What Does MRO Stand For?
MRO is an acronym that stands for maintenance, repair, and overhaul. Some companies may also refer to MRO as maintenance, repair, and operations. In either case, MRO is a term that accounts for three main types of physical goods that a company utilizes in its day-to-day operation. Anything that a facility uses to ensure that objectives are carried out is pretty much part of their MRO pool. We’ll have a closer look at these types of materials in the next sections.
What Are Considered MRO Items?
Like a lot of today’s standard maintenance best practices, MRO first saw its early applications in the military. The term was first used by the United States Department of Defense (DOD) to refer to materials used for spare parts, tests, measurements, repairs, and the like.
Nowadays, MRO is a widespread concept that is used across various industries and companies. Materials that are used in production and operational processes, but are not part of the end product itself, are considered to be MRO items.
Examples of MRO Supplies, Tools, and Equipment
The broad definition of MRO can be quite overwhelming. It helps to break the whole list of MRO items into smaller groups of examples commonly found in production facilities.
Manufacturing equipment and their spare parts make up a big chunk of MRO materials. These include pumps, valves, motors, compressors, and all the individual components that make them up. Because of the scope of this type of material, it is usually good practice to further segregate them in varying degrees of criticality.
Consumables are usually an underrated part of a facility’s inventory. Yes, consumables are also considered MRO items. Cleaning supplies, fasteners, greases, and lubricants all fall under this category. While these materials tend to be lower in value, the impact of not having enough around can have lasting organizational effects.
Safety Equipment and Personal Protective Equipment (PPE)
The environment of working in production potentially could expose workers to some form of occupational risk. Safety equipment and PPE are materials that aim to make the workplace a more secure place to be in. Examples of safety equipment include fire extinguishers, gas detectors, and smoke alarms. PPE would include hard hats, safety goggles, work gloves, and safety boots.
Repair and Service Tools
MRO inventory also includes tools that are used by workers to perform maintenance tasks. Hand tools and power tools such as hammers, drills, screwdrivers, and saws are typical examples. For facilities with specialized areas such as landscaping areas, this group can also include lawn care equipment.
What Types of Maintenance Use MRO Materials?
There are three main types of maintenance strategies that use MRO stock. The relevance of each strategy varies depending on your company’s budget, resources, experience, and overall goals.
Preventive maintenance (PM) tasks are scheduled tasks that aim to prolong an asset's life span by preventing breakdowns. Different types of PM include schedule-based maintenance, calendar-based maintenance, and usage-based maintenance. Each type would require different levels of technology and expertise.
Also known as breakdown maintenance, corrective maintenance is reactive in nature. In this type of maintenance, tasks are carried out only after an issue has been identified. Issues typically arise from equipment breakdowns or routine inspections. Organizations ideally keep corrective maintenance activities at a minimum by trying to get ahead of failures before they occur. However, it is still common practice to prepare for unexpected events by keeping spares on hand. In the unlikely event that emergency action is needed, MRO stock should be ready to be used in service.
Predictive maintenance can be thought of as a more advanced form of preventive maintenance. In predictive maintenance, activities are only carried out when specific conditions are met. Instead of relying on time-based maintenance schedules, tools and sensors are installed to provide information on an asset’s status. Based on this additional data, maintenance activities can be optimized to be performed only as needed.
How Is MRO Inventory Managed?
Knowing the maintenance strategy that applies to a certain asset gives you a better idea of the materials required to maintain it. This leads us to the next question – how is MRO inventory managed?
Inventory management is a balancing act. You want to have your spare parts ready in the event of a breakdown. However, you have to remember that keeping materials in stock costs valuable money. While you want to be prepared, you don’t want too much of your capital tied up in inventory.
Several factors need to be considered to manage MRO efficiently. For starters, you have to account for each asset you have in your facility. Your spares need to be linked to their corresponding parent equipment. If you have an inventory management software, you can set it up this way to do a lot of the heavy lifting in terms of managing schedules and keeping track of parts.
MRO management starts with setting the right priorities. Evaluate a baseline of your current situation with the data that is available. Next, establish KPIs to objectively track and measure your MRO performance. Some practical questions to ask are:
- Do I have the parts I need?
- Do I get my parts when I need them?
- Am I missing any items?
- Am I holding too much stock?
How Much Stock of MRO Parts Should I Hold in Inventory?
The amount of MRO stock to hold varies from company to company. Organizations across different industries might take different approaches in evaluating the amount of inventory to keep on the shelf. As a general guide to assess whether you’re holding the right amount, some best practices include:
MRO Value as Percent of RAV
One of the most common methods to assess MRO stock is to compare it with the plant replacement asset value (RAV). Best practices suggest that the MRO inventory should be around 1.5% of the plant’s RAV. This calculation gives you an estimate of the value you are spending on inventory, relative to the worth of your assets. Note that in the MRO value calculation, raw materials and finished products are excluded.
