Purchasing and inventory costs associated with maintenance/repair/operations (MRO) can consume more than 50% of a plant’s total maintenance budget. Based on what I’ve observed in more than 100 facilities, however, spare-parts inventory reductions of 10% to 50% are possible. Sadly, given the many, often hidden, costs related to such parts—and the fact that they can surface in departments with conflicting goals—the urgency for reducing them isn’t always fully understood or a priority.
Without a comprehensive process in place, trying to get a handle on spare-parts management is like playing “Whac-A-Mole.” As soon as you knock down one issue or cost, another pops up. There are many ways to save money in this area, though. Consider these questions with regard to your operations:
• Would you have adequate MRO parts if your production volume increased?
• Are spares automatically reordered using a trigger point or mathematical algorithm?
• Have you performed an ABC/XYZ analysis based on cost of parts and inventory turnover?
• How well does your CMMS system integrate with purchasing, Bills of Materials (BOMs), and your inventory system?
• How secure is your stockroom? Are all removed items recorded?
• What controls are in place to limit what inventories should go into storage?
• Is a supplier providing turnkey services? If so, are you sure it can supply adequate/timely spare parts?
• What improvement has resulted from using metrics to control MRO spare parts?
Answers from many sites won’t be encouraging. As Phillip Slater noted in his book, Spare Parts Inventory Management (Industrial Press, Lilburn, GA, 2017), “Almost 50% of companies have no specific set of policies that have been designed for day-to-day application in helping them manage their spare-parts inventory.”
Doing nothing isn’t a good option as it also costs money. Carrying costs in most plants are between 20% and 30%. (I’ve found that a few places have lower carrying costs and that values sometimes will be significantly higher based on the part.) Carrying costs include the cost of money, taxes, insurance, handling, inventory control, storage, obsolescence, theft, counterfeits, and more. Numerous groups use 25% as a rule of thumb. This means that if a facility takes no action, in four years it will have paid for its parts inventory twice.
MRO spare parts reflect millions of dollars’ worth of opportunities that can improve an organization’s bottom line. Begin uncovering yours by performing an inventory of all parts at your site, including informal stockpiles throughout the plant and those boneyards of “just in case” stuff. Then, if your facility lacks a comprehensive process for managing these parts, make sure appropriate personnel:
• Spend time with the key stakeholders (at the plant-floor level) to perform a criticality spare-parts analysis considering the impact on items such as safety, production, cost, and lead time.
• Develop a parts-holding strategy, i.e., on-site inventory crib or open stocking, share the spares with other plants, supplier-held parts, order on demand, and the like, based on the criticality analysis and business risks.
• Better understand complete parts costs and the sources of hidden costs. Then apply the knowledge implementing prevention and optimization with an Asset Life Cycle approach (see “Life-Cycle Costing: Why So Difficult?” maintenancetechnology.com/2016/09/life-cycle-costing-difficult/).
• Develop and communicate a plan to identify/avoid counterfeit parts. Put the necessary wording into your purchasing specifications to protect against counterfeits.
Optimization tools and related analytics are helpful, but it’s your overall process and culture that will sustain improvements. That’s how you’ll improve equipment availability, reduce your operating costs, and gain a competitive advantage. Care about your MRO spare parts and they’ll take care of you. MT
Based in Knoxville, Klaus M. Blache is director of the Reliability & Maintainability Center at the Univ. of Tennessee, and a research professor in the College of Engineering. Contact him at firstname.lastname@example.org.