Mining Gold From 21st Century Storerooms

Operating your MRO storeroom as a business unit can yield a wealth of cost-saving opportunities. Advanced technologies coupled with today’s best practices play a key role.

Countless storerooms continue to rely on the same types of inventory-management practices, warehouse racking and material-handling systems that were used when their plants were built. Many still locate inventory by equipment asset—a best-practice strategy from the 1970s. This process allowed a maintenance technician to find all stocked parts for a specific piece of equipment in one area of the storeroom, and worked well before computers and software became available to manage inventory. Thanks to these technologies, many aspects of storeroom operations have advanced significantly. Are yours keeping pace?

Inventory storage

Locating inventory by equipment asset creates duplications and added expense. If a bearing or motor is used on multiple assets, for example, that component will be stocked in each equipment location in the storeroom. Some of these items could be on the shelf for years, leading to increased inventory investment and decreased reliability when finally put in service. Another cost of this old method is the valuable storage space consumed by identical items stored in duplicate locations.

A more efficient method of locating and managing MRO inventory is by commodity grouping. This method has obvious advantages: Grouping inventory by commodity eliminates stocking duplicate parts in multiple locations, helping reduce inventory investment. It also simplifies the implementation of scheduled Preventive Maintenance (PM) for items like motors, large bearings, gearboxes and others.

Vendor-managed inventories

As technology has advanced, suppliers have become more involved in the day-to-day inventory management of point-of-use items and consumable inventories. They are able to respond to unexpected spikes in the need for parts by using demand-based inventory management software that reports real-time consumption of items in vending machines and other point-of-use programs.

Demand-based inventory management creates a request to restock the item automatically when the reorder point is reached. The reorder is communicated to the supplier using an electronic replenishment request. The order is pulled, shipped and the inventory is restocked. The process can be further simplified with an auto-pay system that will pay the invoice when the inventory is stocked. Establishing a supplier partnership and implementing a demand-based software program offers the ability to reduce consumption and investment in these inventory items by up to 20%. Using this same technology for stocked inventory items and some critical spare parts can provide similar inventory savings for higher dollar items.

Critical spare parts

As production equipment has become faster and more automated, the MRO storeroom has lagged behind the curve when it comes to keeping spare parts in a service-ready condition. Not having a critical spare part in inventory when needed for an equipment repair is bad enough. Worse is having a part in stock that has degraded while in storage and will not work when installed.

The 21st century storeroom must do more than store and distribute spare parts. It needs to be a partner to other business units in the organization. Validating storeroom inventory to ensure that parts held in inventory are actually tied to an operating equipment asset is a group effort. An accurate Equipment Bill of Material (EBOM) is the starting point for this—and essential for maintenance planners to request or order parts for an equipment repair. Reliability engineers and maintenance planners work together with Storeroom and Procurement personnel to ensure parts on the EBOM are correct and that those identified as critical are available from a reliable supplier or stocked on site in the MRO storeroom.

Critical components are one-of-a-kind spare parts with long replacement lead-times. They have an immediate impact on safety, the environment, production and/or several other factors associated with plant operations. These parts must be available on site in the event others fail. To offset the risk of such components failing, a condition-based monitoring program of the operating equipment, paired with an accurate equipment maintenance history, should be used to identify components that are approaching the end of their service life. Knowing the expected component service life and having the data from equipment-performance monitoring reduces the probability that the component will fail unexpectedly.

Planned job-kitting

Increasing the use of the maintenance-craft employees and those who support maintenance activities is a key goal for most maintenance managers. A planned work-kitting program can increase the value-added efforts of the maintenance crafts, planners and MRO storeroom attendants. As it is with the management of critical spare parts, an accurate EBOM is crucial to the success of a planned job-kitting program. If the EBOM is accurate, the correct parts can be pulled from the storeroom and the kit delivered to the maintenance shop so a technician has what he/she needs to complete a job. Kitting planned maintenance work has a substantial payback because it increases maintenance craft utilization. That’s because on average, a maintenance technician will spend 90 minutes or more per day looking for parts to complete assigned jobs.

For a technician to effectively complete required repair work, the maintenance planner must scope the repair as part of the preliminary job analysis and create a job plan that identifies all information needed by the technician to complete the repair. The Operations team must have the equipment clean and ready for Maintenance to do the work.

Implementing a planned job-kitting program produces benefits for the MRO storeroom. If the maintenance planners are able to plan maintenance work, and the parts they need to do those repairs can be ordered as needed and not stocked on site, the net result is a reduction in inventory investment. With the parts ordered as needed, utilization of the storeroom attendants increases and foot traffic to the issue window decreases. Parts received for a job kit are placed in the kit as they are received, reducing the additional steps to place them in an inventory location. Due to the increased utilization of the storeroom, attendants can focus on more value-added activities like inventory cycle counts to maintain best-practice inventory accuracy of 98%.

