MRO Inventory Management: Understanding the basics

WHY DO WE NEED TO MANAGE MRO INVENTORY?

MRO inventory is a crucial part of any plant. Though a replacement residing in the inventory may appear a white elephant, it provides insurance against a catastrophic situation. Primary reasons behind the need for managing MRO inventory are as follows:

Prevention of downtimes

Modern industries consist of interconnected machines forming production lines. Should any
equipment fail, the entire production line comes to a halt. For a quicker turnaround, the necessary tools and replacement parts must be present in the inventory. Proper management of MRO inventory, therefore, assures a reduction in unplanned downtimes. Moreover, the planned
maintenances go as planned with a well-supported MRO inventory [3].

Reduction in costs

While insufficient spare parts can cause prolonged downtimes, exceeding the required amount puts a burden on the finances. In the absence of reliable data of MRO inventory, procurers are prone to purchase of duplicate and extra items. Jocelyn Facciotti [4], of IMA Ltd, shares that a
manufacturing firm managed to get $1.1 million just by returning surplus items to the supplier.
Therefore, an MRO inventory is to be managed to prevent superfluous operating costs.

HOW TO MANAGE AN MRO INVENTORY?

The objective of MRO inventory management is to have an inventory which is neither overstocked nor understocked. As every plant has its own distinct needs and requirements, there can be no onesize-fits-all MRO inventory management strategy to assure that. Instead, companies need to adopt a decision-making framework to make their policy. Research [5] in Production Planning & Control proposes the following five decision-making steps for the development of an MRO inventory policy.

1. Part Coding

MRO materials and items should be coded based on a specific code system that should
communicate their:
• Technical features
• Suppliers
• Equipment tree
• Physical location in the inventory

2. Part classification

Items must be classified based on their nature, specificity, and criticality. Classifications may be
along the lines of:
• Consumables
• General spare parts
• Strategic spare parts (Involving high lead time)

3. Part Based Forecasting

The demand for spare parts and equipment may be forecasted using:
• Historic data of spare parts consumption
• Reliability data from the manufacturer
• Failure rates in data banks

4. Stock management policy

Based upon the classifications and corresponding demand, a stock management policy pertaining
to each class should be developed. It can be based on Reorder Point or Economic Order quantity.
Conversely, an on-demand policy can also be opted for a particular class.

5. Policy test and validation

In the complex atmosphere for MRO inventory, it is difficult to account for all variables and
formulate a perfect policy. It is, therefore, recommended to enact the newly developed policy for
a short period and make adjustments as deem fit.