Industry Market Trends
MRO Management: What Truly Needs to Be on the Shelf
June 17, 2014
Businesses waste a ton of money with stale maintenance, repair, and operations (MRO) items on their storeroom shelves. Cutting down on overstocks of these supplies starts with how storerooms are run. Smart MRO inventory management lies in rhyme and reason. How, in this world of data, can we not know more about the maintenance, repair, and operations (MRO) items we have in inventory -- the items that help keep a facility up and running?
Kevin Hartler, senior director of Grainger Consulting Services, asked that very question in a recent interview with My Purchasing Center. During the discussion, which included Brian Norris, vice president of inventory management at Grainger, we talked about how organizations can get their arms around MRO and about the likely return they will see from the effort. "This is an area that absolutely can have an impact on the business," Hartler said. "It can be as much as a 25 percent improvement." He tells My Purchasing Center that more organizations today -- MRO inventory management is not just for manufacturing companies; Grainger has customers in government, education, hospitality, and other sectors -- are looking for help with figuring out what parts need to be stocked on MRO storeroom shelves. They see an opportunity to control costs related to what typically makes up about 7 percent of overall expenses for organizations. "More companies are taking a look now at how they can drive more cost out of the business," Norris said. Their biggest challenge? A lack of information. History shows that because many MRO items are low cost, users generally have been able to purchase them when they need them. And because organizations don't have sufficient data on this spending, they often buy and stock more of the items than they need -- just in case. Users like the assurance of having parts on a shelf in an MRO storeroom; not having a part can shut down an operation. "Not understanding demand very well causes organizations to overstock," said Hartler, who likens this to buying items for a workbench in a home basement or garage -- how many screwdrivers do you have? Understanding demand for MRO items in an organization is not easy, he says, explaining that, in some instances, there are parts on a shelf that no one in the organization is sure how they got there or who bought them. "That's because they stocked more than they need," Hartler said. Hartler suggests organizations begin with a small number of different parts, around five to 10, and tell a story about each one: What is it? Where do you get it? Who uses it? Why do they use it? What kind of condition is it in? "Experience and knowledge of people in the facility will give you a clear picture of demand for the part," he said. As the organization gathers these stories, it can start to think about creating a plan for reducing inventory levels, Norris says. "Inventory management is really understanding what items are fast moving and what is the optimal level to have on hand." Hartler recalls a university that approached his team for help managing its costs. "We quickly found that inventory was an opportunity for two reasons: one, the investment in inventory, and two, the productivity required to manage a central store and purchase supplies. Our customer's objective was to improve productivity and efficiency of the storeroom and decrease their inventory investment. "We learned that there wasn't a rhyme or reason why a product was on the shelf and people could take what they needed to do their jobs," Hartler said. "There was no way to capture information to understand supply and demand." Hartler's team analyzed how the university runs its storeroom and implemented Grainger KeepStock Inventory Management Solutions. "We reduced on-hand inventory parts from 3,000 SKUs (stock keeping units) to 600. The remaining 2,400 were not items users need right away, and Grainger can replenish [those] with a day's notice. As a result, they now have an additional $500,000 in their budget." The relationship with Grainger also helped the university to improve productivity by redeploying employees who were working in the storeroom to other more strategic positions, helping to save another $500,000, Hartler says. With an understanding of an organization's demand for MRO items, Grainger can help to add value in other ways, according to Norris. "For instance, one year's worth of data can help generate ideas for product standardization," he said. Data can also help organizations place inventory closer to users of MRO items, which can improve productivity, Hartler says. Top photo credit: ShelfPlus Automated Storage
Susan Avery is Chief Editor at My Purchasing Center. She writes articles, blogs, and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates webcasts. Susan has more than 25 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.This article was originally published at My Purchasing Center and has been republished with permission. For more stories, visit MyPurchasingCenter.com.