MRO Inventory Operations – A Short Read to Assist in Moving from Chaos to Best in Class

What is MRO Inventory?

MRO stands for Maintenance Repair and Operations, while MRO Inventory refers to the supplies, equipment and spares carried to support routine maintenance repairs and operations.

I always like to think of MRO in the context of a tree diagram starting at the top with the Operating Plant, inside that plant there is Departments, inside those departments there is Equipment, that equipment consists of Parts, those parts critical to keep that equipment in operation is what we need to carry in a MRO Inventory Warehouse. Further expanding to carrying the equipment, consumables and supplies that support that operation and/or maintenance activity.

Critical Component spares could consist of production assets such as motors, gearboxes, airlocks, breakers, bearings, and valves.

While supporting consumables and supplies could consist of items such as safety supplies, janitorial supplies, laboratory supplies and office supplies.

MRO Inventory is very much an important part of the overall Asset Lifecycle Management Process. There are varying models of this overall process, but generally sharing the common theme of Planning/Engineering, Procurement of the Asset and Installation, Maintenance over the Asset useful life and lastly the Disposition/Decommissioning process of that Asset. MRO Inventory must be considered in all 4 cycles of this process.

Planning

When planning and designing the asset, part of that design needs to be ensuring to understand the spares needed in consideration of maintaining this asset over its useful life. In most cases manufacturers will have a list of recommended and critical spares needing to be considered. Leveraging buying power and or strategic suppliers can be useful during this phase before the Procurement step. This can potentially reduce the overall cost needed to acquire the needed spares by using supplier strategies such as VMI or Stocking Agreements.

VMI standing for Vendor Managed Inventory is when suppliers take on the inventory carrying cost, as well sometimes may include the labor to conduct warehouse type operations on those specific sub-set of items in the warehouse.

Stocking Agreements can assist in once again alleviating that carrying cost and labor, but also this strategy will save space in your warehouse and generally assist in reducing the lead time.

Industry will tell us general carrying costs could be around 20-30% of the acquisition cost, as well we have the opportunity to reduce working capital tied up in inventory, that in turn could be used to more value add to the operation.

During this step upon decision of the equipment spares required it is important to ensure the linkage in an Enterprise Asset Management (EAM) System as possible for future reference. This will assist in all future steps of the lifecycle management, forming what I would call a solid foundation. In most EAMs this process is going to be referred to as Bill of Materials (BOM). Linking inventory to assets will also assist in understanding the criticality of that inventory spare to the overall operation.

Acquisition/Procurement

This step will be the actual purchase step of the MRO Inventory to the warehouse. If we have done a good job of the above process during planning phase this should be little more than ensuring tracking into the Inventory Management Systems (IMS) and Procurement System of choice, which should be communicating already with the accounting teams requirements. One choice that may come up in this step could be should we purchase this to the storeroom, which is generally seen as a expense, or should this be purchased with the asset potentially allowing capitalization of the spare equipment with the asset purchase spreading the cost of those initial spares over the course of the asset life.

Maintaining

While maintaining an asset could be more associated with a maintenance activity, this is where I would call out the Warehouse Operations responsibility to ensure we have the Right Part – at the Right Time for maintenance and operations to be effective. I find it helpful to set a Service Level Expectation with Maintenance and Operations to ensure we have an agreed target to meet. The result of not meeting that Service Level Expectation, could result in extended downtime which equals lost production. I will cover some concepts around Service Level Requirements and Key Performance Indicators (KPI) later.

Decommissioning/Disposition

This step is crucial to involve the MRO Inventory, as in many cases the inventory spares and equipment we are carrying may no longer be needed if the asset is decommissioned. Failure to also consider removal of spares no longer needed will result in continuation of carrying costs not required and capital tied up in inventory not needed. This can and will over time also lead to potential space concerns with inventory not being turned taking up useful warehouse space.

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Warehouse Operations

If we revert back in the above steps to the Maintaining Phase, we will now cover our role in MRO Warehousing Operations in ensuring a successful Service Level Expectation. In this section I will cover just a few topics at a high level, all of which should be aligned with an overall Service Level Expectation as our guiding light. Again, this should be aligned with our customers, generally being the Maintenance and Operations Departments. I generally lean towards Order Fill Rates as the most comprehensive overall guiding light with some other KPIs that will enable support of that leading KPI. Order Fill Rate could look different, but generally is going to be indicative to: What % of Demand are we Successful? An example would be if my Service Level Expectation is 97%, that means I need to provide the customer what they need 97 times out of 100 requests on average. I like to leverage a comparison of orders filled and orders unfilled to gather a Success Rate.

Other general KPIs we will want to track to gauge overall warehouse operations effectiveness may consist of Accuracy, Stockouts and potentially Audit Results of Processes.

KPIs

Cycle Count Accuracy – Check with your internal audit or controls department for any company specific requirements, general industry will tell us we want to be around 98% accurate. We must take into account that is standard for a mature organization, so ensure we understand or even benchmark to understand how mature my warehouse is and what does a mature warehouse look like.

Cycle Count Compliance – Again check with your internal audit or controls department for any company specific requirements. I generally like to ensure every item in our storeroom is counted at minimum once per year, but some items may be required to be counted more often. In most cases activities such as an ABC Analysis can assist in identifying the spares we need to count more frequently. I like to take into consideration both inventory turns and cost in this equation to balance counting items with frequent turns and potentially critical spares at the right cadence.

