MRO Today - The stockroom/bank vault

The stockroom/bank vault

by R.T. “Chris” Christensen

It never ceases to amaze me when I see companies take a cost reduction in the stockroom. Invariably, they never figure on the additional costs that they create. Here’s what I’m talking about:

A company takes a look at its maintenance stockroom. It sees a closed stockroom that has an on-hand availability of needed parts in the 95 percent-plus range and an inventory accuracy rate in the high 90s. Management looks at the stockroom and sees all the people working there and the controls that are in place to maintain high availability and accuracy rates. The stockroom is running smoothly. Materials are tracked. Inspection procedures are in place. Materials are properly charged to jobs. Inventory levels are at a fairly low level. All the materials are clean and in good workable condition. All is well. So, what is the problem?

The problems begin when company management says something like, “Why do we have all these people and all the checks and controls on a secured stockroom when, in fact, we have no problems here? These people are really doing nothing to enhance the profitability of the company and, therefore, are not needed. The stockroom is running extremely well and these people and the stockroom procedures are just a waste of time, energy and money.”

All the parts that the plant needs are there and the company really has “honest” people who wouldn’t borrow parts from the company. Therefore, there is no reason to have all these people running the stockroom, right?

So, as a cost-savings measure, the company eliminates all of the stockroom people and opens the doors for all employees to get needed parts. The company realizes a big savings in labor expense from the elimination of the stockroom personnel. And, the company perceives that there is an increased efficiency in its mechanics because there are no stockroom personnel there slowing them down by requesting paperwork before parts are taken out of the stockroom. There is initially a cost savings, but is it really a savings?

Here’s what I’ve seen from companies that have done this: They do see the initial savings that they claim but, unfortunately, that only lasts for the first few months. When they move ahead into the six-month timeframe, material on-hand availability has dropped to the 70 percent range and inventory accuracy has slipped to between 60 and 70 percent. Then, the finger-pointing starts.

Accusations of not reporting material removal from the stockroom begin. Necessary parts are no longer available and mechanics start creating their own private stashes of parts so they won’t be yelled at again for not being able to fix a piece of equipment. Management now sees that the stockroom is out of control, but what it doesn’t see is that the root cause of the problem was instituted by it in the first place.

Ladies and gentlemen, you need stockroom control to maintain accuracy and on-hand availability.

What would you think if your bank called you and said, “We have reduced our costs and now have an inventory accuracy rate of 70 percent? That means that the $5,000 you had in savings is now only $3,500.” But, hey, the bank reduced its costs.

OK, if that’s the way you want to play, how about this: The next time you go to the bank, just walk into the vault and play with the money. Go ahead. All of you are honest and wouldn’t stuff a few extra twenties in your pocket. Naw.

While you’re there, grab some money and take it home, just in case you need it. You’ll bring it back if you don’t, right?

If you’re in a hurry and don’t have time to fill out the paperwork right now, I’m sure the bank will tell you, “Just stop back and do it later when you have some free time.”

Is your stockroom like a bank vault? It should be, since there are huge similarities. That is money sitting out there in the form of parts that you paid for and needed.

Do you want your banker to control your money in the same manner that you control an open stockroom? Of course not.

If 70 percent accuracy isn’t good enough at the bank, why would it be good enough for you at work?

It’s easy to see why the bank has a huge vault and bank employees controlling every movement of that inventory. And at a bank, some of them even carry guns, of all things. They are real serious about this.

Why aren’t you and your company serious about controlling your money?

R.T. "Chris" Christensen is the director of the University of Wisconsin School of Business' operations management program. If you have a question, contact Coach Christensen by phone at 608-441-7326 or e-mail cchristensen@execed.bus.wisc.edu.