The quickest way to create savings with your maintenance program is through MRO materials management. In many organizations, materials represent half of all maintenance costs, yet MRO inventory is historically the most mismanaged aspect of asset management. This makes it ripe for savings.
While the maintenance department can create value in other ways—for example, by using preventative maintenance and condition monitoring to extend asset life—most of those are a long game. If you want to save money fast, focus on reducing what you spend on spare parts and other MRO supplies.
Identifying potential MRO Supply Chain Savings
How do you know if your MRO materials management operation has the potential to create savings? Here are some signs:
- Your technicians just type what they need into the purchasing system instead of ordering off a standard catalog record.
- You don’t know how often inventory items are used, so you have no way of knowing what quantity to keep in stock.
- Because you don’t have accurate usage data, you’re always running out of items or buying excess items.
- When there’s a maintenance emergency, you pay to overnight the necessary parts because you don’t have them or can’t find them in the storeroom.
- You have technicians performing the “crib crawl” trying to find the part they need to fix a piece of equipment.
- You buy the same types of parts at multiple sites, but each site has a different part record or catalog, so you can’t share inventory or track purchase history across sites.
What drives MRO costs?
MRO costs are controlled by two variables: quantity and price. You should aim to reduce both if you want to maximize your savings.
Reducing quantity is an inventory management process. You need to know what you have in stock and be able to find it when you need it so that you’re not ordering duplicates. You must be able to predict what you need, based on accurate usage data, so that you’re not buying excess inventory.
Reducing price is a procurement process. You need to know what you’re buying and have the information to do spend analysis so that your buyers can negotiate better prices with vendors. This is especially important if you have multiple sites that buy the same types of items. To keep prices down, you must be able to see and standardize your purchasing across all sites.
The starting point for reducing both quantity and price is information. You have to know what you have, where it’s located, how much you’re using, and what you’re buying. That means you need a good MRO catalog (i.e., materials master).
The importance of MRO master data
Your MRO materials master is critical in the effort to reduce MRO costs. Savings are driven by information, and information starts with master data. (You need good business processes too, but the master data comes first.)
Master data is central to inventory management. Clean and complete catalog records allow the storeroom to find parts easily when needed. They also enable the storeroom to track usage history so that optimum stock levels can be determined with accuracy.
Master data is also vital for creating value with procurement. Buying off catalog records allows the procurement function to track purchase history and negotiate better prices with vendors. It also helps to prevent off-contract or “maverick” purchases.
In both cases, complete and accurate MRO master records are essential.
What does a good MRO catalog look like?
Completeness and accuracy are important, but those aren’t the only goals you should be striving for with your materials master data. A good MRO catalog:
- Contains a record for every item you purchase, both inventory and non-inventory items.
- Has detailed information about each item (not just the manufacturer’s part number).
- Uses standardized descriptions that follow a noun, modifier, attribute format.
- Specifies items’ locations in the storeroom so that parts can be found easily.
- Does not contain duplicate records.
- Does not have typos, spelling errors, or bad syntax. (This makes it hard to find item records and can lead to duplicate records.)
- Links item records to equipment bills of materials (BOM) so that it’s easy for maintenance technicians to find the right part.
Good MRO data are free of errors and follow standardized naming conventions.
Developing your MRO materials master
Developing and managing the MRO catalog can be labor-intensive. A typical storeroom can have 10,000 or more part records, and unlike the asset registry, the materials catalog has to be updated several times daily.
That’s why you need data standards. A good MRO catalog is built on taxonomies, naming conventions, and coding structures. The United Nations Standard Products and Services Code (UNSPSC) taxonomy is one example. SwainSmith’s EAM Master Data Library contains many more data standards that have been designed specifically with MRO materials management in mind. Such standards make it possible to keep thousands of part records clean, consistent, and organized.
Once you have data standards in place, the next step is to develop your master data to meet those standards. This process can involve data collection or migration, cleansing, standardization, and enhancement. You should also establish a business process for managing the MRO catalog. (If you want to see exactly what the development process looks like, our MRO Data Services page provides a good overview.)
