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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Standardize for savings

The bane of the stockroom is non-standard replacement parts. Nothing fills more shelves than the countless varieties of motors, shafts, bearings, photo eyes and other equipment parts found in food plants.

For more than a decade now, progressive engineers and maintenance supervisors have pressed their organizations and their equipment suppliers to convert from OEM parts to standard off-the-shelf parts wherever possible.

"Standardizing on parts means fewer vendors to deal with and a tighter network of suppliers," says Britcher. "You are getting good pricing, cutting fewer checks and doing less paperwork, so there are a lot of benefits."

Standardization, however, can't be a one-man or one-department decision. Mechanics, engineers, parts suppliers and equipment suppliers all should participate in decisions to narrow the range of parts used. They must decide together where and when standardization makes sense. Done right, the practice will reduce inventory and the number of stock items – often dramatically.

Standardization should be an ongoing effort. It should even precede capital purchases. Effective parts analysis can help anticipate cost and performance of equipment and entire production lines for the life of the machinery.

"When we get a spare parts list from the equipment maker, we ask for the ‘open' list," says Britcher. "We ask them to put the bearing model number, for example, so that if a potentially needed part is something that we have in stock, we won't have to buy it from the equipment maker."

These are still pioneering days in MRO strategies in this e-commerce era. Many creative solutions are being developed on the fly. Some are as simple as reorganizing the stock room and parts bins.

"Our maintenance manager likes to experiment," says Britcher of Bogdan's work in the store room. "He has brought a lot of ideas forward and has restocked the whole spare parts room."

Bogdan found bakery personnel lost amid the 15,000 line items of parts. Finding and retrieving items in the two-story store room "was a nightmare," he says, describing a situation common in store rooms across the country. Sign-out, parts tracking and redundant ordering plagued the system.

Rearranging the stock room and orienting and educating plant personnel on the new inventory and check-out system helped drop inventory miscalculations by more than 85 percent. The new store room positions frequently used items near the front. It also has a "job procurement" shelf with all items for the current day's projects sorted and ready for pick-up.

"Now they are pulling parts the day they will use them," says Bogdan. "They sign them out, expense them and use them. Nobody bypasses the system.

"Many manufacturers make the same parts – drives, motors, bearings, etc. – but call them something different. We're getting rid of duplicate parts and meeting with our vendors to get assurance of when we can receive parts," he continues. "The other key to our inventory reduction was understanding what the vendors have in inventory, where they have them and how quickly they can get parts to us. We gave our local belt vendor a list of the top 20 belts we use. The vendor keeps them on hand for our plant and another Sara Lee facility. We keep on hand in inventory only what we need."

In two years, Bogdan cut plant MRO inventory by $1.5 million.

The new system, coupled with new storage bins, has also enabled him to decrease the area of inventory storage by half. "We're going to build a conference room, two offices and a library from the saved space," he says.

Such are the rewards of an effective MRO system.


Campbell Soup takes MRO seriously. Very seriously.

That's because the non-ingredient purchases may amount to 80 percent of total dollar volume of transactions for a company each year.

"Everyone in the plant is acutely aware of the value of the investment tied up in our plants," says Jeff Nord, group director of procurement for the Camden, N.J.-based food giant. "Anything we can do to eliminate or streamline purchases allows us to do more things that add value."

Campbell Soup began to take MRO purchases – which encompass a wide band of items ranging from replacement parts to maintenance materials to simple items like paper towels and cleaning agents – back in 1996 when it piloted consignment arrangements with a number of its suppliers. Today, 70 percent of the value of items in the maintenance storeroom at Campbell is vendor owned. The entire Campbell organization has vastly improved its purchasing systems and approach. Highlighting the effort, one of its plants has been benchmarked as "Best in Class."

So how can you kick your MRO program into gear?

"This is a long-term process. You can't do it quickly," says Nord. "It boils down to the quality of your suppliers and their level of engagement in helping you manage your inventory."
  • Cross-functional team.
  • Standardize parts and identification.
  • Consignment and other purchase agreements.
  • Catalog items.
  • Bar coding and other tracking technology.
  • Start with the low-hanging fruit.
      Start by establishing a cross-functional team comprised of plant management, accounting, procurement, maintenance and engineering, suggests Nord. The teams will negotiate, evaluate and assist with vendor selection. A progressive maintenance manager can be a key driver to the program. Still, everyone must be aboard. Make certain that key plant personnel are involved. "This can't be done in a vacuum," says Nord. "The plants must be active. The key is to let (the plant) make the decisions. You facilitate."

      A company-wide effort to employ standard parts wherever possible not only simplifies purchasing but also enables larger volume discounts. But before you can get the benefits of standardization, you will need quality data. That means uniform parts description and categorization. "One plant may call a part ‘1234' while another calls it 123-4 and another refers to it as 123/4," explains Nord.

      Negotiating parts consignment agreements with suppliers will go a long way toward major MRO savings. "Consignment is a key part of the streamlining process," says Nord. "You want to get the least number of transactions with the highest degree of reliability in inventory management, re-orders, payments, etc."

      Web-based software can help create a company catalog of frequently purchased items negotiated in supplier contracts. These electronic catalogs provide user-friendly access not only to purchasing but to plant-floor personnel.

      Tracking technology is critical to an effective MRO system. Not only can it help speed up supply room turnaround, but it also provides the accuracy critical to an effective consignment program. "If you say you have it on the shelf, you better have it!" stresses Nord.

    Begin with items your plant and company use a lot. Power transmissions, electrical supplies, industrial supplies and frequently purchased OEM parts are usually good places to start.
"As we look back at MRO and sourcing, the old days of ‘three bids and a cloud of dust' are clearly gone," says Nord. "Yes, bidding is more competitive, but you negotiate (with suppliers) more. We leverage the volume of longer contracts nationally and bid less frequently. The supplier is assured of having the business if they perform, and the company has the incentive to provide the resources to help us drive further value. We determine the value of these agreements over a period of three to five years."

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