Mitigating Critical Key Risk Factors: Quality MRO Master Data Yields Big Returns
Corporations around the globe regularly report key operational risk factors in their annual reports and corporate filings. Recognized for their potential to significantly impact business operations and financial success, these risk factors generally involve reporting on three conditions:
- Dynamics affecting consistent and reliable production;
- Production delays stemming from inaccurate and inadequate data;
- ERP and EAM system complexities and data issues directly impacting production and operations.
This corporate reporting merely describes the problem. It doesn’t fix it. And although corporations continue to make heavy investments in ERP and EAM systems, inaccurate and inadequate MRO data still exists, resulting in poor decision making. Furthermore, when organizations migrate from one system to another, or when multiple systems interact, toxic MRO data in the database perpetuates the issue. As a consequence, search results are inaccurate, and the value of expensive MRO inventory and equipment is often misstated.
In an attempt to overcome these significant challenges, organizations may have trained end users to update and govern MRO data within their various ERP and EAM systems. The anticipated result is accurate, high-quality data, but internal resources are focused on other tasks and do not update and govern MRO data consistently. ERP and EAM systems are also not equipped with the necessary functionality to clean-up, standardize, and enrich large volumes of toxic MRO data.
The Challenge Mounts
Even if the MRO data can be cleansed and enriched, the ERP and EAM systems may lack the functionality and ease of use to help the organization ensure MRO data remains clean and is governed consistently. The outcome? Production and operational delays continue to trace back to inadequate and inaccurate MRO data in ERP and EAM systems, creating an endless loop with no apparent solution.
Exacerbating the problem, inaccurate reporting causes teams to engage in unnecessary procurement of MRO parts and assets, resulting in excessive MRO inventory and maintenance costs. Finances and profitability continue to be negatively impacted.
Delivering Significant ROI While Minimizing Risk
MRO spend typically equates to 10% or more of a company’s total spend, yet decision makers fail to recognize the benefits of having accurate and adequate MRO Material Master Data, BOM Spare Parts Data and Asset Data. Making an investment to access this data yields a remarkably high level of cost reduction, cost avoidance and increased production capacity.
The ROI of enacting best practices MRO data management is well documented. The benefits include:
- Decreased MRO procurement spend — purchasing cost avoidance;
- Reduction of excess/obsolete MRO inventory holdings;
- Maintenance cost avoidance — reduced overtime and outsourced labor costs;
- Extended asset longevity due to prompt maintenance support/attention;
- Compliance cost avoidance (e.g. SOX audits);
- Improved production uptime and increased net income.
The ROI will vary depending on the size of the company, the volume of data, levels of data toxicity, duplication of data, and other variables. However, all studies of project outcomes have confirmed that the hard-dollar return far exceeds the investment by 8 to 12 times (or more) on average, plus annual ROI dividends over the life of the company.
MRO Material Master, BOM and Asset Data Cleansing and Governance Activities
Achieving the outcomes (and ROI) mentioned above can be almost impossible without specific activities that are designed to promote excellence in MRO data and data governance. These include:
- Classify, standardize, enrich and de-duplicate MRO Material Master Data;
- Review, validate and enrich MRO BOM Spare Parts listings and data;
- Review, validate and enrich MRO Asset and Equipment data;
- Extend effective SAAS data governance to ERP/EAM;
- Utilize the improved data visibility to further optimize the MRO program.
Implementing these changes can seem overwhelming to all stakeholders, from facility personnel to the C-Suite. Yet, senior executives are accountable for minimizing and eliminating certain key risk factors, adding strong motivation to invest in solutions that can mitigate bottom-line impediments. Investments in data quality projects that directly demonstrate a hard-dollar positive impact on financial statements will most certainly move forward with appropriate funding.
To learn how you can identify the expertise to effect such dramatic change and ensure it becomes ingrained within the organization, we invite you to give us a call.
About the Author: Tom Harrill, Net Results Group, has been working with Asset Intensive Companies for over 24 years, developing projects and solutions that contribute to improved productivity, reduced costs and increased profitability.