Increase Productivity and Competitiveness with MRO Technology – Part 1

In search of excellence in MRO Materials Management (indirect materials / spare parts), I have noticed two curious facts.

First, even in developed countries, industrial companies and providers of ERPs (enterprise management systems) are technologically very backward in this specialty.

Second, those very little companies or experts who developed differentiated technology keep it safe guarded as a trade secret.

This exposure results in considerable accumulation of knowledge and expertise, and a unique set of observations and conclusions which certainly could not fail to be shared with the concerned community. 

Is There Complexity in the Management of MRO Materials?

Unfortunately, a reductionist and misguided view still prevails in industry, where everything boils down to manually assigning Min / Max to items in an inventory.

I could write dozens of pages explaining what is the real dimension and complexity of the discipline (risk analysis, economics, logistics, mathematics, statistics, reliability engineering, theory of constraints etc.). However, as there is no room for extended explanations, I will give this illustrative example:

Suppose an inventory of just 1,000 items (a thousand stock codes); even if we set a maximum stock level of 1 (allowing just 2 options between 0 and 1 for each item), there are 21,000 distinct inventory positions, i.e., an astronomical number of possibilities.

The question that then arises is: Among these uncountable possibilities, which one or ones would be the best? As it can be seen, a reasonable level of complexity exists and certainly cannot be approached without the support of advanced analytical tools that, despite being available in the marketplace for quite a long time, most industrial companies either still do not know or do not use.

What is the Real Impact of MRO Materials in the World Industry?

First, in addition to being chronically unbalanced, that is, companies have too much of what they don’t need and not enough of what they need, inventory levels tend to be higher than necessary, resulting in financial loss with working capital tied up to inventory.

Second, there is an inexorable fact: every lack of material (stockout) causes some sort of an operating expense (production loss, product downgrade or loss, cost with operating and maintenance maneuvers to keep the plant running, expedited freight, overtime, and lower labor productivity, among others).

Moreover, an ineffective spares management process will result in at least 20% – 35% of machine down time, often due to the lack of necessary parts and materials to perform repairs correctly and quickly the first time. The side effect is lower availability and, consequently, lower production volume, lower revenue and lower profit.

The most paradoxical is that, despite significant production losses caused by lack of spare parts, losses are hardly accepted by management.  The usual claim is of the type: “Here in our company there is no production loss because any loss can always be recovered without impacting the production plan.”

Excluding spare capacity caused by lack of demand for the products, if there is always room to “recover production losses”, then one would conclude that the assets are being programmed to operate with float, and one of the reasons for this certainly is the assumed “unavoidable” delays caused by lack of materials.

Part 2 will go over effective technologies to manage MRO Materials. Be sure to subscribe to our blog to receive an instant notification.