If a machine central to a company’s operation breaks down during production, workers will remain idle until it can be repaired or replaced. Far too often, operations are impacted by a loss of productivity and efficiency because of situations like this.

Companies that are trying to meet deadlines also run the risk of tarnishing their reputation.

Fortunately, MRO inventory management can help you avoid such stressful and negative consequences.

Read on to discover how it can help. We also share best practices that set you up for success.

What Does MRO Stand for?

MRO is an acronym for maintenance, repair, and operations/overhaul (MRO). It is an integral part of procurement in the maintenance sector that describes equipment and activities necessary for a company to function smoothly.

It can be broken down into several categories, including:

• Supplies (e.g., lubricants, gaskets)
• Materials (e.g., cleaning supplies, office supplies)
• Equipment (e.g., pumps, personal protective equipment, motors, forklifts, pallet jacks, belts)
• Infrastructure repair and maintenance (e.g., HVAC and lighting systems, pest control, waste pickup/janitorial services)

According to Supply Chain Game Changer, the cost of MRO can be as high as 10% of the cost of goods sold (COGS). If you don’t want it to eat away at your profits, get smart with MRO Inventory Management so you can remain competitive and on top of your operations.

MRO Inventory Management and Its Importance

MRO inventory management is a systematic approach that ensures the seamless operation of any business. It involves procuring, storing, using, and optimizing the supplies required for maintaining assets as economically as possible. When done right, it ensures easy access to the “right parts for the first time, every time”.

This system helps maintain continuous production with increased operational uptime and improved asset performance while reducing unscheduled downtime.

Hence, it can positively impact the efficiency of the supply chain.

Challenges of MRO Inventory Management

MRO is a type of indirect spending, meaning it isn’t directly related to the manufacturing of a product. Because it isn’t a revenue generator in and of itself, many end up underestimating or overlooking its impact on their overall operations.

This leads to a number of challenges, including:
 

High Acquisition Costs

MRO data can be fragmented, inaccurate, or—at its worst—redundant.

In firms where different departments make their own purchasing decisions, it could result in the procurement of thousands of low-value items. When you factor in the individual costs of shipping and taxes, among other variables, the lack of a coordinated procedure can increase the items’ total cost of ownership.
 

Inaccurate Forecasting

There is a clear lack of suitable MRO approaches when it comes to demand forecasting due to a high degree of uncertainty about the scope of future orders. This poor visibility makes predictions challenging, which may lead to an excess or shortage of inventory.

This means you will either have to pay big money to acquire a bigger warehouse/storage space or end up sending loyal clients to your competition.
 

Parts Obsolescence

Manufacturers are constantly improving their machines, building new and better parts to ensure smooth operations. Once it triggers the end-of-life (EOL) notification, roughly three-quarters of respondents say it develops into a supply chain threat.

You could buy a few surplus parts, but that would be a huge financial investment.
 

Managing Suppliers

MRO procurement can be hopelessly complex—and not just for manufacturers.

Suppliers and vendors often find themselves dealing with hundreds of purchase orders at a time. So, if you don’t coordinate and perform a deep dive analysis at least quarterly, there’s a good chance you’ll have issues with delivery.

At worst, it could force you to procure goods at incredibly high prices.
 

Tracking Inventory

MRO is secondary to production so it isn’t always managed as carefully.

Due to the absence of a centralized system that tracks the availability of maintenance, repair, and operations supplies, finding a specific product would be akin to looking for a needle in a haystack. This scenario results in delayed work, leading to cost overruns from overtime wages, missed deadlines, and extra expenses from expediting processes.

What Are the Components of MRO Inventory Management?

Here’s a look at the core components of MRO inventory management:
 

Identification

Which items are essential for your business to run smoothly?

Identify the equipment and tools required for product development, including the amounts you should hold in your inventory. Here are some tips that can help:

• Analyze historical usage patterns
• Consider lead times
• Look for similarities (or differences) in requirements across groups

It also helps to leave room for buffer stock so you can meet unexpected supply variations.
 

Location and Organization

Some parts are used more frequently than others. Hence, they need to be in an easy-to-access location and intelligently stocked on racks and shelves for easy auditing.

