MRO Spare Parts Management and Inventory Optimization

MRO Spare Parts Management and Inventory Optimization

Saeed Ramezani (IUST University, Spain) and Mohamad Reza Hoseinzadeh (BK University, Spain)
Copyright: © 2022 |Pages: 36
DOI: 10.4018/978-1-7998-7943-5.ch011
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In this chapter, considering the importance of spare parts inventory management in the equipment life cycle, the excellence models in spare parts supply chain management are reviewed, and MRO-MMM framework based on the MMM maintenance excellence model will be presented in eight steps. In this comprehensive framework, all necessary actions are considered in terms of maintenance excellence, improvement, and optimization spare parts management. The steps include compiling strategies, spare parts management policies, and related indicators; determining criticality, classification, and spare parts data management; data and procedure preparation for analysis of inventory management; optimization of inventory management system; supplier management; integrity of automation and information system; continuous improvement; and risk based and smarting inventory management. This framework has been used in various industries and proved that the implementation of the MRO-MMM framework will optimize and significantly improve spare parts management.
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Spare parts management has a special position in inventory management and physical assets management. Spare parts strong management supply chain usually leads to success of maintenance department. Research show that 40% of wasted time of maintenance department staff can be ascribed to spare parts. Examinations have shown that a few percentages of companies can state that they have had access to the parts in 95% of the time.

MRO (Maintenance, Repair and Operations refer to the items, which can be used for maintaining, repairing and supporting the operations – which also means consumable such as materials and spare parts. By spare parts, it means, items in the warehouse, which are used to be replaced with failure parts in equipment maintenance. (Slater, 2017)

MRO includes item inventory and business process. While the volume of parts and needed variety of processes of MRO for managing an organization, is often significant in the company overall budget, but generally, MRO costs are usually in a range of 5-10% of sold goods costs. It may not sound a lot, which often makes them to ignore it, but not controlling MRO can stop producing, lost selling, delay in delivering the product to the customers and human and environmental dangers.

Normally, many million dollars in MRO item inventory are invested and many of these parts are critical for the company business operation. If companies invest many million dollars of their own assets somewhere, they will certainly protect and investigate it to make sure that the company has gained their most possible interest from investment.

Today, organizations are dealing with considerable competition and an uncertain environment, which intensifies, considering customer’s changing needs. Looking at the organizations, it will be figured out that old approaches and solutions have lost their abilities for facing organizational and outside environmental challenges. considering the current situation there is, fluctuation and uncertainty in spare parts management parameters like the exchange rate, the rate of consuming parts, parts supply time and etc. which have affected the calculation of spare parts management like purchasing, reorder point, reorder quantity, inventory control and many other things. In such situations, smartening and Agility in spare parts supply chain sound essential.

Key Terms in this Chapter

Overstock: Emerges when the companies purchase more than their needs or a good is wrongly purchased.

Squirrel Store: Informal storage of spare parts, outside the official warehouse, which is sometimes done by maintenance men. Usually, these warehouses are not controlled.

Ordering Cost: Indicts paid prices by company for taking purchase order. Purchase ordering includes stable costs related to issuing each time ordering and it does not depend on the number of purchased items.

Service Level: A reliability level in order not to let a part sto c ked out in lead time.

MRO: Maintenance, repair, and operations refer to the items, which can be used for maintaining, repairing, and supporting the operations.

Stockout Cost or Understocking Cost: Arises due to non-stocking of the spare part. This cost usually measured in terms of opportunity lost due to loss of production by the idling cost of a line.

Lead Time: Lead time includes two parts of inside lead time and outside lead time. Inside lead time includes organization inside process, which means from the time when the request form for part is fulfilled until the time when needed permits are get and necessary information about purchase is determined by supplier or technical master and changes from request purchase into purchase ordering in purchase department. Also, outside lead time starts from the time when purchase ordering is given to supplies until the time when the part is carried and reached to the organization.

Key Performance Indicators (KPI): A KPI is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs at multiple levels to evaluate their success at reaching targets.

Criticality: An item that, if unavailable, would prevent the plant from operating and for which there is no viable alternative.

Inventory Holding Cost: Sum of cost of invested money equaling with bank interest rate, spend costs for physical installation such as warehouse space based on renting value or wasted time cost, shelf cost, necessary items for storing and the depreciation value of transportation vehicles, Warehouse employees' salary and income, causality due to robbery and temporary decadence of some piled items. Insurance cost, which is applied for protecting against some dangers such as fire.

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