Most companies are aggressively searching for ways to reduce their costs to compete in this tight market. Maintenance, Repair, and Operational Supplies (MROs) can spell considerable savings to those willing to explore.
An MRO has also been known to stand for Maintenance, Repair, and Overhaul. Either works and means the inventory for maintenance. MRO inventory are those supplies, parts, and materials consumed in the production process but those which do not either become part of the end product or are not central to the organization’s finish product. MRO items include consumables (such as cleaning supplies, gloves, PPE items, or office supplies), equipment parts and components (such as motors, pumps, seals, bearings, lubricants, valves) and facility upkeep items such as computers, fixtures, furniture, etc. These are germane to the organization producing products or services but are not key components in the finished product.
We often refer to the area that stores and secures these items as the storeroom or parts room.
Why the big opportunity? Well, consider that MRO spending in the US is about $775 billion a year, according to Grainger Consulting Services, a division of the supplier WW Grainger. A study of 500 organizations by Grainger finds that more than half of U.S. businesses are not effectively managing MRO supplies. That represents an enormous market and a large cost improvement opportunity.
Bear in mind that the average carry costs, known as the cost to have and to hold, of MRO inventory is between 20-30% but can be as high as 40%. These costs include the cost of the stores facility real estate, utilities, taxes on the property, taxes on the inventory, the salaries of stores personnel, pilferage and obsolescence, insurance on the building and contents, cost of money, etc. This means if your inventory is valued at $750,000, the cost to the organization could be $150,000 to $225,000 each year to maintain that inventory. But more than the cost of tying up $750,000 in inventory along with $150,000 to $225,000 to maintain it, the cost of not having the right inventory at the right time can be extremely high. Lost production waiting for parts to be expedited can become so normal that few will question the rationale to rely on that reactionary process.
It’s typical to find that required active inventory (items we need) ranges from 25-30% of the inventory. Excess active inventory (too many of the items we need) ranges from 10-20%. Inactive inventory (obsolete or slow moving) ranges from 50-60% of inventory. Of the inactive inventory, critical spares (parts we absolutely must have because of impact and lead times) represent approximately 20% of the total inventory, slow-moving inventory represent 20-25% and obsolete items represent 15% of the inventory.
Some of the opportunity for cost savings comes through the removal of duplicate items and the examination of excess active and slow-moving inventory. Some of the means for removal of obsolete or slow movers can include using them without replacing, selling back to the vendor for credit, selling through eBay, Craigslist, or a third party for cash.
Should you have a storeroom attendant? If you have at least 2000 line items (individual part numbers or SKUs), you can justify one. In fact, not having a parts clerk or storeroom attendant can be extremely costly as no one is managing your parts. Who will handle receipts, storing items, cleaning and organizing, disbursements, security, and record keeping? If you do have an attendant, make sure they receive MRO training as it is a science and not an art and an untrained attendant may not be able to bring the right controls to the storeroom that leads to cost savings.