Tuesday, January 28, 2014

MRO Inventory

I work in Procurement or more specifically ‘Spend Management’.  I’ve led over 100 sourcing projects where our team engaged a supply base for a commoditized bid.  We stayed on board through the point of awarding the project and contracting.  Rarely do I ever get to stay engaged through implementation or purchasing/receiving the goods or services.  From my personal experience the couple projects that I have working on that had inventory constraints during the Request for Proposal (RFP) were MRO projects – Maintenance, Repair and Operations. 

The first one I can recall was at a large aerospace manufacturing facility in Wichita, Kansas.   Think of all of the tools that need to be available to make planes, run the equipment, and general maintenance of the facility.  We tried to track down a list of goods that were needed, what amounts are purchased on an annual basis, and probably the most difficult task – in what quantities these items were purchased in.  Rope and wire are sold by the foot.  Bolts, nuts, and screws can be sold in any given amount.  Tools like drills and hammers were needed individually or by the dozens.  It’s a daunting task to create a master data file to understand the needs of the operations then create a pricing template for the supply base to quote.  This is where it’s wise to work with a strategic vendor to get the team what they need, when they need it.  A company like Grainger comes to mind.  They will help set up a storeroom within your walls and supply everything you need either at that exact time or the next day.  A downside of this is they become very sticky to your operations and eventually take over jobs that were originally in-house. 

Recently, I worked with a facilities department that was very forward thinking and knew that partnering with Grainger was a way to reduce costs associated with POs for these purchases and the time spent on getting it right internally.  They decided to move forward with Grainger vending machines in their storeroom that maintenance workers could use to check out an item or get a roll of tape or a box of nails.  This allows them to build a database of what is getting used, how often, and what quantities over a given time period.  Their close working relationship with Grainger allows them to reduce costs of core items and all of the equipment needed is free through the program.

MRO for a facility maintenance organization or manufacturing facility can amount to a large chunk of change.  There are few advantages to stock your shelves with inventory when you can partner with a large distribution company that can have what you need on hand or the next day.   The downfalls are that you are now in bed with the partner of your choosing, usually for a long term contract.  Another could be eliminating jobs of possible union workers who managed the tool crib in the past – something most hold very close to their heart. 

As you can see, there are pros and cons of going about MRO inventory from either direction – RFP or partnership.  If your data is tight on historic spend and volumes, it’s easy to take it out to bid to find the right fit.  If not, it’s best to work with one of the industry leaders in this space.   Two other commodities that this approach works for are Office Supplies and Lab Supplies
Based on the facts below – how would you tackle your MRO inventory if you managed operations at a manufacturing facility?  I lean toward putting it in the hands of the professionals – with a tight contract, revisiting of core items, and an out clause once the process is perfected. 

“Each $1.0 million in MRO spend creates approximately 3,500 purchase order cycles (issues, receipts, POs, invoices) relating to MRO. At a cost of $57 each (based on Aberdeen Group estimates), the paper burden is almost $200,000, or 20 percent of each $1 million spent on MRO, plus the cost of dealing with hundreds of suppliers.”


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