There’s no question that you need efficient MRO inventory control. How else can you ensure the maintenance team has the parts and materials they need right when they need them and at prices that don’t break your budget?
But there are plenty of other questions. How do you get started? How do you use inventory management KPIs to track progress? And what role can modern inventory management software play in the whole process?
Here are the answers.
Let’s make sure we’re starting from the same spot with some basic definitions and concepts.
What is MRO inventory?
As a metaphor? MRO inventory is the oil that keeps your operational engine running smoothly.
As literal items you need to buy, store, and use? Here too, it can be oil. MRO inventory is the maintenance, repairs, and operational supplies, including oil, you need to keep things up and running but that are not part of the final finished products.
So, if you have a manufacturing plant, and part of the process is stamping templates out of metal sheets with a press, a lot of what you need to keep that press running is MRO. The sheet metal isn’t, though, because it’s part of the finished goods.
MRO inventory can include:
- Gloves, masks, and other personal protection equipment (PPE)
- Spare parts and repair tools
- Cleaning and janitorial supplies
- Office supplies
The maintenance department is not the only one using MRO inventory, but MRO can represent a significant percentage of its budget.
What are the benefits of MRO inventory management?
The first benefit of inventory management is having what you need to keep everything up and running. So, when that press hits X number of cycles, you have the right lubricant on hand for your preventive maintenance tasks. And, when the press stops working because there’s a leak in the hydraulics, you have the right gasket or seal on hand to fix it. Instead of the production line sitting idle while everyone waits for a part to come in, techs can start right away, getting the line back up quickly.
But it’s more than just having the right parts and materials when you need them. The second benefit is having the right parts and materials only when you need them, which can be a challenging balancing act. In fact, according to Plant Services, between 90% and 92% of inventory goes unused annually. For all the money organizations have tied up in inventory, on average, they’re only using at most 10% of it.
What are some MRO inventory management best practices?
Now that we’ve covered the what and why of inventory control, let’s look at the how. Specifically, the current best practices and how we can start employing them.
Stop relying on “bad practices”
First, you should commit to setting up a reliable system. Although gut instinct, overstocking on everything “just in case,” and rush deliveries do sort of work, they cost the department a lot of money and your team a lot of frustration. So the first best practice is deciding there is a better way.
Reach out to vendors for new ideas
Here’s the old relationship you have with vendors:
- You order parts
- They deliver them
- You pay for them
- You hold them in inventory
- You use them
But with some vendors for specific types of parts, you can move things around, opening up new possibilities where that list has more “they,” less “you.”
For example, with expensive critical parts, you might be able to work out an agreement with a nearby vendor to hold the parts for you with a promise to deliver them as soon as you need them. You’d still have money tied up in the inventory but you wouldn’t have to worry about safely storing it to prevent damage or “shrinkage,” which is where inventory disappears from your facility only to reappear in the trunk of an employee’s car.
Another interesting possibility is vendor-managed inventory. Start by determining which MRO inventory has both a low per-unit cost and a high usage rate. For example, fuses, nuts, and bolts. Instead of having open boxes in the maintenance department, you can arrange for a vendor to set up an actual vending machine at your facility. Generally, organizations see drops in consumption of roughly 20%.
Organize your schedule to organize your inventory
Maintaining the right inventory levels comes down to how well you can predict upcoming work, which means the more you move away from reactive maintenance to preventive maintenance, the easier it’s going to be to accurately predict inventory demands.
If you never know when that press is going to need more lubrication, you’re forced to always keep a supply on hand. But if you know the department has scheduled a set of preventive maintenance inspections and tasks for next week, you can order the associated MRO so it arrives just before you need it. How do you know the press isn’t going to break down between now and the scheduled PMs? You can’t be 100% sure, but you can be confident it won’t, thanks to the earlier PMs the team performed on the press.
