MRO Today - Pass the buck, save a few

Pass the buck, save a few

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Every year at budget time, your company tells you to eliminate some of your spare parts inventory.

It’s a logical plan. Your company isn’t making money on that large investment in parts sitting on the warehouse shelves. The company wants to use the money elsewhere to create additional profits.

In its edict, the company really isn’t saying you can’t have any parts. It’s saying it doesn’t want you to have money tied up in parts.

Which begs the question, “If I can have inventory but can’t have any money for that inventory, how do I get free inventory?”

Simple. Do it with someone else’s money. Money is the key here, not parts on the shelf. There are three ways to do this.

Consignment inventory
The objective is to be in a position to get parts when you need them and pay for them when needed. Why not have someone else own the stuff as it sits in your warehouse? This arrangement is possible by working with your suppliers and distributors.

Consignment inventory is a relatively new concept, a step above a vendor stocking program.

In vendor stocking, the vendor of a given item stocks your warehouse and manages that inventory for you.

What we now want that vendor to do is own the inventory as well as stock and manage it.

Vendor stocking is used on low-value commodity items (fasteners, plumbing supplies, electrical supplies, bearings, MRO items, etc.).

Individually, these items have little value, and forecasting need is difficult. The only time these parts are important is when you need them, you’re out of them and you face downtime.

So, if you must carry these items, let others manage them. It’s cheaper, and it’s rare to run out of a vendor-stocked item. Inventory management of commodity items is a vendor’s core competency, not yours.

After you have a vendor stocking relationship, work to shift ownership of the inventory as well. Most vendors will do this, even for smaller companies.

Shipped inventory
One of the main reasons you have inventory is to minimize equipment downtime. This is insurance inventory used in the event of an unplanned equipment malfunction.

Your homework is to evaluate the time required to get materials.

Ask yourself, “When the equipment fails, how long does it take to diagnose the problem, tear the equipment apart for the repair, clean the parts up and get everything back together?”

Identify the time required between “diagnose” and “reassemble.” If you get the parts shipped to your facility within the time it takes to “diagnose” and “reassemble,” you don’t need inventory. If this isn’t possible, inventory is a necessity.

For those who can, UPS (or any other overnight shipper) is the answer. It’s expensive, but so is the cost of carrying and managing inventory. Given the two options, UPS is cheaper and, possibly, a more reliable source of parts than your own stockroom.

Food for thought: Use your procurement card to buy the materials and cut down on paperwork.

Planned downtime
Production uses just-in-time inventory. You should, too.

To accomplish this, shift some of your unplanned work orders to planned work orders.

Unplanned work orders require in-house inventory because you don’t know when materials are needed. Planned work orders don’t require inventory since, like production’s JIT system, you buy on an as-needed basis.

Review your unplanned orders from the last six months and determine if some could have been planned. You may find repair work to shift to a repetitive status or work to turn into preventive maintenance.

You also might find some of the work is seasonal. Planning those jobs in the off-season reduces crisis situations.

Conclusion
The key to all these ideas is eliminating the reason for having or owning inventory in the first place. With the reason gone, so is the inventory. And, you can meet new goals for lowering your inventory cost.

"Chris" Christensen directs the University of Wisconsin School of Business' operations management program. He can be reached at .

This article appeared in the June/July 2000 issue of MRO Today magazine. Copyright, 2000.