Jeff Shiver, CMRP, CRL, is president and CEO of People and Processes Inc., a Yulee, FL-based consulting and education services firm that guides organizations to achieve maintenance and reliability best practices globally. He also is the author of the Plant Services blog “Ask Jeff”.
Editor in Chief Thomas Wilk sat down recently with Jeff to discuss the connection between reliability and good storeroom management, as well as how to overcome internal and external challenges to a well-run storeroom.
Part 1 of this interview with Jeff Shiver ran in the October 2021 issue of Plant Services.
PS: What are some things that your average MRO team can do to make a positive impact when it comes to the storeroom?
JS: There’s been much effort, especially in the top-tier storerooms, to mine the data. It is truly understanding what parts are moving, which parts are not. How do we optimize the stocking levels? That should be a continuous process. It’s not just about reducing inventory as some inventory levels are increasing due to the pandemic-driven supply chain gaps.
Groups have been looking and saying, “Do we need to stock this? At what level? And do we have secondary suppliers? What are some options?” as an example to minimize the time across the Pacific. A part may cost more—and it’s also not about the least cost—but it may be more readily available by spending those additional few dollars. That makes sense because now your lead time is significantly reduced, and therefore you have less inventory you have to carry. So, it’s always not about the least cost; it’s about the best value overall.
PS: This is a good segue to the question about KPIs. You mentioned layout, process, and data, and I love the way that you focused those tips down in those three categories. Are there some KPIs that you’ve come across which indicate how well a storeroom is being run? And do managers actually care about those?
JS: There are quite a lot. But what I would say is that we can get quickly into analysis paralysis. You can’t run your business on one metric. It would be best if you had a good suite of metrics that show where you’re heading and how you’re progressing on your path. Some of those metrics might need to change. So, what are you trying to do? Use metrics to bring focus on specific items that may be a pain point.
When we look at the typical metrics that you find—inventory value, the number of SKUs (stock-keeping units), turns, and others, the numbers reflect opportunities. In most maintenance storerooms, you see less than one turn. A turn is simply saying, “If the value was a million dollars, from a world-class standpoint, we should target turning that over two to three times, so, we want to issue $2 million to $3 million out of the stockroom annually.” If we’re holding a million, most of the time, we find they might be turning somewhere near $650,000, which is less than one turn. We’re always targeting two to three turns ideally.
Another metric is inventory value as a percentage of replacement asset value. We would like to see something in the 0.5% to 1%, 1.25% range, and it’s not uncommon to find 2% to 3%. We may be holding more inventory than necessary.
What about the service level metric? How long does it take you to respond to the order fill request? It’s interesting when we talk about service levels. On one site, the storeroom manager said, “We’re going to be the epitome of customer service,” and on the surface, that sounds great. Guess what? That drove a lot of bad behaviors.
They said, “We’re going to force the technicians to use the electronic catalog, so we’re going to put things where they fit, and not necessarily group common parts by common parts.” So, the person who was picking the parts would get an SAP printout from a work order that was a parts request for pipe parts as an example. They would take the printout, put it on a cart, and roll the cart 50 yards in one direction to get a 2-inch flange. Next, they would have to walk 50 yards to get a 2-inch elbow. Grouping common parts together solves that problem. It also helps to prevent duplicate SKUs.
Compound that with short descriptions that were not managed well. The lack of effective descriptions forces people to open the SKU item masters to research the part. To avoid searching record-by-record, the technicians would walk the storeroom to find parts. With the common parts not grouped together or in equipment-specific areas, the people spent hours walking the storeroom shelves.
The technicians had a way to overcome that issue. A concrete wall separated the storeroom from the shop, and you had to walk partly around the building to get to the other side of that wall, located inside the maintenance shop. The technicians had duplicated much of the common inventory along the wall. It was organized where they could find it. The storeroom people didn’t have visibility to it. But the maintenance technicians would go there first because they could locate the parts!
In another example, the storeroom delivered to many drop locations throughout the site. A courier would go out—the epitome of customer service—to drop the requested parts off at the locations. There were 100 different drop locations across the site.
To start the process, the courier would walk to a staging location inside the storeroom. They may find parts for drop 80, drop 26, drop 34. We would put those on the truck, and we’d drive out to those locations. I asked while driving, “Is there an order to the location routing? “Nope.” Is there a map? “Nope.” And I asked, how did you remember all these different locations? He relayed, “I just had to learn.” I’m like, “Wow.”
Each drop location had a doghouse or other type of storage container. The courier would put the items inside the dog house. Other parts were lying around the doghouse on the ground that had been there for three to six months. Stock that should have never been delivered out there or been returned back to the stockroom when not used.
On returning to the stockroom, there would be another “drop 80, drop 23, drop 34.” The courier would repeat his route every 20 minutes. It was just insane. Again, the epitome of customer service.
PS: Wow. This is a good segue into issues of culture, and that’s something which you and People and Processes put first and foremost: developing good maintenance culture. I can’t believe that there was a little concrete wall which separated the two different ways of doing things in the same plant?
JS: From a culture standpoint, it’s not that people aren’t trying to do the right thing; everybody is simply trying to get the job done. The challenge comes back to the question: Are we all headed in the same direction?
