Field Report: What is a “Perfect MRO Storeroom?” Is the ROI Worth the Effort?

Here follows a definition of what the “perfect” storeroom would be, the condition of a typical MRO store situation (aka the problem source) and the ROI benefits of a “world-class MRO storeroom”.

This article originally appeared in the August print issue of IMPO Magazine. To view the digital version, click here.

The question arises: “Why can’t we have a ‘perfect’ MRO storeroom so these problems go away?”

Here follows a definition of what the “perfect” storeroom would be, the condition of a typical MRO store situation (aka the problem source) and the ROI benefits of a “world-class MRO storeroom”.

The “Perfect” Storeroom

The “perfect” storeroom is unattainable from an ROI basis because the value of the difference between a “world-class” storeroom and a “perfect” storeroom is not worth the additional cost. Here are the attributes of a “perfect” storeroom.

• 100% parts availability in all quantities requested
• Balance between inventory and fill rates
• Stock turnover rate at six or more
• 100% inventory accuracy
• All current non-stock buys anticipated and put into SKUs
• Minimum administrative burden
• SOX-approved audit trail
• 100% compliance with purchase agreements
• Customized information flow on all activities
• All stakeholders satisfied with all areas of stores operation
• Zero complaints
• Staffing on a 24/7 basis
• No unauthorized issues
• All warranties exercised
• No safety issues
• Single source provider
• Prices controlled and measured
• Productivity programs in place that provide continual improvement
• Supplier / manufacturer play a role in the part selection process
• No existence of sub-stocks in the facility
• 100% support and communication to all Reliability & Maintenance goals

The “Typical” MRO Storeroom

These are the conditions that exist in a “typical” MRO materials storeroom:

• Less than 90% fill rates from authorized SKUs
• Inventory value in excess of fill rates: stock turns less than one
• Pricing generally uncontrolled, especially on non-stock buys
• Less than 90% inventory accuracy (before adjustments)
• Non-stock buys at 30% of needs; stores have 60% of needs available
• Excessive administrative burden; 15,000 transactions for every $1 million in spend
• Questionable audit trails
• Purchasing and purchasing agreements circumvented
• Information lacking
• Stakeholders generally dissatisfied
• Warranties not exercised
• Sub-stocks created because of storeroom inefficiencies
• Storerooms unstaffed, producing unauthorized issues
• Questionable safety compliance
• Duplicated inventory
• Information inaccuracies regarding spend and inventory dollars
• Barriers erected between purchasing, engineering, finance and suppliers effecting loss of value opportunity
• 150+ supply-base creates 80% of all transactions

Why Does the Condition Continue to Exist?

Companies are not willing to invest the dollars necessary to achieve the “perfect” storeroom; it is too expensive and they lack the expertise to implement and maintain such an operation. The perceived value effected by the “perfect” storeroom is not supported by Finance; therefore the situation continues with blame for stock-outs, downtime, worker inefficiencies visited upon Purchasing (not buying enough quickly enough), poor SKU management (did not adjust min/max, etc.) and Engineering (poor planning).

Each of the three plant stakeholders has a different agenda. The engineers and plant personnel want the “perfect” storeroom. Finance wants less investment of dollars as well as a reduction of the administrative burden, and the plant manager wants productivity and profit (no downtime).

The “World-Class” Storeroom

The optimum alternative is the “world-class” storeroom that is achieved by empowering an expert storeroom manager. This expert must have world-class storeroom management as its sole corporate focus in order for world-class status to be achieved. Here are the tenants that “world-class” produces:

• 98% parts available
• Balance between inventory and fill rates
• Stock turn rates at four; min/max control of all parts
• Uncontrolled sub-stocks eliminated
• 99% inventory accuracy
• Non-stock purchases tracked and minimized
• Administrative burden reduced to twice per month on consolidated invoices
• Wrench time increased
• Downtime decreased
• Personnel efficiencies realized
• SOX-approved audit trail
• 100% compliance with purchasing agreements
• Customized information flow via web-based computer system
• Stakeholders satisfied because they are made part of the process
• Stores costs at an optimum level as a cost of manufacturing
• Supply base is reduced to one
• Store operations coordinated with plant reliability and maintenance programs

The bottom line is that achieving a “perfect” MRO storeroom would be far too costly from an ROI standpoint when compared to the benefits achieved from a “world-class” operation. Worldclass would provide the needed reliability support at optimum.

George Krauter serves as Vice President of Storeroom Solutions, Inc. He brings more than 50 years of experience in establishing cost recovery methods for the MRO supply chain. Contact George at 610-246-6492 or via email at gkrauter@storeroomsolutions. com.

More in Operations