three-part series on contracted MRO services. Part I of this series explained the elements that must be present for maintenance tasks to be completed successfully. Part II dealt with the timing, planning, scheduling, and communication required to put these elements into place. Part III covers some of the key inventory management issues that add complexity to the contracting processes, but also offer some interesting tools for management of maintenance cost and quality.
This series of articles began with a table of the elements that need to be present for maintenance to be performed safely, ecologically, and efficiently (Table 1). This version of the chart highlights materials and other procurement items.
|Element for Success||Supplier||Customer|
|Parts & Supplies||Procurement & Maintenance||Maintenance & Production|
|Procedures||Maintenance & Reliability||Maintenance|
|Skills||Maintenance & Procurement||Maintenance|
|Support Equipment||Maintenance & Procurement||Maintenance|
|Safe Work Area||Production & Maintenance||Maintenance|
Table 1. This table assumes maintenance planning and the CMMS are both parts of the maintenance department.
The maintenance elements we have discussed in parts I and II offer some flexibility when shortages occur. With the addition of some labor, a maintenance team can usually provide a patch for missing information. If the team is shorthanded, substitutions can usually be made. The organization can usually develop procedures to replace missing job instructions.
Unlike these people-based elements, the highlighted items tend to be stoppers for maintenance efforts. If a bearing, oil seal, or motor is unavailable, it usually means that work stops until a replacement is found. Sometimes a spare can be expedited in from a remote site. Sometimes a repair, usually temporary, can be made to the worn or damaged unit that has just failed, requiring a second repair when the proper replacement is acquired. Sometimes a different unit can be temporarily substituted, depriving the organization of the spare for some other critical application and perhaps degrading performance until the correct replacement arrives.[pullquote]
“Having an accurate and well-sourced materials inventory is a pillar to a world-class manufacturing operation,” says Sean J. Miller, asset care process owner at the DuPont (www.dupont.com) Cooper River Kevlar plant in Moncks Corner, South Carolina. “Without it, personnel will become consumed with parts chasing. Key roles, such as maintenance planners and engineers, will be diverted from field planning, coordination, or process improvements, instead performing clerical functions to acquire parts to sustain production. A simple $0.30 O-ring could result in hundreds of dollars of ill-spent labor and thousands of dollars of potential downtime. Although shortages may create an invigorating work climate, without an accurate inventory the team will not be capable of leaving the reactive mode in its journey to world class. In turn, the burden of inadequate MRO systems will impact the customers.” It’s also worth remembering that there is substantial cost to the previously planned and scheduled work that wasn’t performed during the emergency situation.
“A program should be based on inventory usage data so the right items in the right quantities are stocked in the right place with the right solution,” says Meeta Kratz, Sr., director, customer business issues, Grainger (www.grainger.com). “Without leveraging actual data, a manufacturer cannot realistically understand inventory usage patterns, which may result in leveraging an inappropriate solution that doesn’t effectively support cost savings goals.”
A computerized maintenance management system (CMMS) with properly loaded equipment bills of material and inventory rules will simplify the management of procured items tremendously. The only problem is that almost nobody outside the nuclear sector has this level of information loaded to a CMMS. Implementation of a contracted MRO system can present an opportunity for a partial solution to this problem.
There are two groups of maintenance material needed in most maintenance stores. The first is the relatively high-volume items, mostly standard hardware and electrical components that are purchased regularly — at least annually — to support maintenance efforts. The second is the specialized parts, often high-cost items with long lead times that are kept on hand because of their lack of general availability. The first group is typically 40% of MRO inventory, says Kratz. The second and relatively inactive group is usually 50% or more.
Ron Hanners, president of World Wide Consulting Group in Saint Joseph, Michigan, offers a few pointers concerning contracted materials management.
Remember when running a cost/benefit analysis on contracting the inventory services, both operating expense and cash flow need to be considered. Inventory is a unique beast, as it can be viewed as an asset or it can be expensed to influence the operating margin.
Inventory accuracy, as measured through a cycle counting program (ABC randomized driven program versus counted when transacted), should be considered as an internal auditing function and perhaps not contracted out to the same party that is running the warehouse.
Consider a unique arrangement of managing the inventory separately using supply-side driven concepts, such as reduction in lead times, supplier-owned, inventory held loally, supplier-owned inventory held in-house, and then managing the demand side for shelf levels, service levels (fill rate to work orders), and forecasting techniques. These must be managed together, but both can be squeezed for improved overall results. This must be trained and driven through the contracted service organization.
