Best Practices in Work Inventory Management By Glenn Gustafson, SME Back Office ER. Use work inventory management tools to determine if. Best Practices in Inventory Management K. Ravichandran Debjyoti Paul. Implementation of best practices after a detailed business analysis resulted in. World’s best practice inventory management demands that the . Inventory management minimises the overall cash investment. Five Basic Practices That Can Quickly Close the Gap with Best Practices in MRO Inventory Management. June 1. 3, 2. 01. In an earlier job, I was the materials manager in a manufacturing facility. We selected a supplier to come in and regularly replenish the fasteners in a central stocking area. The supplier inventoried and stocked the bins and invoiced us monthly. This simple process change eliminated the multitude of purchase orders and the associated costs that had been typical of the previous arrangement; it was also designed to ensure that maintenance staff always knew where to get the fasteners they needed for their tasks. However, there was continued resistance to the idea of the materials management function taking control of all MRO supply. The turning point came when the stock of foundry tapping cones. Soon after, additional supplies of tapping cones were moved into the crib. Not only were MRO centrally maintained and ordered after that, but the foundry maintenance area. This article will address several of the basic steps that organizations can take to improve their MRO supply chain activities. MRO Inventory: The Opportunity First of all, let. Inventory Control – Best Practices. Best Practice Inventory Management TRAINING GUIDE. Best Practices Survey.... Best practices in demand & inventory planning. WHITEPAPER Best Practices in DemanD anD inventory Planning 2. Planners should have enough supply chain management. Just two examples: The Helicopter Association International. As companies continue to do battle on the cost front, few see the likelihood of MRO spend falling. A recent survey showed that nearly 6. MRO spend in 2. 01. It is all the more regrettable in 2. Yet in my experience, MRO supply activities have little direct accountability, and are driven too often by stockouts rather than to any overarching supply chain plan. Frequently, I have seen situations where MRO inventory is expensed and sits in an area without any identifiable locator system, ID, or a usage history. Although more companies are coming round to the view that MRO supplies are true costs that can be tracked and controlled, clearly there is room for systematic control and more efficient methods of handling. MRO vs. The inventory is received and located in a warehouse or WIP location and decremented as it is used. When an enterprise resource planning (ERP) system is utilized, the inventory may be replenished through a reorder advisement through MRP or through a kanban type of system where the supplier or vendor is notified and the inventory is replenished. Bills of materials are kept for the end products; they detail the amount and costs of the inventory. There is never an issue of senior management doing an end run around the system to expedite the process; that would hurt everything from back flushing to inventory accuracy, and many other key performance indicators. However, MRO inventory often lacks most of these controls or practices. It is very rarely measured in terms of inventory on- hand, turns, obsolescence, or usage. It generally turns less than once a year; request- to- fill rates are usually less than 8. Frequently, many of the supplies required for MRO tasks are actually in stock but they just cannot be located. Another performance shortfall: many of the items required for maintenance or repairs are obtained with spot buys that ignore price in favor of availability. Even worse: expedited freight becomes a factor as well. There is also the cost of unplanned downtime, waiting for repair components that might already be somewhere in the facility. At the same time, there is the issue of diverting highly paid maintenance personnel from repairs and planned maintenance activities. Having them carry out materials management work is not the best use of their skills and time. I. It is not uncommon for a maintenance manager to attempt to . The material may be in tool boxes, shelves, or hidden in work closets. This squirreled away inventory comes at some considerable cost to the organization. Another example: in one Tier One automotive facility, we had machining bits that were stocked on an honor system. One day, there were no bits on hand and nothing on order. While purchasers made frantic calls, operations people made plans to extend the usage of the remaining bits. It was assumed that the operations would suffer within 1. As it turned out, there was enough stock in operators. Five Best Practices in MRO Management. So what are the hallmarks of good MRO inventory management? In my experience, there are five aspects that constitute best practice: 1. Central location of MRO inventory. It is invariably more efficient to store MRO supplies in one central location per facility rather than keeping them in various unidentified locations. It is crucial to have computer systems to track, manage, and control inventory. Armed with usage data and transaction costs, an organization can . The inventory was cataloged, assigned part numbers, and located on shelves that were also identified with a location ID. The inventory was then capitalized, boosting the balance sheet and allowing the costs of routine equipment maintenance to be tracked properly. The new . There were also efforts to control costs by using lower- cost but fully compatible components rather than the . Supplier- controlled consignment inventory. Many organizations have successfully used third parties to manage MRO inventory.