By Susan Avery
The ultimate goal of inventory management is to ensure the right products in the right place at the right time with minimal expense and effort. This is easier said than done.
That’s the word from Kevin Hartler, Senior Director, Grainger Brand Services and Solutions Development. At Grainger, Hartler leads a team that develops services and solutions for inventory management, safety, sustainability and emergency preparedness and preparation, among his many responsibilities.
Hartler spoke recently to procurement and supply management professionals attending a live webcast, What Does Your MRO Inventory Really Cost?, broadcast at My Purchasing Center. The webcast now is available for viewing on demand at MyPurchasingCenter.com.
At the webcast, Hartler began his presentation by setting the stage with some important facts on MRO inventory. MRO stands for Maintenance, Repair and Operations, the goods and services that keep a facility up and running.
In 2012, U.S. businesses will spend more than $100 billion in MRO items--everything from light bulbs to cleaning supplies to nuts and bolts, Hartler told attendees. Of this figure, some $10 billion to $12 billion will remain on the shelf, and potentially never get used.
A study of 500 organizations by Grainger Consulting Services finds that more than half of U.S. businesses are not effectively managing MRO supplies, he said.
“It’s a rich opportunity for MRO procurement professionals to take costs out of the business through a more aggressive approach to inventory management.”
Not effectively managing MRO supplies is a universal problem that can be explained: The actual consumption of MRO materials is less than anticipated demand. Most organizations expense MRO materials at the time of purchase; users are accountable only for what they buy and typically not for what they use. What’s more, most facilities don’t have visibility into historical usage for MRO materials and no way to reconcile the difference between what they buy and what they use.
Ultimately the effort to manage MRO inventory is worth the return, Hartler said, adding that organizations can expect 25 cents for every dollar. “You can get that money back by having discipline and thinking about the processes around four key inventory management activities stock, consume, analyze and adjust.”
He said that best-in-class organizations have defined processes in place for these activities, and the glue that holds them together is data.
Data makes MRO inventory manageable, he told webcast attendees. “Data provides visibility and knowledge of demand and usage patterns and helps optimize inventory levels,” he said. “It’s important to ensure that your process includes some means to collect and capture information today and on an ongoing basis,”
But many organizations don’t take the time to go after data about products and usages.
Hartler suggests organizations “start tomorrow with 5-10 items you know you use. I don’t think you need sophisticated software to do this. You just need discipline to meet with a cross functional team” representing procurement, maintenance, engineering and other users.
Data on MRO inventory should provide the facts of any given item in stock. The team can get to the facts by responding to such questions as: What is it? Where is it located? When is it used? If it’s not in stock, where is purchased from and how is it reordered? Why is it in stock? For convenience? For insurance? Is it critical?
With responses to these questions, or data, organizations can then complete routine analysis to determine which items are critical or fast, to make sure “you’re not putting slow or inactive inventory on the shelf,” Hartler said. What to do with inactive items? Donate, auction or give back to suppliers.
“All this enables you to make necessary adjustments to your inventory such as increasing replenishment or decreasing on-hand levels,” Hartler said.
Also, he suggested organizations look to their supply chains for help. “They tend to have a lot of knowledge,” he said.
To view the webcast What Does Your MRO Inventory Really Cost? on demand please click here.
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
Spend under influence (an important metric for measuring procurement performance), maverick buying and indirect categories such as energy and IT are topics examined in the 2016 ProcureCon Indirect East Benchmarking Report. Read More
George E. Krauter
A major target of cash/cost recovery is MRO inventory that is not moving, the items considered to be obsolete. CFOs are usually charged with recovering the cash that is invested but, in the case of critical spares, there are times when so called dead… Read More
Source One Management Services
Budget cuts on new equipment and devices, new emphasis on sourcing and procurement at healthcare companies and a saturated market are making it increasingly difficult for medical device manufacturers to stay innovative. Read More
Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More
It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More
Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More
At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More