Category Archives: Lean 6 Sigma

Segmenting your MRO stock

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Are you having trouble controlling your MRO stock?  Have you considered segmenting the stock by control process?  When done effectively, regular stock is controlled quite differently from MRO stock so you need to separate MRO from regular stock in your ERP system.  Once you have done this, you then need to separate the MRO stock into separate segments based on how you want to control any particular material.  The controls for MRO stock breaks down to several specific methods:

  • Zero Value Stock – This is basic items where the cost is written off (expensed) when it is received. For financial purposes it is important to consider which cost center any specific material gets expensed to but since it has no value in the system it is not usually considered part of inventory. Reorder control for this type of material is usually some sort of visual control.
  • Direct Order Stock – This is material that is ordered directly by someone other than procurement and not normally stored in the warehouse. There may be a number of reasons for using direct order rather than system control but it usually breaks down to a group that wants total control of a specific material. This material is usually expensed to the controlling groups cost center upon receipt and is not considered part of inventory. Reorder control is up to whoever is the controlling group for this material.
  • Project Stock – This is material ordered in by an engineer or project manager specifically for a project. When it arrives the project manager is informed, the material is isolated from the regular stock and stored until all the required materials have arrived. At this point the material may be moved to the project site or held until the project is ready to start.   The material is usually expensed on receipt but could also be shown in inventory and held with an allocation to the specific project (so it is not issued for some other use). When the material is moved to the project site it would be issued to the project thereby giving an audit trail in the system.
  • Vendor Managed Inventory – This is material where control has been handed over to a vendor on a long term contract. The vendor is responsible for monitoring stock on hand and replenishing as defined in the contract. Commonly the material is invoiced by the vendor when it is used rather than when it arrives. While the inventory count does show in the system, all the work (and cost) to monitor and control the inventory is moved to the vendor.
  • Repairable Stock – When one of these items are pulled from use and a new one put in, rather than discarding the used unit, it is repaired and returned into stock. Only if it has reached the point of not being repairable would it be discarded and a new unit purchased. There is a repair process rather than a reorder process for this material as the total quantity needed would be the number of units in use plus enough for normal replacement during the repair lead time (plus safety stock).
    • NOTE: Sometimes this material is serialized which means that the serial number must be tracked as each unit cycles through the process.
  • Visually Controlled Stock – This is material that is stored in the warehouse or at point of use but not tracked on a transactional basis. Instead visual controls such as KanBan or Two Bin is used to trigger replenishment. For financial control purposes the material is often expensed upon receipt since individual transactions are not tracked. Since there are visual triggers to reorder material there is no need for system controls which dramatically reduces the cost of control. KanBan control also tends to continually reduce the actual amount of inventory on hand which also reduces costs for the organization. Visual triggers are often used for C class items where the cost of transactional control could be higher than the cost of the actual unit.
  • System Controlled Stock – This final segment is everything else that cannot be moved to another control segment. It uses transactional control that is done in the same way as regular inventory which means forecast, inventory counts, purchase orders, receipts, issues and transactional measures. This is the most expensive and time consuming method for controlling inventory. Stock to be used for Preventative Maintenance is normally included in this group rather than in the project group as it usually involves small quantities used on a predictable schedule making it easy to forecast based on the PM schedule, a BOM, and MRP.

In summary, by splitting the entire MRO inventory into the different segments you can reduce the workload to control MRO stock levels dramatically.  As shown above, only one segment actual requires a significant work load, all the others either have no control functions, minimal control functions or control functions that have been moved to other groups.

If you would like to discuss more about MRO stock, or any inventory control, and how to improve it in your organization, I would be more than happy to meet with you and to explore this in more detail.  Please feel free to contact me at edwhite@jadetrilliumconsulting.com.

If you would like to read more about this and other topics check out my other posting on my website – http://jadetrilliumconsulting.com

COMMUTING AND PROCESS ANALYSIS PART 4 – SUMMARY

car4Welcome back and I hope the previous 3 posts gave you some things to think about.  I have been talking about how to apply some of the principles of Process Analysis to the commuting process.  The reason for picking that process was because most of us have at least some experience with it but mostly to show that the various Process Analysis and Supply Chain tools can be applied to any process.  It just requires a flexible mind set and an understanding of how the tools can be applied.  I have deliberately stayed at a very high level partially because most people jump right in at a very highly detailed level, partially to keep the size of each of the posts shorter and partially because this is a very complex process when you get more detailed.  In the first post I talked about the key question to start any Process Analysis with –“What, ultimately, is this process meant to accomplish?” and suggested an answer – The purpose of the commuting process is to move people and products from one point to another point as effectively as possible using the minimum of resources possible. From there we moved on to a discussion of what that answer meant which led us into an exploration (in Part 2) of some of the resources required for the commuting process.  This was then followed up (in Part 3) with a discussion of some of the tools we could use to analysis the process and surface some possible solutions or improvements.  From all this we can definitely see that the more complicated the process the more important it is to start at a high level and then progressively “peel the onion” to more and more detailed analysis.  In this case you would also need to consider the synergies and conflicts between the various competing processes within the larger Commuting process.

One last point about process analysis, sometimes, rather than making the process faster it is better to make it smaller.  In this case trying to speed up the commute or add more resources is both painful and expensive.  If we could reduce the number of people requiring this process it might be easier to make it more effective.  The trick of course is how to do that?  It may not be possible at a macro level but perhaps some progress could be made at a grass roots level.  Think of this as an exercise in culture change and perhaps some push by the government (who are ultimately in charge of the financing of commuting resources) would be helpful and cheaper than new resources.  One potential way to reduce the number of people commuting would be a growth in telecommuting.  I realize that most production facilities actually require the people to be at the plant but most big plants have already moved out of the downtown areas so they are not part of the worst commuting areas anyway.  Instead, most of the downtown organizations are service based operations such as head offices.  As a cultural issue, while the technology exists for many more people to telecommute, most companies are not prepared to allow the majority of their workers to be out of sight (and direct control).  The good news is that telecommuting does not need to just mean working from home.  The technology exists so that telecommuting just means working from some place other that the main office.  One way to keep both sides happy might be for large inner city companies could set up small satellites in surrounding communities that people could work from or meet with clients at.  This way neither of them would need to commute into the city.  Maybe they come to main office once a week on a staggered basis but most meetings would be electronic.  The advantage to the company is that they could reduce the square footage of that very expensive downtown facility and replace it with much cheaper square footage at the satellite office while still maintaining a prestigious main address.  Of course they would need to ensure that all required documentation is available electronically so it could be accessed from any of the sites but that is relatively easy to do.  The advantage to the employee is a much shorter commute, more time doing what they want rather than sitting in a car or bus every day and a better work / life balance.  The advantage to the customer is easier and faster access to people they need to visit with all the time saving that comes with that  This leads to happier customers which is also a benefit to the company.

Thank you for reading these posts.  I hope you have enjoyed this series of posts and that it has given you some new points to think about.  If you have any thoughts or questions please feel free to comment on the posts and we can see what sort of conversation we can get started on it.