Documented work processes

Like any retail business, the MRO storeroom needs to have documented work processes and a set of metrics to measure performance against industry standards for similar businesses. Here are the basic work processes:

• Purchasing—Identifies all activities required to secure routine parts.
• Expedited purchasing—Identifies all activities needed to secure repair parts for emergency repairs.
• Inventory receiving—Identifies tasks required for a warehouse attendant to document and verify receipt of the shipment.
• Incoming inspection—Identifies activities required to assure the quality of incoming inventory.
• Inventory stocking—Activities required to locate and store stock inventory items to ensure the parts are stored properly.
• Inventory requisition—Steps required to generate a material request for allocation of parts from the inventory management system.
• Inventory issue—Tasks required to allocate items from the storeroom inventory.
• Inventory cycle count—Activities required to verify and correct on-hand quantities discrepancies.
• Return to inventory—Activities required in returning items to the storeroom to be credited to a work order.
• Return to supplier—Activities required in returning items for warranty, credit or replacement of a defective part.
• Obsolete inventory identification—Activities required to identify items not attached to an operating equipment asset.
• Planned work-kitting—Activities required to ensure all parts are on-site before the job is scheduled for completion.
• Repairable component—Activities required to track and manage the rebuild of selected components from service removal to return to the MRO storeroom inventory.

Key Performance Indicators (KPIs)

Key performance metrics that indicate lagging performance can shape strategies and action plans to drive continuous improvement. The following KPIs are used to measure storeroom performance:

• Inventory Turns Ratio—The best-practice MRO inventory turns ratio is three to four annually.
• Inventory Value—Best practice is 0.5 to 0.75% of the asset-replacement value.
• Inventory Issued—Indicates dollar value of inventory issued.
• Inventory Received—Indicates dollar value of inventory received.
• Inventory Transactions—Indicates the utilization of storeroom employees.
• Incidence of Inventory Stock-Outs—Best practice is less than 2% of total inventory requests.
• Identified Obsolete Inventory—Expressed in dollars, best practice is less than 5%.
• Excess Inventory—Items over the maximum stocking level, expressed in dollars.
• Inventory Accuracy—Best practice is 98% overall inventory accuracy.
• Inventory Adjustments—From inventory cycle-count activities.

Bar codes and RFID technology

Bar coding of inventory in the MRO storeroom hasn’t been implemented well by many organizations. SAP, Oracle and other software applications have the capability (or through interface software) to accept both two-dimensional and three-dimensional bar codes. Grocery stores were the first to take advantage of this technology. The goal was to speed customer checkouts and provide real-time inventory management of items sold. Now, most retail organizations have implemented bar-code technology to manage inventory.

Bar-code applications are slowly being adopted by maintenance and manufacturing organizations to manage equipment-health monitoring programs and MRO inventories. Using the bar-code tag attached to an equipment asset, the maintenance technician can perform vibration analysis of the equipment and the data is available in real time to maintenance planners. Once planners have the data, they can begin planning the activities to replace the component before it fails.

Using bar codes in the MRO storeroom adds a second dimension to inventory management. Cycle counts are done in real time, items are received into inventory as they are processed, and a real-time inventory balance is available to the planners. All of these benefits increase the utilization of the storeroom attendants.

Radio Frequency Identification (RFID) is the next level of technology. Although RFID has been around for several decades, retail groups are just starting to use RFID tags to track certain items sold in their stores. When RFID tags were introduced, high cost limited their use to tracking railroad cars, military shipments and valuable livestock. Now that the cost of these tags has dropped, implementing RFID tracking of high-dollar critical spares and the tool crib is has become a reality for industrial operations.

With RFID tags, components can be tracked whether they are in the storeroom, installed on an equipment asset or somewhere in the rebuild cycle. Moreover, cycle counting of RFID-tagged inventory can be done in a matter of seconds with complete accuracy.

3D printing

Another technology that is becoming increasingly popular is three-dimensional (3D) printing. Also known as “additive manufacturing,” the process puts down a thin layer of material, usually a plastic or metal, then repeats the process layer by layer until an item is complete. Slow and expensive, 3D printing may not be an ideal candidate for extended manufacturing operations, but its potential in the MRO world is very real—and economically feasible.

3D printing can reproduce a spare part or tool to exact specifications with the strength and functionality of conventional manufacturing. Currently, the price of such printers varies from around $5000 for those that handle light plastics, to $50,000+ for advanced units that process high-end or specialty plastics, to hundreds of thousands of dollars for printers of metal products.

Ready to mine some gold?

Prior to beginning your search for productivity improvements and cost savings through some of these 21st-century advances, you’ll need to nail down the basics. Create an action plan and timeline to develop and implement fundamental inventory- and storeroom-management best practices.

Turning to a technology “fix” like bar-coding inventory to solve your storeroom issues may be approaching the problem from the wrong end. Doing basic storeroom management well is what results in having the right part, in the right place, at the right time and at the right price.  

Wally Wilson is a Senior Subject Matter Expert in Materials Management for South Carolina-based Life Cycle Engineering (LCE.com). Contact him at wwilson@LCE.com.