Set up inventory management KPIs
Adopting best practices for inventory management is a good first step, but how do you know you’re moving in the right direction? Once you have things set up, it makes sense to then create a system for tracking your progress. When you see your new processes are working, you can lean into them, putting more effort into what you know works. When you see your new processes are failing to deliver, you can re-adjust and retry.
So, what are some examples of inventory management KPIs?
You can track inventory management in many ways. Here are some of the more common key performance indicators.
Percentage of procurement budget that’s MRO inventory
Procurement is how organizations get the goods and services they need for business purposes. If you’re spending too much on MRO, you’re hurting the company’s ability to do business. The ideal percentage depends on your industry, but the goal is the same: make the percentage as small as possible.
Inventory turnover
The goal is to have the inventory you need when you need it, but without tying up too much capital in inventory that then sits unused for long stretches of time. So, the faster your turnover, the better.
In fact, there’s an entire production management philosophy, Just-In-Time, that aims to cut costs by scheduling raw materials to arrive just before they’re needed. By carefully forecasting demand, organizations can push all the inventory carrying costs back onto their suppliers.
That said, with mission-critical parts and materials, it makes sense to sacrifice good inventory turnover numbers in exchange for the safety of having the right inventory always on hand.
Rush to replenishment ratio
How many of your MRO inventory purchases are basic orders to top up levels versus rush deliveries to get in mission-critical parts for offline assets?
Ideally, you should never have to rush order MRO inventory, but the reality is that life is unpredictable, and even the most reliable assets and equipment sometimes fail with little to no warning.
That said, you want the number of rush orders to be as small as possible. Remember, the extra money you’re paying for a rush delivery is only part of the problem. Behind that delivery is likely a critical asset sitting idle surrounded by a shift’s-worth of idle operators.
Stockouts
When maintenance techs go to the supply room, how often do they come back empty handed?
Stockouts don’t always lead to production delays. In some cases, it might be that the technician needs to move on to the next scheduled PM, the one they do have the parts and materials for in stock. But even when they’re less serious, they remain a strong signal that something is seriously wrong with your current inventory controls.
Unscheduled downtime
Better inventory control means having the right part at the right time for the right price. And the result is that when assets and equipment do go down unexpectedly, your team has the MRO inventory it needs to make repairs efficiently.
Which is a long way of saying that tracking unscheduled downtime can help you understand how well you’re managing your inventory.
How does inventory management software make life easier?
Inventory control starts with inventory tracking, and nothing makes tracking easier than inventory management software.
When you’re first implementing the software, you enter in all your current inventory levels. From there, tracking levels is mostly automatic. Every time someone in the maintenance department generates an on-demand work order or PM, they include the associated parts and materials. Then, when the tech closes out the work order, the software automatically updates the inventory levels. When the software notices that you’re running below the customizable par levels for a specific item, it sends you an alert, encouraging you to set up a purchase order.
In fact, it does more than that. With the built-in purchase order module, the software helps you pick a vendor and send in your order. When the order arrives, you use the software to update your levels.
Because modern inventory management software is backed by cloud computing, all your data lives in a database, where it’s safe, secure, and searchable. And all that data is also “crunchable,” meaning you can use the software to crunch the numbers for you, generating reports packed with easy-to-read graphs and metrics.
Next steps
The best way to take control of your MRO is with inventory management software. And the easiest way to do that is to find the right provider.
Hippo has many ways to help. We can answer your questions, help you book a live software demo, or even set you up with a free trial.
Quick, concise summary
MRO inventory is the maintenance, repairs, and operational supplies you need to keep your assets and equipment online. For example, PPE, cleaning supplies, and spare parts. MRO inventory management helps you have the right parts, at the right time, for the right price. Organizations can implement better controls by following current best practices, including reaching out to vendors to explore new processes and adopting inventory management software. Tracking progress is possible with MRO KPIs like the ratio of rush orders and the percentage of the procurement budget that goes to MRO. At every step, modern inventory management software makes it easier to implement better processes thanks to automatic level updates, low-level alerts, and reporting.
