MRO Today - Opportunities in inventory

Opportunities in inventory

by Dave Melhus

By now, your company’s January financial results are history. If your profits are hitting the mark, your MRO budget is likely flying under the radar screen. If not, it’s a matter of time before your budgets are scrutinized. No one will remember or care if the maintenance and tooling budget reflected a reduction in expenses while production was increasing. It’s your job, suck it up, and manage it.

The question is: Will you muscle your budget with baling wire and by digging through the boneyard, or turn to process improvement?

This column focuses on turning MRO inventory into “free budget dollars.” If your company treats MRO supply purchases as an expense, then every dollar not replenished is a dollar saved on your expense budget. I’ve found that a change in your inventory logic is a quick method of delivering impressive results.

You probably think that you already improved your inventory system. Maybe you developed a minimum/maximum reorder point, consigned various commodities or even had vendors manage select commodity types. All are good first steps, but did you implement them with an overall strategy in mind? Or, does the strategy need fine-tuning?

Consider how the following tactics might benefit your budget.

Assuming your company has implemented some sort of supply strategy, ask yourself, who was involved and what was the purpose? Was it to reduce administrative time, number of suppliers, pricing, inventory dollars, or all of the above?

Did the group view the change as a project and, therefore, approached a solution as “one size fits all” vs. considering an 80/20 method? I’ve seen countless times when the tactical approach (supplier reduction, consignment and vendor-managed inventory) overshadowed the combined company objectives (less cost, less inventory, increased delivery flexibility and reduced administrative time).

Sometimes team makeup also influences the approach. For example, a maintenance buyer may value administrative time and 100 percent assurance of part availability vs. inventory turns while a corporate buyer values supplier consolidation and price vs. inventory and time.

Quick improvements are prevalent if you take the time to assess the workings of your current supply system. Don’t take my word; go to the gemba. Walk your supply aisles or, if you must, scan the inventory report. Where are your dollars? Select a dozen or so items with a relatively high on-hand dollar value. Compare the lead time of the item with the estimated number of days on hand. There’s seldom a relationship between the quantities on hand vs. the time to replenish the stock. The difference between estimated daily/weekly usage and replenishment time (plus a safety stock level) is roughly your budget opportunity.

Do you have other parts within those selected commodities? If so, your opportunity is multiplied.

How does the acceptable level of downtime relate to the quantity on hand? Do you have a motor or shaft on hand even though the total downtime involving a motor or shaft is several days and the supplier has next-day delivery options?

Have you challenged your suppliers’ lead times? If you commit to buy items exclusively from a supplier, would they stock your inventory?

How many just-in-case items are on hand?

In addressing these areas, it’s easy to respond that you “can’t do it . . . just because.” But, these are opportunities to lower inventory and free up budget dollars. If you don’t find a way to overcome the “can’t,” enjoy muscling your budget.

Another area many companies discover as advantageous are consigned or vendor-managed inventory (VMI) programs. Significant cash and expense (supply and administrative) opportunities are typically realized. A huge advantage is in creating organization out of chaos. The biggest mistake is that companies believe it’s OK to pass broken processes and inefficiencies onto the supplier.

Aggressively increasing the expectation of price, delivery and pull concepts with your supply partners yields extra benefits. Failure to do so results in future price increases.

Waste that typically creeps back into these systems are uncontrolled inventory at the workstations, failure to reduce transactional activities, not setting lead-time expectation, or not linking replenishment to usage. Jointly establishing a continuous improvement plan with your suppliers includes topics such as part rationalization, lead-time reduction, alternative supply and administrative time reduction.

Whether it’s your systems or those administered by your suppliers, waste exists. It’s significant, and it’s up to you to address.

Dave Melhus, the former vice president of operations for Iowa’s Vermeer Manufacturing, is currently a VP with Simpler Consulting. He can be reached at 641-620-1320 or by e-mailing davem@simpler.com.