Use Best Practices For MRO Inventory

My review of data from more than 200 facilities indicates MRO (maintenance, repair, and operations) inventory reductions of 10% to 50% are possible.

MRO includes all the consumable materials and supplies needed to support operations (machinery, equipment, tools) with items such as spare parts, cleaning supplies, and gloves.

The two most efficient ways to attain maintenance value are PM optimization (to free up valuable resources) and reduction of spare parts (to save money). The scenario in facilities is typically one of two situations or a combination:

• Production demands more parts to make sure they are always available.

• Maintenance is highly reactive (emergency repairs) so they will never have enough of the correct spare parts. Data shows that bottom-quartile operations have four to five times more spare-parts-related downtime than those in the top quartile.

In addition to face-value parts costs, you need to add 20% to 25% carrying costs for factors such as storage space, taxes, damage, and obsolescence. That means, if you keep a part that you don’t need, you pay enough to have purchased a new part every four to five years.

As Maintenance Cost (MC) as a percentage of Replacement Asset Value (RAV) is a good scalable metric for tracking maintenance cost improvement, so is MRO Cost as a percentage of RAV. The SMRP “Body of Knowledge (BOK)” defines RAV as the cost to replace the production capability of existing assets in a plant. This includes production/process equipment, utilities, facilities, and related assets.

Fig. 1. Using Maintenance Cost as a percentage of RAV indicates that bottom-quartile facilities have about 2.5 times more MRO parts than top-quartile facilities.

The BOK also states that, for top-quartile operations, Maintenance Cost as a percentage of RAV should be about 0.3% to 1.5%, based on practices and industry type. My data shows top-quartile MRO Cost as a percentage of RAV from 0.5% to 0.7%. Figure 1 shows that bottom-quartile facilities have about 2.5 times more MRO parts than top-quartile facilities. Top-quartile facilities have only about 20% of their total maintenance cost tied up in parts. That figure is 50% for bottom-quartile facilities.

Fig. 2. This tally of inventory turns for 76 facilities indicates that 46% of the facilities had MRO inventory turns less than 1 and 67% had MRO inventory turns less than 2.

Another key process indicator should be annual inventory turns, which is annual inventory used divided by average inventory on hand. Best-practice annual inventory turns should be in the 2 to 4 range. Too many facility values observed are less than 1. Figure 2 is a tally of inventory turns for 76 facilities. The lowest value was 0.3, highest was 16, with an average of 2.4 MRO inventory turns. The data indicate that 46% of the facilities had MRO inventory turns less than 1 and 67% had MRO inventory turns less than 2. This further indicates that most facilities have too many spare parts.

Understandably, many companies are making extra purchases today to protect their operations from the current fractured supply chain and long lead times. Regardless, there is still a large opportunity for cost savings. Your spare-parts metrics are a good indication of the health of your maintenance process. EP

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 kblache@utk.edu.