Using MRO data to optimize quantity
Inventory reduction (driving down the quantity on hand) is about identifying and eliminating excess materials. This is done through the rationalization (i.e., analysis and adjustment) of reorder points and quantities. The rationalization process needs data for it to work right. Usage data, purchase data, lead time, and criticality data all factor in to how much inventory you should keep on hand.
Organizations historically carry 15% to 25% more inventory than they need. This isn’t good. Spending money or tying up working capital unnecessarily does not make good business sense. This problem can result from a variety of factors (e.g., the storeroom reporting up through maintenance operations), but one of the main culprits is MRO master data. Bad data and no data create unknowns, and uncertainties will drive up costs.
Excess inventory drives cost up.
Clean, complete, and standardized MRO data helps to optimize inventory quantity (i.e., ensure that you’re carrying the right part in the right quantity) in several ways:
- Having only one record for each item means that you’ll be able to track usage accurately. This will allow you to predict how much you need to stock, so you can stop buying excess inventory.
- Once you know what you have and what you’re using, you can use that information to eliminate unneeded and obsolete inventory.
- Duplicate records lead to duplicate inventory—the same part in different places in the storeroom. By eliminating duplicates, you’ll cut out unnecessary purchases.
- Good MRO data makes it easy to find parts in the catalog and in the storeroom, so you’ll no longer be ordering duplicates of parts that you already have but can’t find. This can also help to control price, because you won’t have to pay to overnight critical parts when equipment breaks down and you can’t find the part in time. You should target savings of 15% to 25% on shipping costs.
Using MRO data to control price
The key to controlling prices is that whenever you buy, you buy from a catalog record. This gives the purchasing department accurate spend data, which can be used to negotiate better prices.
A couple of key best practices make this possible. First, every item you buy needs to be in the MRO catalog. A lot of our clients say “We’ve got our inventory set up.” But not all items are inventory items. Many items are bought but not stocked. The catalog needs to contain every item you purchase, whether or not you keep it in inventory.
Second, multi-site organizations should use a common MRO catalog. All of the sites for the most part buy the same types of materials. They should all buy off of one system record, not many. This makes it possible to report on what items are being used and bought “across” the enterprise.
Once you know what you’re buying, you can build vendor purchase agreements that firm up price, quality, delivery, and service requirements. Establishing agreements for the common items that you are buying creates savings. You should target savings of 5% to 10% on purchasing prices.
The added benefits of good MRO data
We’ve talked about the immediate hard-dollar savings that you can create by improving your MRO materials management. But this process can also create significant downstream value.
Materials are the number one cause of maintenance delays. By making it easier to find parts, and ensuring that the proper parts are available when needed, you will increase maintenance productivity by as much as 15%. This means that more maintenance work gets done, because your technicians can spend their time turning wrenches, not digging through the storeroom looking for spare parts. Saving an hour per day, per tech, is good ROI. That by itself justifies the investment into better MRO data.
Making parts available when needed also reduces mean time to repair (MTTR). This means more uptime and higher productivity on the production side of the business.
Mastering your MRO data
In the ideal scenario, when a piece of equipment breaks down, you can pull up the bill of materials (BOM) for that asset, use the BOM to find the required part in the MRO catalog, and see immediately if the item is in stock. If it’s in stock, you can look up the item’s location in the storeroom and go straight to where that item is stored. If it’s not in stock, you can order more on an existing contract with the click of a button in the MRO catalog.
You may not be there yet. But making dough with MRO starts with your MRO catalog. Developing a solid materials master is the first step toward better MRO inventory management and procurement. Improving your MRO data will enable you to reach the low-hanging fruit—saving money on MRO materials—while putting you on the road to increasing maintenance productivity and equipment availability.
If your MRO materials master is giving you trouble, SwainSmith can help. We have assisted some of the world’s largest organizations in improving their MRO data. Contact us at 828-215-9471 or firstname.lastname@example.org, and be sure to ask about a complimentary demonstration! We’ll put a few of your item records through our cleansing, standardization, and enhancement process so you can see the difference.