Inventive with inventory

To remain competitive, manufacturers must continually seek ways to reduce cost, optimise cash flow and improve operational performance. One key area offering great scope for process improvements and cost savings is the management of maintenance, repair and overhaul (MRO) spares inventory. Typically, MRO spares account for more than half of all indirect purchasing transactions, but inventory management has always represented a trade-off between spares availability and cash flow. Cash tied up in inventory – in particular obsolete and non-essential products – cannot be freed up for other opportunities. However, failing to have an appropriate spares strategy can result in unexpected downtime with, ultimately, expensive consequences, both commercially and reputationally. Many companies view MRO inventory as an investment, but it is, in fact, an expense of doing business. There should be a valid justification for every item stocked. Companies should consider if the cost of carrying a product is less than the procurement expense, and think carefully before purchasing a product in greater quantities than are required to fulfil an immediate need. Matters are further complicated by the frequently limited central control of MRO purchases, with different areas of the plant having their own suppliers and purchasing strategy. These issues are exacerbated for multi-site operations, meaning one company can deal with dozens or even hundreds of suppliers for the same type of product. In this instance, purchasing decisions are often governed by initial purchase price rather than total cost of ownership, which is influenced by factors such as component longevity and energy efficiency. Practices such as 'shopping around' to achieve small percentage savings – often buying far greater quantities than needed, tying up valuable capital in unused goods – are still common. This means additional administration costs and time pressures, while the number of monthly invoices grows with the supplier base – a considerable concern given recent research from the Chartered Institute of Purchasing & Supply (CIPS) which calculates the cost of processing a single invoice at £50, effectively negating any saving negotiated. The issue is heightened by the complexity of MRO stockholding, as the sheer volume of components often runs into thousands, with many of low value and infrequently required in manufacturing operations – creating a highly complex logistical management challenge. However, sub-optimal MRO inventory management impacts directly on site profitability. Duplicated costs, missed opportunities for improvements and unplanned downtime can have a damaging effect. Companies that have previously used multiple suppliers for the same products, such as bearings, motors, fluid power, tools and maintenance equipment, are increasingly realising that there are far more efficient ways to manage their needs by working with a specialist independent MRO supply partner through systems geared to optimising the inventory held on site. Consolidating MRO spend with a single specialist authorised distributor not only reduces the administration costs associated with multiple suppliers, but also insures against unwittingly receiving counterfeit components, with all the ramifications that can result from a prematurely failed product. Companies will also be guaranteed availability, maximising uptime, and competitive pricing. Further value can be added by the MRO partner analysing what stock is held and where, and ensuring products already purchased at one facility are available at every location where they are needed. At the same time, detailed management reporting delivers transparency of consumption and identifies spend patterns, while providing the foundation of accurate on-site stock profiling to enable targeted reductions in inventory. Improved stock management practices, combined with on-hand technical and application advice, can help engineers standardise their spares strategy, delivering cost savings through product and brand standardisation and lower total cost of ownership. For higher-value, faster-moving MRO items, industrial vending may be the solution. While it is long-established in some larger companies, specialist MRO suppliers are creating new operating models which are bringing the benefits of this system of inventory control and management to smaller organisations across many industry sectors. Going one step further, an MRO partner can effectively set up a branch on the customer's premises, geared entirely to meeting the needs of the company in terms of opening times, stock held and on-site technical and inventory management expertise – a tangible source of added value. With products only invoiced as and when they are used, cash tied up in inventory is minimised. In the long run, a close partnership approach involving a specialist MRO partner at every stage of the process, will help ensure inventory is efficiently managed, improving decision-making, business process effectiveness and profitability.