MRO chain can hold additional efficiencies worth tapping

Jan. 2, 2006
Contributing editor David Berger says it's wise to look at the MRO chain for additional efficiencies.

Some people claim that if you’re looking for opportunities for improvement, you need only look within your own four walls to keep yourself busy for a long, long time. I agree, to some extent, but there’s a law of diminishing returns that comes into play. In my view, at some point, if you expend that same level of effort exploiting the opportunities beyond your plant or even beyond the enterprise, you can gain far more value for your entire organization.

For example, imagine the total effort the companies along the supply chain expend to optimize processes, systems, inventory levels, lead times, quality control and part numbering within their own facilities. The result is a lot of efficient silos that probably can’t communicate effectively with one another, and a waste of a lot of time and money for those who try.

Now, imagine the level of effort required and the effect of standardizing part numbering systems, a barcode labeling system for tracking parts, ways of sharing and monitoring inventory levels, shared quality assurance standards, and optimizing who should store which parts where and in what quantities to minimize lead times, inventory levels and the number of stockouts for everyone in this supply chain.

In today’s world of greater global thinking, strategic sourcing, sophisticated communications and information systems that can cross organizational and geographic boundaries, we’ve got to look beyond your enterprise for those elusive but significant competitive advantages. Companies within a supply chain can benefit from even the most simplistic features available in CMMS and other software packages. And they can do even better with more sophisticated functions, more comprehensive analysis tools and greater integration with other supply chain modules.

Better supply chain management
A simple way to enhance inventory control capability lies in specifying alternative part numbers. This is critical for cross-referencing internal part numbers across the enterprise and for each supplier that sells a given spare part within the supply chain. A where-used report can detail in which equipment a given part or its alternative is used. Some packages allow references to equivalent parts -- not the same, but an acceptable substitute for the part in question. Another useful feature some software vendors offer is the multi-warehouse capability that allows users to control inventory housed in separate locations across the enterprise, as well as up and down the supply chain. Other functions that some vendors have added are the ability to handle:

• Multi-currency
• Multiple reorder points to accommodate seasonality
• Blanket purchase orders for tracking multiple releases against one PO number
• Parts reservation for booking inventory items for a future release date
•  Tracking of repair history for a given part

CMMS analysis tools
Comprehensive analysis is a key component of any high-end supply chain management system. For example, a few packages make extensive use of the economic order quantity (EOQ) model to determine the optimum number of parts to order as a function of quantity discounts, storage costs, prevailing interest rates and the cost of placing an order.

Some vendors provide ABC analysis to determine which parts are high-volume and high-cost, and therefore require more careful control. This analysis is based on the theory that only a few inventory part numbers account for the majority of inventory dollar turnover.

A comprehensive supplier history can be a powerful tool for negotiating better pricing and service. Having a report that summarizes total volume by supplier, as well as total number of shipments that were late, backordered and damaged, helps to monitor supplier performance within the supply chain.

A challenging technology area for any business is bridging the numerous islands of automation that we’ve erected over the years. One of the more difficult interfaces to build is between the CMMS and the supply chain management (SCM) software, such as ERP or specialized SCM software. Some of the key points of integration are described briefly below.

Inventory control: For companies that don’t have a fully integrated ERP/EAM, one of the oldest integration debates centers around whether the spare parts inventory should reside on the CMMS or the supply chain management system. I’ve had to referee this debate many times and, in almost all cases, we put spare parts on the CMMS.

The reason is simple. The only significant advantages of using say, the ERP inventory control module for spare parts are:

• You save a little money by not purchasing one module of the CMMS.
• There’s a seamless interface with the purchasing and accounts payable modules of the ERP system.
• You can monitor the company's total inventory, including inventory level, turns, stockout frequency and stock status.
These arguments for consolidating inventory onto the ERP system must be weighed against several significant advantages of placing inventory onto the CMMS, such as:
• The maintenance planner’s ability to check, in real time, availability (in stock, on order, in transit, on reserve) from within the work order screen
• Ability to integrate the parent/child relationship seamlessly between spare parts and to identify the equipment and components for which those spare parts are used

Thus, the links the CMMS requires are far more complex and are more of a real-time nature than those the ERP system requires. Putting spare parts on the CMMS permits making an electronic transfer of purchase requisitions and inventory status information on a batch basis.

This satisfies both sides of the debate with the greatest benefit to the company and, ultimately, the supply chain. Of course, a fully integrated CMMS and ERP system would provide the best of both worlds. These are becoming more of the norm with recent mergers in the industry.

Scheduling: There’s much to be gained by sharing production and maintenance schedules up and down the supply chain. This ensures that a supplier delivers parts just in time and that planned maintenance is conducted when production is already scheduled to be down. The assumption, of course, is that maintenance is moving towards a planned environment, with an emphasis on condition-based and preventive maintenance.

Condition monitoring: Both ERP and CMMS software packages require an interface to connect to shop-floor data collection systems. An ERP system requires feedback about production volume to ensure manufacturing orders are being filled according to plan, and to update inventory records automatically. The CMMS can use the same data to monitor downtime and equipment condition.

Through condition monitoring, the CMMS can initiate planned work orders when production levels reach a predetermined trigger point. Work orders also can be triggered automatically when the temperature or pressure in a piece of equipment trends beyond the pre-established control limit or when a process trends out of control. This maximizes production of finished goods for the benefit of the entire supply chain.

Integrated reporting: Finally, the CMMS can extract production data from the ERP and shop-floor data collection systems to track valuable statistics that link equipment performance and production, such as downtime per unit of production. These statistics then can be monitored along the supply chain.

E-mail Contributing Editor David Berger at [email protected]

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