(6) Vendor- managed inventory (VMI) approaches. And it means that the supplier, given greater visibility of downstream demand, may be able to offer volume discounts that a maintenance representative at the customer would not have access to. The VMI approach can also reduce paperwork and reduce the number of inventory transactions on the customer side since the customer is paying for material as it is used. The invoicing can then be scheduled on a weekly or monthly basis to streamline the payables process, trimming the number of purchase orders created and thus reducing transaction costs. Those savings can be impressive by themselves: Figures for costs to process a purchase order (PO) range from $6. Let. An accurate, up- to- date fact base. This is another important element, along with standardizing the processes for stocking, consumption, and analysis for better management. When there are standard business processes, it makes it easier to develop an accurate, timely base of data which in turn enables the maintenance/facilities teams to better plan scheduled maintenance activities and enables them to forecast costs much more accurately. Also, the timelines required for a scheduled maintenance will be more accurate, allowing operations personnel to better plan around a downtime and not stockpile material because downtimes have always been longer than promised in the past. Fasteners are one of the MRO parts categories for which an accurate database can be developed very quickly. Many fastener suppliers will supply the storage equipment (shelves, bins or racks), label the locations, and count and stock the locations. The customer then pulls any items that are required. There is no transaction, and no need for a requisition or purchase order. The supplier restocks on an agreed- upon schedule and invoices monthly or twice a month based on consumption. This reduces the number of purchase orders considerably and significantly reduces the associated time and labor that go into the inventory process. A set of key performance indicators. As in any project or management of an operation, key performance indicators (KPIs) must be established in order to measure factors such as savings, costs, and obsolescence in an MRO project. If something is important enough to track, it should be measured, so that upper management can not only be kept apprised of the project. Some measures to consider might include days or months of on- hand inventory, the number of stockouts, the ratio of rush orders to replenishment orders, and rates of parts obsolescence. Measures such as these should be tracked and posted so those responsible can see how they are performing and are in a position to act to improve performance. In the example of the foundry items noted earlier, we were able to reduce the number of $5. The data should be included in the monthly or quarterly reporting to management. If MRO inventory performance is reflected in its implementation and management by supply chain professionals, then its KPIs will likely be positive points in any report. To begin with, of course, there may be data that is less than flattering to some departments. However, the open reporting of that data will bring the proper attention to the issues, and over time, the improvements in the data will become a positive for the whole organization. The alternative really is not viable: when an issue is hidden away or ignored, it will soon become even more serious, potentially derailing careers. Supply chain education for MRO staff. Often, continuing education efforts such as a seminar series on inventory management will allow those involved in MRO to understand the importance of adhering to best practice. Exposure to supply chain professionals. There are many cultural imperatives that sustain the status quo, not least of which are the defense of turf by managers and heel- dragging by the many who fear loss of control and the many more who are distrustful of any different ways of doing things because they want proof that the new way will be that much better. Change has to start somewhere. The best place to begin is with data showing how subpar MRO activities actually are when compared with inventory management norms. It can be a real eye- opener for senior management to review the annual maintenance expenditures on parts or to see the costs of expedited freight charged to maintenance. These two items alone may be enough for top management to begin asking questions. And with senior executives engaged, real change can start to happen. As noted earlier, one of the easiest areas to begin an MRO inventory overhaul is with fasteners. Many leading suppliers of fasteners offer very advantageous VMI programs.
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