Depending on the size of your storage space, implementing a system for organizing inventory may take time. But it’s crucial for easy visual identification of the items you have in stock. Organized inventory also allows you to reduce search times and create a more efficient work environment.
 

Procurement

From a purchase requisition that provides insights into the right quantity of items needed to zeroing in on a trusted vendor/supplier, an effective policy for successfully sourcing MRO is essential to ensure smooth operations.
 

Inventory Control

Segmenting inventory based on movement frequency and lead time can help you visualize usage patterns and anticipate future demands. You can monitor which supplies are becoming obsolete, if there’s a risk of a stock out, and trigger auto-replenishment to maintain an adequate level of items, reduce downtimes, and stretch your dollar.

How To Manage MRO Inventory

MRO inventory management can be pretty complicated. You have to keep track of hundreds of thousands of stock-keeping units (SKUs) to ensure you have adequate supplies while minimizing carrying costs.

Here’s a look at some strategies that can streamline the process:
 

Prioritize Essential Items

Some processes can impact the company’s supply chain. It’s thus important to have items available in sufficient quantities to support operations. Using ABC analysis, which groups inventory based on the level of annual consumption, can help companies forecast demands accurately and make more strategic decisions.
 

Choose Suppliers Wisely

Supplier selection for effective procurement of MRO supplies is a key decision.

Ideally, you should choose a vendor who:

• Provides good technical support
• Has the products and brands you need in stock
• Is knowledgeable about new products and technologies
• Has comprehensive quality assurance (QA) processes in place
• Is dependable in terms of shipping, product quality, and dispute resolution

You can also leverage vendor-managed inventory to streamline processes and improve inventory management. This practice has been known to reduce consumption by an average of 20%!
 

Be Diligent With Regular Audits

Conducting regular audits is a standard practice. It ensures that all components are kept up-to-date and used safely and efficiently. It also helps you identify areas for improvement, such as:

• Reducing obsolete, slow-moving, or excess inventory
• Evaluating and mitigating risks
• Ensuring compliance with the relevant laws and regulations

Use KPIs To Guide Decision-Making

Key Performance Indicators (KPIs) can provide you with valuable insights.

Look for quantifiable KPIs like asset turnover, carrying cost of inventory, downtime, lead times, stockouts, and the ratio of rush orders to replenishment orders. This due diligence will help you benchmark performance, identify inefficiencies, and prevent risky purchases.

MRO Inventory Management Best Practices

Practice MRO inventory management with these best practices:
 

Create a Bill of Materials

According to Emerson, technicians spend 10% to 25% of their time obtaining parts.

A well-structured and detailed bill of materials (BOM) can eliminate this issue, bringing an average savings of 30%. By reducing the time it takes to find materials and components necessary for repair, it can also reduce labor costs by up to 15%.

In addition, consider digitizing your BOM to ensure resource optimization across interrelated teams.
 

Optimize Your Existing Warehouse Space

Warehouse space is costly, requiring an annual expense of around $8.31 per square foot.

Instead of moving into a bigger facility, look at your current space and determine how to optimize it. You can store items by size, create categories based on how each item is moved, and sell obsolete inventory to free up space.

You can also stack slow-moving items vertically to maximize your available area.
 

Implement Automated Systems

Investing in an automated management system is essential for controlling and tracking inventory in real time. It eliminates time spent on manual and repetitive tasks, including material handling, sorting, and placement. It also improves overall accuracy by reducing the risks of human error, theft, and spoilage.
 

Educate Your Employees

Training your team on inventory management can be a game changer.

Teach your employees to track and monitor supplies, balance carrying costs, and orchestrate purchases while reducing errors. Giving them the skills and knowledge they need will ensure they can handle more inventory-related tasks while making them more confident in their roles. This can lead to improved productivity and efficiency.
 

Implementing a Predictive Maintenance Program

Predictive maintenance involves using IoT (Internet of Things), artificial intelligence, and data analytics to identify patterns and trends in asset conditions and performance. It analyzes operational anomalies so you know when a part needs to be maintained, repaired, or replaced, minimizing costly downtime.

Take Home Message

Losing a single item can halt production for an entire day, which could impact the productivity of several departments. Mastering MRO inventory management can help you avoid losses while ensuring you remain operational and competitive.