By George E. Krauter
It has been said that there is $500 billion spent on MRO yearly in the U.S.
MRO stands for Maintenance, Repair and Operating, the goods and services that keep a manufacturing or processing facility up and running.
Experience shows that approximately 30% is spent on one-time, non-inventory spot buys; therefore, 70% is purchased for MRO inventory.
The inventory in a typical MRO situation turns over just once, so one could conclude that there is $350 billion existing in inventory. Therefore, considering the cost of inventory retention, inventory reduction represents a huge opportunity for cost reductions.
First, let’s define “inventory.” It could mean inventory with SKU (Stock Keeping Unit) numbers in the MRO storeroom, materials in uncontrolled sub-stocks throughout the plant (inventory nevertheless), and parts within facilities with no MRO stores per se, but with an existence of repetitive use parts and critical spares in-house somewhere.
Duplicate parts exist under different names, descriptions and brands. There was one plant that had AA batteries under six different names in six different storeroom locations.
Why does this happen? From an overall view, it happens because of lack of attention to proper management of MRO operations. Specifically, it happens because various requisitioners set up stock units without checking to see if the same item exists in stock under a different description.
In the case of these batteries, a stock unit existed for AA batteries correctly, i.e., Batteries, AA, Flashlight, Duracell, UOM (Units of Measurement): One Each. Another was set up for “batteries,” then one for “batteries for pen lights,” how about “test batteries,” then there was, “Energizer batteries,” and finally, “batteries for machine panels,” which was set up by a maintenance man who wanted to make sure no one else knew they were AA Batteries so he would always have his own stock location (a not uncommon occurrence).
Each of these stock locations had min/max (minimum/maximum) quantities and ordering points that affected significant overstocks. The yearly AA battery usage was 640; the total inventory of all six locations was 840 (without counting batteries in sub stocks through the plant). In addition, some requisitions went unfilled because a particular AA battery SKU number was out of stock—aha! another unnecessary rush order or another unnecessary spot purchase order. By combining the six SKUs into one stock location with one SKU number, inventory was reduced by 80% with zero stock outs—just on one size of batteries! Just imagine the huge duplications that exist throughout the entire SKU arena.
Master Data Leadership (MDL]) is a process whereby MRO stock units are properly described on a consistent basis without duplications. The application of Master Data Leadership principles is critical to placing inventory into an optimum position. Anyone can reduce inventory—just stop buying which results in downtime caused by stock outs. The goal is to minimize inventory with zero stock outs, or zero downtime. With proper and consistent identification of parts, inventory comes under control and the client profits from the benefits that accrue.
MDL can be employed as a separate project with immediate benefit; however, when MDL is performed within the structure of a MRO outsourcing program, it is properly implemented and sustained.
Listen to a series of podcast interviews with George Krauter based on ideas in his new book, Outsourcing MRO: Finding a Better Way:
George Krauter currently serves as Vice President for Synovos in Radnor, Pa. He is recognized as the originator of the concept that became known as “integrated supply.” He has participated as a guest speaker at Reliability 2.0, ISM Indirect Conference, International Maintenance Conference (IMC), The Conference Board, and events for APICS, SMRP, and ISM professional chapters.
George is recognized as an authority on methods to achieve reliable, maintenance-connected MRO storerooms; he has published his experiences in Uptime Magazine, Food Manufacturing, My Purchasing Center, and Supply & Demand Chain Executive. He holds a B.A. and M.B.A.A. from Temple University (Philadelphia) and has conducted seminars internationally (Oslo, Abu Dhabi) as well as sessions at Duke University, MIT, Howard University, and Temple. He lives in Bucks County, Pa., with his wife Joyce; all grandkids live within eating distance. You may reach George by phone at 610-246-6492.
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