The inventory contracted services organization must work in harmony with the planning and maintenance execution functions. This three-legged stool must all support each other’s performance. As an example, helping achieve maintenance schedule compliance while increasing the planning horizons can help to drive inventory reduction. It can also increase inventory if not properly managed. The key to making the three legs work is communication.
The two inventory groups must be managed differently. This difference is probably more evident in a contracted MRO environment than when all procurement activities are in-house. This is the time to eliminate squirrel stores of fast-moving parts that are stocked and used by maintenance outside the MRO materials system. These parts should be carefully identified and entered into the active inventory to be maintained by the contractor. From this point forward, every transaction for one of these items must be made at the parts crib, tracked on a maintenance work order, and thereby connected to the asset that requires the part. Nuts and bolts may be kept in a free-issue inventory, but bearings, seals, and other commonly stocked items must be recorded in inventory. This will provide, at no extra cost, an airtight way to track this important part of maintenance cost and activity. It will also provide for stock rotation and automatic restocking without tying up tradespeople’s time. Identifying and cataloging these active parts will be a routine part of setting up a contractor agreement. Applying min/max and restocking numbers to them is a reasonable step in setting up the inventory management.
Separation of inventory into two distinct groups can also provide an opportunity for financial management. If the fast- and slow-moving inventory parts are identified and their existence is justified on the basis of operations support, different objectives can be set for them. Conventional inventory turn targets of more than one turn per year can be set for the active group. The inactive group, which is justified based on uniqueness and long lead time, can be assigned “critical spares” status and kept on hand as capital assets without inventory turn targets. This approach makes for much more useful performance measurement than a single set of inventory targets for all materials. If the inventory management system is properly flexible, the materials can still be stored side-by-side to simplify maintaining and dispensing them.
“Some inventory performance-based metrics, such as service levels versus inventory turns, can be seen as diametrically opposed,” says Ron Hanners, CMRP, president, World Wide Consulting Group in Saint Joseph, Michigan. “Both of these metrics can be improved using appropriate processes. But these processes will need to be thoroughly understood by the contractor.”
The inventory list should be consolidated into one system rather than maintained independently by various roles, explains Miller. “This sustains inventory accuracy and availability through changes in personnel,” he says. “With a single system, a judicious selection of metrics to support the health of materials management can be achieved without administrative burden. Such metrics are a summary of nonconforming parts received by supplier, stock outs, and inventory turns.”
On the other hand, Larry Harper, president, CribMaster (www.cribmaster.com) offers the following observation. “Managing the fast-moving consignment inventory for a distributor is reasonable, but it may not make sense for the distributor to manage the slow-moving and high-dollar inventory.”
Clearly a distributor who is maintaining purchased or consignment inventory on a customer site has, as his principal expertise, the management of inventory items that move frequently. Not surprisingly, this is also where the distributor earns most of its income. Consolidating this inventory with the special, long-lead critical-spares items will simplify recordkeeping and will give maintenance a single point to pick up needed parts, but it will probably involve paying the distributor to handle parts that he doesn’t sell. This is an important decision to be made prior to entering into the MRO contracting agreement. If the decision is made to centralize inventory, service fees for materials from other vendors will need to be negotiated as part of the initial agreement.
In addition to storing and dispensing inventory, some sensitive items, such as electric motors, and most slow-moving material should be inspected and maintained. “Preventive maintenance should be established,” says Miller. “For example, desiccant may need to be refreshed on a schedule for critical instruments or electrical parts. Measures may need to be made to ensure moisture is driven off spare motor windings. For larger items such as gearboxes, lubricant additives may need to be exchanged to prevent corrosion and input shafts be turned upon a schedule. This will ensure the spare parts remain in a like-new condition, ready when needed.”
Nearly all manufacturers can benefit from investing in some kind of inventory management system, with the complexity of the solution based on the unique needs of the facility, says Kratz. “It’s important that your MRO partner understands the goals and needs of your inventory management program to identify the most effective solution,” adds Kratz. “In-house staff members also need to fully understand the benefits of the chosen solution and be trained on any new processes to ensure the program's success.”
An uncommon metric, but one that is imperative for world-class performance, is to monitor orphaned materials within the inventory system, explains Miller. “Orphaned materials are ones that were set up in inventory without ever being associated with at least one asset or functional location's bill of materials,” he says. “If this occurs, typically only the originator would know it’s in the storeroom. In turn, future maintenance planners may purchase it by other means, leaving the parts to expire in storage.”
Freeing up inventory dollars by utilizing what you may already have on the shelf can lead to better turns and lower budgeted costs, says Hanners. “Don’t begin by purchasing duplicate inventory,” he warns.
“Remember,” reminds Kratz, “you can start off slowly with a more simple solution and graduate to a more complex strategy as your comfort level increases.”