Low inventory – high availability
March 1st 2011

Effective sourcing and management of maintenance, repair and overhaul (MRO) spares is central to manufacturing efficiency and so to overall competitiveness.Chris Davies, managing director of Brammer Ireland explains

Today's economic climate presents an unprecedented set of challenges to manufacturers. Output is increasing, but so are raw material and input costs and supplier lead times.Meanwhile, investment, operating budgets and employment levels remain relatively depressed. Irrespective of the economic situation, all manufacturers face constant pressure to reduce costs and optimise productivity.

Access to the right spares, when and where needed, is critical to production continuity. A successful MRO management strategy will make the availability of production-critical spares a key performance measure.

However, this must be balanced against considerations including the need to minimise inventory to reduce working capital. Stock purchased 'just in case' often becomes non-moving stock, tying up cash and often ultimately becoming obsolete. The right mantra is 'low inventory – high availability'.

MRO stockholding complexity is often cited as a problem. The required spares are often of low value and required infrequently, while their sheer range can be daunting, meaning dealing with multiple suppliers and a consequent lack of purchasing leverage.

The technical complexity of spares and erratic demand patterns – only around a third of consumption repeats in consecutive years – can also be problematic. Here, standardisation – identifying which machines require the same spares (even across different sites) then sourcing these from a single supplier – can radically reduce stockholding and working capital.

This is especially so where spares are being sourced from an OEM which itself sources them from the manufacturer.

Frequently the product can be readily obtained – often far more cheaply, with no OEM mark-up – via a specialist distributor.

This also reduces lead times as the distributor will stock many common items, while an overseas OEM may itself be importing the spares.Meanwhile, a detailed review of what components are being sourced, and from where, will highlight areas of duplication and allow trimming of the supplier list.

Focusing on reducing overall vendor numbers will negate practices like 'shopping around' – which creates additional transactional costs and overhead inefficiencies – and the acquisition of greater quantities than needed to obtain a volume discount, tying up cash in non-moving stock which may end up being written off.

Best practice is geared around both optimising inventory held at site, which should be routinely profiled to ensure accuracy and alignment with key component consumption, and standardisation of key products and technologies. Leading edge manufacturers harness independent advice from professional MRO distributors in both these areas.Whether identifying the best, most efficient product for a particular application, or providing real time demand pattern analysis to enable optimised stockholding, the MRO distributor's role can add serious value. This approach, focused on total cost of ownership, is proven in positively impacting on profitability.

Companies wanting to free up procurement and engineering teams to focus on other value-adding areas are increasingly outsourcing their MRO spares inventory management. This effectively means they are dealing with a single supplier able to identify which spares are needed and how frequently, ensuring on-site availability of critical items and the depth of supply chain availability for next day delivery requirements to support ongoing maintenance. The approach also enables provision of value-added services like component kitting and a review of scenarios where a particular component may be failing more often than should be the norm – with testing and analysis able to identify technical issues and suggest alternatives. It even allows cross-site management of stockholding and usage data to ensure, for example, numbers of a particular spare are not accumulating in one location while the same product is being purchased at another to meet demand there.

For some companies, the most effective method of outsourced MRO spares management is for the supplier to provide what is effectively a branch, on the customer's site, geared solely to meeting that company's needs in terms of products, opening times and technical support. This allows the supplier to function as a seamless part of operations, but with the availability of independent expertise and flexibility to cope with demand peaks.

Administration is reduced as only one invoice is received monthly for all MRO requirements, while achieving significant cost reduction and operational benefits from removing duplicated supply sources and their associated complexities.

Through outsourcing MRO spares management, directors, maintenance and procurement staff can be sure production will not be interrupted by unavailability of a crucial spare - and that capital is not being tied up in spares which may never be used.

With uptime and cashflow optimised, they can focus on other opportunities to improve operations and profitability.

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