To go back to the metrics, what are we trying to achieve, and how do the metrics cascade down. As a storeroom parts coordinator, how do I impact those metrics? As a maintenance technician, how do I impact those metrics? Overall, it’s not just about the maintenance or the storeroom metrics. It’s about what’s the reliability at the site or how do we get the product out the door? How do we generate a profit at the end of the day? Based on my experience, I like to see the storeroom be part of the maintenance function. I find in many cases that they are not.
We have another client that we work with, not on the storeroom side. They have started their best practices journey, and they’ve been doing a tremendous job. It’s a great case study by itself. However, procurement is not aligned, and they own the stockroom. Out of fifteen sites, the maintenance group has only built a partnership in one location. The storeroom personnel don’t understand the best practices, whether the people came from procurement or whether they came from maintenance. With this disconnect, the group is not headed in the same direction, beginning with management. Until they break down the barriers within management, they’re not going to be headed in the same direction.
Culture, levels of reactivity, lack of defined processes, and management define the storeroom. In another example, the maintenance manager drove excessive inventory levels. Every year, the maintenance manager would bring the vendors in before the Christmas shutdown. The vendors would review the equipment state and then list out all parts needed for the shutdown. The manager would literally write a blank check as the vendors knew the site never returned excess parts from the shutdown in part due to the 20% restocking charge.
Rather than pull existing materials from stock, the manager would always tell the organization to “order fresh.” I’ll never forget that term, “fresh.” They would get those parts in, and replace parts in the equipment. Meanwhile, the same items in the stockroom would be aging out. The excess leftover parts from the shutdown would be placed in stock. This action led to nearly 3,000 SKUs over the max level. The site had large pallet-sized containers of excess spare parts stored in two metal buildings. The practices driven by maintenance had impacted how the storeroom functioned. There was no real first in, first out process, parts exceeded their shelf life, and inventory values were high with many SKUs over the max levels.
Some individuals believe the storeroom is for emergencies only. It’s not. We should buy everything through the storeroom. We’ll often buy outside of the storeroom via direct purchase, but that doesn’t allow the storeroom to make the turns and rotate the inventory. Items have a shelf life and age out. Often, there is no first in, first out, no date stamping of items, when the parts are received. There’s no way to rotate the stock like you would at a grocery store, to make sure the old stuff is pulled to the front of the bin and the new part goes to the back.
All of the inventory and associated cost is sitting in the stockroom, and we can’t turn it because they’re buying on the outside, or they’re buying new “fresh” items. As part of our process, we should be leveraging the stockroom for all work. We should share the materials that are needed for planned work with the storeroom. The storeroom kits that material—another partnership activity—and as part of that, takes items out of stock to build the kit. Put the new inventory that you’ve ordered to replace it on the shelf. That way, we’re constantly rotating the stored materials, and we can track usage to make stocking decisions.
Storeroom managers should be asking, “How do I make sure that I’ve got the right parts, the right quantity of those parts, at the right price, to make sure that we don’t have that 32% of downtime? I can do my part to make sure that we’re managing that in the right way.” If it were up to maintenance technicians, we would stock an entire plant in the stockroom, and we can’t do that. It doesn’t make financial sense.
Many people don’t understand the concept of carrying cost. I always like to use this example. A maintenance technician might say, “Okay, I’m going to order one.” The maintenance technician never intended the order as one. They need one to put on the machine, another one in case it doesn’t work, and then one for their toolbox or their special hidden stores area. Part of the reason is they don’t trust the stockroom. The order goes to the uneducated buyer, who says, “I’m going to buy five because I can get economic order quantity discounts.” They did not understand the part usage in that decision. No one has spent any time to document what the actual usage.
We order five, put one on the equipment we need to replace it, and then put four into stock. It happens that the usage is one every five years. If it’s something like a Gates V-Belt, Gates says that those have a shelf life of three years. So, before we ever need the next one five years later based on usage, all four of those belts shelf-life has expired, depending on how we’re storing them. And in addition to that, we’ve got the carrying cost: we’ve got the location of the storeroom, we’ve got the person that goes out and manages that inventory, we cycle count it on some frequency. When it ages out, we have to scrap the items and replace one. The cost of carrying that material is 20-35%, so we buy it again every three to five years, while it sits on the shelf. That’s another reason the financial world says, “Hey, we want to push down inventory value, so we’re not carrying that much value. We may even have to pay taxes on it.”
To address the cultural issue, it truly has to be a partnership. Everyone has to be focused on what are we doing as an end game. How do we build a partnership and drive that from an improvement standpoint? How does every function feed into the end game?
PS: That’s useful to understand that these two teams especially aren’t tied together necessarily, but when they do build a relationship, that’s when the gains get made, and the achievements get made.
JS: Yes, and I like for the stockroom to build the maintenance kits. We want to run everything through the storeroom—everything we buy, even if it’s a non-stock part. The reason is to track usage. We can ask, “Do we need to stock this item? We bought 20 in the last year. It probably makes sense depending on the lead time, for example, and the cost.”
This story originally appeared in the November 2021 issue of Plant Services. Subscribe to Plant Services here.