MRO Strategies Mean Money in the Bank

Redundant purchasing and poor inventory management have cost companies millions of dollars for generations. Find mountains of savings in new and improved MRO management.

By Mike Pehanich, Plant Operations Editor

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The operations dictum of the new century is to find profit wherever you can. That means leaving no stone unturned in the effort to eliminate unnecessary costs from food operations.

For more than a decade now, food processors have been eliminating waste and squeezing unnecessary costs from their operations network to improve the bottom line. With many companies already operating with bare-bones workforces, questions of savings are apt to elicit a quirky twitch in many quarters as manufacturing and operations executives wonder just how low you can go before cuts cause serious bleeding.

Yet sometimes you can find savings in the oddest places, such as in MRO, a catch-all area of maintenance, repairs and operations costs that may include everything from bearings, belts, motors and bolts to lubricants, goggles and paper towels. Nickel and dime stuff, to be sure…

Not so fast.

"We've been able to reduce the cost of our inventory by hundreds of thousands of dollars in recent years," says one manufacturing executive, crediting the savings to creative partnerships and MRO strategies.

Parts consignment

A frequently targeted area for MRO savings in the post-2000 era is in equipment replacement parts. "A lot of the money a company has tied up in inventory is in obsolete parts," observes Brookes Britcher, project engineering manager for the Sara Lee Bakery Group in Tarboro, N.C.

Missing replacement parts in a stock room can cause costly and embarrassing downtime. More often than not, stock rooms are generously oversupplied with parts perceived as "critical." Many never leave the shelf even years after the equipment they were intended to rescue has left the facility.

Operations staff who have already been squeezed by corporate belt-tightening may not recognize the savings potential in eliminating unused parts inventory.

Eliminating the cost of unused inventory can mean parts savings in excess of 15 percent.

Smart processors work today with suppliers to work out their parts needs. Some are addressing the parts conundrum with consignment arrangements with their suppliers.

Here's how these consignment arrangements work: The manufacturer of electronic parts for a plant's programmable logic controllers (PLC) may agree to maintain a supply of critical parts for those PLCs in the processor's stockroom. The parts are ready and waiting for replacement as needed. However, the processor is not charged for them until they leave the shelf and enter operations.

Partnerships with key suppliers continue to evolve. In the 1990s, suppliers voiced acrid complaints that "partnership" really meant permission to beat the supplier down to the lowest possible price. Better understanding of the value of service and reliability on the part of processor and supplier alike has effected more genuine partnerships.

"You can't be successful in consignment arrangements if the suppliers are not actively involved," says Jeff Nord, group director of procurement for Campbell Soup Co., Camden, N.J.

Consignment arrangements may have additional benefits, such as automatic updates of parts when they become available. Not only are processors then using the latest and greatest, but they have zero dollars invested in parts that are collecting dust on store room shelves.

"More vendors seem to want to be part of partnerships with processors today," says Britcher, acknowledging that "partnership" has become an overused and sensitive term with suppliers. "You want the supplier working with you. If you are going to stock fewer parts, you want to be sure that you are stocking the right parts. You can't get those assurances if you always beating the guy up on price."

Of course, consignment can be a sticky point with vendors, since they carry the cost burden on consigned parts until those parts are deployed.

"We've gone to an even better system than consignment," says Stan Bogdan, maintenance manager for the Tarboro plant, noting the aversion vendors can have to such arrangements. The bakery has collaborated with suppliers to determine parts needs and arranged to keep necessary supplies and parts readily available at either plant or a supplier facility with back-up arrangements as well.

The purchase card phenomenon

Leveraging corporate buying power is becoming an art form, thanks to more progressive thinking on the part of maintenance managers. And thanks to creative customization of the good old American credit card.

Ariba Inc. (www.ariba.com), Sunnyvale, Calif., has brought credit card simplicity to MRO parts and supply purchases. The company found itself in front-page stories recently when President Bush announced his intention to nominate Ariba's president David McCormick as undersecretary of commerce. But Ariba already had become familiar to progressive processors looking to save money and simplify their MRO programs.

Ariba, which calls itself the "most comprehensive spend management company," built an advanced strategic sourcing system by blending technology, operations services and web savvy. Ariba maintains an electronic catalog and facilitates purchases like a consumer's credit card company.

Individuals are empowered to make purchases up to established limits without issuing purchase orders. The system allows companies with multiple manufacturing facilities to leverage cumulative volume purchases for better prices.

"You can reach discount agreements with certain vendors for company-wide discounts," says Sara Lee's Bogdan.

"It's like having a cooperative's buying power," adds Britcher. "You are leveraging the buying power of the whole company, not just your plant."
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