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Cutting Cost out of MRO Inventory

by Vanguard Software

Maintenance, repair, and operations (MRO) inventory optimization may not be a top-of-mind thought when you wake up in the morning. Maybe it should be; MRO inventory optimization is an integral part of supply chain optimization, whether you’re sourcing 3,000 complex parts; managing a fleet of autos, trains, buses or planes across broad geographic areas; or even tasked with managing outsourced inventory for a prime customer.

Without the right tools, MRO inventory management can be tricky; it falls squarely in the category of “difficult forecasting” due to the problem of extreme variability:

  • Some parts are difficult to source, especially if they come from distant or multiple sources that require multiple moves or delays in the supply chain.
  • Other parts may be expensive, carried for a long period, or prone to obsolescence.
  • Still others may be critical to zero-downtime, but rarely needed.

Companies attempting to operate without a strategic MRO inventory optimization approach can:

  • Incur abnormally high carrying costs: storage, handling, obsolescence, service level penalties.
  • Increase overall costs due to out-of-stock parts, including increased external labor or storage rates, or inefficient use of their company’s FTEs.
  • Develop recurring (or embedded) MRO inventory management problems that over time result in lost credibility with both internal and external customers.

Unfortunately, these costs can be quite high, representing large sums of manufacturers’ capital expenditures and operating costs. As such, the cost of unoptimized MRO inventory cascades through the organization, its supply chain, and on to customers.

Nexview Consulting, a partner of Vanguard Software, offers the following example of how unoptimized MRO amounts to a lot of financial waste.

MRO Inventory

Achieving lower, more predictable costs

Today, MRO inventory management is changing to meet demand driven by the growth of product complexity, geographic shifts, fleet mix trends, changing consumer and customer demand, and new technology. The tools that enable effective MRO inventory management let you place your inventory investment where you should in the supply chain to avoid incurring unchecked future supply chain risk and costs.

In a word, effective MRO inventory management is strategic, enabling you to walk the fine line of balancing parts costs, storage capacity, and lead times for parts purchase/manufacturing.

If you are still using spreadsheets, an unenhanced ERP system, or simply reacting to the most visible culprit (stock-outs), consider the value of adjusting your approach to meet both internal and external customers’ demands:

  • An accurate forecasting model supports effective spare parts forecasting. Using modeling, you can easily handle intermittent demand characterized by randomness and long periods of zero demand. It provides user-defined distributions, correlated inputs, and an unlimited number of stochastic inputs. More-advanced Monte Carlo simulation moves your planning and analysis beyond Croston’s intermittent demand model, using probability theory to model the time between orders and order sizes, so you can simulate complex systems, model uncertainty and volatility, and better manage business opportunity and risk.Modeling reveals the full range of potential business outcomes and the probability of each with expected values for distinct courses of action, allowing you to:
    • Incorporate multiple sources of uncertainty into your forecast model.
    • Run simulations 100 times faster than spreadsheet add-ins.
    • Automate sensitivity analysis.
    • Run reports with distribution graphs and statistics.
    • Utilize distribution gallery.
    • Automate distribution fitting using historical data.
  • An adjustable time scale provides better results. It lets you increase the forecast time scales from daily to weekly to monthly and so on to reveal more stable and predictable patterns. Vanguard Software’s inventory optimization includes forecasts, dynamic reports, exceptions, and materials resource planning (MRP) to ensure comprehensive coverage.
  • Better data enables better plans, policies, business forecasting and planning. As you capture organizational knowledge relating to inventory items,  prevent mistakes, and optimize forecast results, you’ll achieve superior operating efficiency, improved margins, and profitability. With an MRO inventory plan that’s linked to supply chain planning, we’ve seen customers increase goodwill, top-line revenue, savings, and bottom-line growth by double-digit percentages.

Read more about how Vanguard Software’s spare parts forecasting platform can set you on the route to lower safety stock and carrying costs, improved service levels, happier system stakeholders, and improved knowledge and insights for better supply chains.

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