Stockouts – this is simply ensuring we track any time we are unable to fulfill a customer order. This could mean not having enough or such things as the count in system not matching physical to shelf. I like to track stockouts in several different ways, but I ensure to keep in mind not all stockouts are created equal and not always within control of the warehouse team. Things like unplanned events in operations or maintenance or unplanned sudden lead time impacts form a supplier, while are good to notice and look into, are not within direct control of the warehouse team. I like to ensure we are tracking stockouts that we absolutely control such as incorrect counts, incorrect parts or damaged parts. If the IMS has the ability to showcase the Criticality of a particular spare, these are good stockouts to ensure a root cause analysis is completed to prevent reoccurrence as these spares can cause extended downtime events.

Warehouse Safety

Warehousing and Transportation has one of the highest rates of overall injury and illness in the industry. Please refer to your companies Environmental, Health and Safety representatives for guidance or Subject Experts. I have listed some items below to keep into consideration when considering warehouse safety.

-????????? Proper dock locks to secure trucks to docks (would recommend utilization of a 2nd layer of protection which could be a Gladhand Lock or simply chocks)

-????????? Pedestrian walkways ensure proper separation from forklift lanes and pedestrians.

-????????? Convex Mirrors at blind corners

-????????? Vehicle inspections completed prior to each use.

-????????? Forklift Safety – There is lots of technology out there today, so recommend checking into options that best suit your specific operations. Some great basics are ensuring horn usage at blind corners, backup alarms, and blue lights at front and rear.

-????????? Cut Resistant Gloves and Self Retracting Safety Knives to reduce the potential for cuts while opening boxes.

-????????? Ergonomic Workstations ensuring ergonomic mats are available, as well tables are positioned at correct heights to avoid bending when working for long periods of time at a station.

-????????? Carts and Conveyors can assist in carrying items that may be light in weight over long distances which could cause strain or sprain.

-????????? Safety Blitz are a great way to get the team involved and focused on a specific subject during the audit, locating potential hazards before they become a potential injury.

Storeroom Layout

When laying out a storeroom the overall flow needs to be taken into consideration. Think of the flow starting with the delivery of goods likely taking place at a dock from a delivery truck and ending with product stocked on the shelf. We need to take into consideration like a production line a smooth flow from start to finish, minimizing the overall travel time and overlaps as possible. Racking should be laid out in a format that is easy to understand to the put away and pick team members. We should take into consideration running shelving as possible in same directions consistently either East/West or North/South, then ensuring to use a format of shelf and bin IDs that are numerical/alphabetical in nature moving left to right. Label each rack end with the row and each shelf with the bin ID. Bins can be taken as granular as needed to ensure accuracy but should avoid becoming confusing in nature. Racks should be built to fit its assigned material as possible to ensure maximum shelf capacity utilization, while ensuring heavier material is stored at the bottom and lighter material at top. ABC Analysis can be leveraged to reduce pick times by ensuring fast moving stock is located closer to the pickers, while slower moving spares are located further away. As more data becomes available in the storeroom some items we may notice are often picked together, such as a kit. We can then place these items in close proximity or a straight line to increase pick efficiency. Lastly, we need to ensure this is reviewed periodically for changes as usages change or new stock is introduced. Lastly there is many variations of racking available, I would recommend working with a supplier in this space that can also assist with the overall design based on the type of material you will carry and the space available, ensuring maximum capacity utilization.

Other Great Storeroom Tools

Audits – Audits are a great way to review at random processes for accuracy within the storeroom function. I prefer random sampling audits that can then be compared to overall percent of transactions within a given month or year to calculate the potential defects over time.

Example Audit:

Picking Audit

Annually we conduct 1,000,000 picks.

We conduct an audit of 100 pick sheets for accuracy.

Also, we can note buckets for errors located such as: incorrect pick, data entry error, incorrect issuance, etc.…

We locate 3 inaccuracy findings of the 100 pick sheets audited = 3%

1 incorrect pick (33%), 2 data entry errors (66%), and 0 incorrect issues

That means over the course of a year we have the potential to have 30,000 in accuracies during picks.

Now let’s say incorrect picks take 0.5 hours to correct and average cost of that employee is $20 per hour, and data entry errors take 0.1 hours to correct at the same hourly rate.

30,000 x 33% x 0.5 x 20 = $99,000.00

30,000 x 66% x 0.1 x 20 = $39,600.00

We can now see incorrect picks is costing us 3 times more and we can now setout to dig deeper into this to discover corrective actions we can take to reduce this error.

FIFO: First in First out is a great methodology to ensure proper rotation of stock over time by using the oldest stock first.

MSS: Master Sanitation Schedules are a great way to ensure storerooms are kept clean and safe.

Facing: Facing shelves ensures stock MFG Labels and Barcodes are forward facing and at the front edge of the shelf which assists in overall appearance and pick accuracy.

Handhelds: Handheld devices that can connect to the Inventory Management System for cycle counting will make this task much more efficient and accurate, versus using possibly printouts which then will later need entered into system manually.

Leadership Tips

I have always said the best advice I can ever offer in a storeroom to new employees is to avoid tunnel vision. Its very easy to get into the habit of checking your pick sheet or barcode, going straight to that bin location and grabbing the widget and heading back to the office area without having looked or noticed anything else during the trip. Take time to encourage your teams to pay attention to what they are pulling, learn about the parts, ask questions. The more you pay attention in storeroom avoiding tunnel vision the more prone you are to notice also when something is out of place. Lastly cross train, then cross train some more. There are always ups and downs in warehousing in general regarding workload, ensure we as leaders are assigning and encouraging cross training. Further empower our employees to take this into their own hands when one area is slow to assist in an area of operation that may be busier at that time.