Spare parts management involves costs amounting to millions each year. Unfortunately, this multi-million dollar section of the balance sheet is often overlooked, lacking any substantial procurement strategy or supply chain management approach.

Companies often neglect strategies to improve their MRO spare parts materials because it may not seem as “sexy” as strategies for finished goods.

Because of this, companies are severely over-invested in spare parts; and fail to realize their strategic importance as they experience incorrect inventory levels and inflated annual spend directly impact working capital and profitability, in addition to operational performance.

Important to recognize is that companies experience a higher and more immediate hard-dollar return from implementing MRO strategies, whereby results from MRO strategic initiatives go directly to the bottom line.

The question becomes, “who owns this strategy and who in the organization should be held accountable for making it happen”?

As experienced by many corporations, various audit points have exposed MRO material issues throughout an enterprise, which has been a very large pain especially for the CFO and Plant Controllers.  Lack of any strategy amounts to Sarbanes-Oxley (SOX) exposure, significant dollars in avoidable costs, and reduced operational efficiencies:

• Poor identification of MRO materials that cause unnecessary higher annual spend, typically in the range of 16% to 23%.
• Incorrect order points, lead times, and order quantities causing Inventory levels to be inflated with levels growing 6.7% per year.
• MRO stock unaccounted for throughout a plant, with values in the millions of dollars (major SOX issue).
• Unnecessary purchases each year due to poor inventory optimization and the incurrence of unnecessary expedited shipping costs.
• 25% of maintenance time is wasted looking for the right part.
• Several other measurable financial and operational factors that could be eliminated with the proper oversight and strategies in place.

In 12 months or less, depending on the size of the enterprise, a complete and optimized MRO maintenance strategy can be implemented to deliver bottom line hard dollar savings in the multiple millions of dollars with returns on project investment exceeding 30%.  A return of this size is significantly higher than any company’s cost of capital.  And, it can all be accomplished with improving operational effectiveness and production up-time, making sure you remain competitively a low cost operation.

MRO strategic initiatives must be developed as a comprehensive plan, but most importantly, driven as a team effort by upper and middle management.  This will ensure that the initiatives undertaken are comprehensive, logical to implement, sustainable, and are accountable by a select few in the organization, typically in partnership with finance and operations.

Approaches to consider in your strategic plan include:

• Creating a comprehensive plan to deliver specific MRO solutions that use industry specific knowledge which encompasses a well-developed project plan along with critical measurable KPIs to ensure optimal implementation with input from all stakeholders.
• Where necessary, cleansing and standardizing item descriptions across the enterprise item master to correct years of erroneous, obsolete and duplicate data. This will eliminate unnecessary inventory and leverage better information to reduce annual spend.  It will also improve time spent by maintenance personnel.
• Implementing an on-going data governance model to ensure data quality is sustained once the cleansing and standardization is complete in order to not corrupt the data again.
• Disposing irrelevant inventory efficiently to recoup a high percentage of past capital investments.
• Creating perfect storerooms throughout the enterprise using industry best practices that optimize physical space and storeroom operating procedures.

Results expected from implementing this approach include, but are not limited to:

• Reduced working capital funding requirements
• Lower annual spend on inventory
• Reduced downtime by having the right part, at the right time, with the right quantity.
• False stock out costs
• Major reduction in shipping costs from greatly reduced emergency orders

As you would realize, these approaches impact many areas within an organization.  This is why for any MRO strategic plan to be effective, it must have the right ownership to be fully effective.

Asset-intensive companies that employ asset lifecycle management strategies specific to their needs and processes are realizing these benefits quickly, making them ever more competitive in their industry.

We have seen various organizational arrangements to ensure ownership of an MRO strategy not only has prominence in the organization, but is also supported from the “C” Suite as well, especially the CFO and COO/EVP of Operations.

Developing that comprehensive plan mentioned earlier provides the roadmap for upper and middle management to understand, buy into, and manage the strategy properly and efficiently.   Depending on the culture of the organization, accountability for overseeing and implementing the strategy can be accomplished either through a steering team, or appointing one person to be the MRO strategy czar.   Either way, the approved, and often times fluid, roadmap must be created and monitored to assure results are being realized timely and efficiently.