mro connection have the experts failed us

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MRO Inventory the “Expert’s Monument to Failure” Rich MacInnes Director, Professional Services Net Results Group, LLC

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Reliability Web presentation given May 20, 2011See link to audio presentation:http://tinyurl.com/MRO-Monument

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Page 1: Mro Connection   Have The Experts Failed Us

MRO Inventory the

“Expert’s Monument to Failure”

Rich MacInnes Director, Professional Services Net Results Group, LLC

Page 2: Mro Connection   Have The Experts Failed Us

Thought Starter • If you are what you eat…

• Then MRO stock is what we think we are going to eat!

• So what statement is being made about your assets (equipment) or _______?

Page 3: Mro Connection   Have The Experts Failed Us

Poll Question 1

Q1: If MRO stock is "you are what you think you are going to eat,"

your MRO investment implies what about your asset (equipment) reliability ?

It’s a Wonder our assets

work at all

It’s a Miracle We Are Still

Alive

Stuff Happens, it’s better to

be safe than sorry

Reliability Up, MRO Stock

Down

Page 4: Mro Connection   Have The Experts Failed Us

Non-moving MRO inventory typically G r o w s

at an annual rate of 6.7%

and nearly 68% of all SKUs purchased on an annual basis will

never be used!

This is known as Waste!

Learn to See the UNASSEMBLED FACTORY

Page 5: Mro Connection   Have The Experts Failed Us

2007 estimates suggest that U.S. industries

purchased a staggering $136 billion in MRO

inventory that has yet to be consumed three

years later… a not so welcome to 2010.

• Sadly, cross-industry

statistics vary little,

where on average 58%

of MRO inventory

investment does not

move in any three year

period.

• Only 6% of parts

account for 90% of the

MRO inventory

expenditures on an

annualized basis.

Page 6: Mro Connection   Have The Experts Failed Us

Hoarder's delight… • On average only 17% of new MRO item adds

to inventory will be used within the first

month, with the second use nearly 8 months

later.

• It gets better for Hoarders as initial MRO

inventory orders > 2, 69% on average are not

issued within the first 3 years of acquisition.

• Given that significant percentage of MRO

items can be acquired quickly enough to

mitigate production risk and still meet

resource scheduling objectives, why are

companies becoming their own storefronts?

Just ask the Hoarders!

Page 7: Mro Connection   Have The Experts Failed Us

Asset Lifecycle - Future Perfect

1. Only produce exactly what is consumed in the market.

2. Only invest in assets that produce that which is

consumed in the market.

3. Only invest in asset that never fail over their useful life.

4. Achieve zero Total Cost of Ownership (TCO) for all

assets

5. Only invest in resources that enable the first four

future perfect objectives

Page 8: Mro Connection   Have The Experts Failed Us

MRO Lifecycle Insights That Matter

1. 80% of your costs are designed in

2. Demand first - Supply second

3. A toilet is critical, but do you stock a spare?

4. Value in Use trumps Book Value

Page 9: Mro Connection   Have The Experts Failed Us

80% of your costs are designed in!

Storerooms list with

OEM spares

Q2 - Poll Question

Do you have an effective method for determining the initial investment in spare parts?

Page 10: Mro Connection   Have The Experts Failed Us

Poll Question 2

Q2: We have effective methods for determining the initial investment in spare parts and

consumables?

Strongly Agree Agree Not Sure Strongly Disagree Disagree

Page 11: Mro Connection   Have The Experts Failed Us

Q3 - Poll Question

Do you have effective methods for matching supply of MRO materials to asset (equipment) demands?

Demand First – Supply Second

• The asset (equipment) creates the demand.

• Change Demand and Supply will follow.

• You can’t match supply to demand – without knowing demand.

• MRO Demand Patterns are sporadic and lack sufficient data.

Page 12: Mro Connection   Have The Experts Failed Us

Poll Question 3

Q3: We have effective methods for matching supply of MRO materials to asset (equipment)

demands?

Strongly Agree Agree Not Sure Strongly Disagree Disagree

Page 13: Mro Connection   Have The Experts Failed Us

A toilet is critical, but do you stock a spare?

• MRO Stock is Supply Looking For Demand.

• Today’s supply chain models rely on Failure being more Reliable than the equipment.

• The industrial supply chain is focused on pushing inventory forward… don’t play this game.

• Maintenance Planners try to maximize labor utilization.

• Apply Lean 5S methods for stocking locations

Q4 - Poll Question

Do you have effective methods for deciding what to stock and where to stock it?

Page 14: Mro Connection   Have The Experts Failed Us

Poll Question 4

Q4: We have effective methods for deciding what to stock and where to stock it?

Strongly Agree Agree Not Sure Strongly Disagree Disagree

Page 15: Mro Connection   Have The Experts Failed Us

Value in Use Trumps Books Value • Define Excess MRO Materials – Unknown MRO items are by

definition excess unless proven otherwise

– MRO items beyond their shelf life – MRO items that are obsolete – MRO items that are deemed no

longer used and/or needed – Readily available MRO items

regardless of criticality, in excess of one year’s worth of supply

– Capital spares regardless of criticality, that have had no usage in the last three years nor a forecasted failure/replacement event to occur in the next one year

• Focus on – Consumption Rates – Likelihood of Failure

• Versus movement

– Use Criticality Factor to adjust Service Levels

– Drive Supply Efficiency – Analyze Supply Surety

• More surety isn’t always good news

Q5 - Poll Question

We have effective methods for determining what MRO stock to keep or to dispose?

Page 16: Mro Connection   Have The Experts Failed Us

Poll Question 5

Q5: We have effective methods for determining what MRO stock to keep or to dispose?

Strongly Agree Agree Not Sure Strongly Disagree Disagree

Page 17: Mro Connection   Have The Experts Failed Us

Playing to Win Mentality • Playing to Win in MRO materials takes a

mindset that does not accept equipment failures as fait accompli.

• It views MRO inventory for what it is—

“Stock waiting for something to fail

before it has value.”

• “Failure is the only opportunity to begin more intelligently” – Source: Fortune Cookie

Page 18: Mro Connection   Have The Experts Failed Us