By keeping this percentage low, you are essentially freeing up cash for activities that can bring more value. This does not necessarily mean that you are using smaller quantities of materials and performing fewer activities. Instead, it relates to your ability to anticipate your needs and get your materials just in time. This way, you are spending less on having to physically keep inventory.
Economic Order Quantity
Another way to calculate optimal inventory levels is by determining your economic order quantity (EOQ). The name gives away a lot about this method. It computes the order quantity that would give the most bang for your buck.
An increase in the order quantity corresponds to an increase in holding costs, which makes sense given that you are ordering more stock. However, ordering in bulk can decrease order costs. Calculating the EOQ gives you the order quantity that would be most cost-effective by balancing both inventory costs and order costs.
This method might not apply to all materials within your MRO. However, looking at your whole pool of stock, it can create an impact when used on the right group of items. For example, materials with predictable usage and forecast can find an EOQ model to be hugely beneficial.
In cases where you might want to employ more specific inventory analysis strategies for multiple assets, then it might be worth looking into proprietary simulation tools.
Say for example, that you want to have a closer look at a piece of equipment with a significant business impact. What a simulation might do is compare failure modes with the likelihood of failure and equipment criticality. Given the data, it can then assess stocking requirements for each of the equipment's components. With additional data such as usage, forecasts, and lead times, simulation tools can go as far as coming up with stocking and ordering schedules.
What Are the Costs of Poor MRO Inventory Management?
MRO spending constitutes around 47% of an organization’s procurement costs. With such a substantial amount of resources being poured into MRO materials, it is in the management’s best interest to make sure that it is money well spent.
Three major sources of unwanted costs of poorly managed inventory are shown below. The good news is that identifying these additional costs makes us more aware of avoiding them:
1. Higher Carrying Costs
Carrying costs, also known as holding costs, are the expenses due to stocking an item in a warehouse. Carrying costs include warehousing, preservation, employee salaries, and even relevant taxes. This is usually expressed as a percentage of the material's average dollar value.
The more items you are keeping in stock, the more costly it becomes to keep every single one of them on-shelf. It helps to streamline your spare parts inventory to make sure that you are making room in your warehouse for the right parts. For example, items used for planned work can be ordered to make it just in time, instead of keeping items on the shelf untouched.
2. Losses From Overbuying
Overbuying leads to more inventory, which in turn leads to more space requirements in the warehouse. Aside from carrying costs, overbuying can potentially lead to another source of loss – markdowns. Markdowns are usually necessary for retailers to free up space. Similarly, obsolete and surplus MRO stock potentially need to be scrapped, only to be sold for substantially lower prices to make room in the warehouse.
3. Missing Items and Stockouts
The previous items looked into the price of having too much inventory. On the other hand, the lack of stock on hand can also cause losses, particularly operational and productivity losses. Without the right parts available, maintenance activities and operational tasks are at risk.
How Do I Start Optimizing My Inventory?
In preparation for having an optimal inventory management system, you need to prepare four basic MRO prerequisites:
1. Establish Business Processes and Procedures
Everyone in the warehouse and the supply chain should know their roles and responsibilities. Managers should regularly meet with their direct reports to ensure organizational expectations are aligned.
2. Analyze Data and Information About Your Parts
You want your optimization process to be data-driven. Ensure that you’ve collected the right data about your parts. By looking closely at how often you are ordering specific parts, you can determine stock recommendations for each part. This also includes historical usage of parts, forecasted usage, unit cost, lead time, and vendor performance.
3. Import Your Assets Into a CMMS or EAM
Each asset in your facility must be registered and accounted for in the global item master list. A computerized maintenance management system (CMMS) or enterprise asset management (EAM) software would do this job perfectly by including equipment specifications, task lists, and associated spare parts lists.
4. Include the Whole Organization
The information and overall project should be spread to the wider organization. This ensures that the whole team is working together towards a common understanding of inventory management practices. By inviting other team members, you can engage in cross-departmental communication, which allows for new ideas and growth.
How Do I Keep Good Care of My Inventory?
Taking proper care of the stock you already have is another big part of inventory management. The last thing you want to happen is to go and take a spare part out, only to find that it is unfit to use.
Here are a few tips to make sure that your spare parts are in strong condition:
1. Perform Routine Checks and Tests on Parts
Not all spares are created equal. Some spares are happy to sit under tough conditions for long periods of time, while others need to be taken out of the box to be fired up once in a while. For example, some rotating spares need their bearings to be checked for lubrication using compatible grease every five years or so. Electric motors stored for long periods need to be tested before being put into service. It helps to put processes in place to make sure that your maintenance and warehouse personnel know which spares need what type of care.
2. Perform Regular Housekeeping Activities
Some spares require certain preservation strategies to keep them in good condition. Regular housekeeping activities can help reduce the possibility of dust and debris contaminating spares such as bearings and electrical components. Good housekeeping also helps to keep spares in order and more easily accessible.
3. Perform Proper Cycle Counts
Cycle counts are more than an activity to count the number of items in stock. It is an opportunity to check the integrity of a spare, particularly those that have been unused for a while. While performing cycle counts, it helps to also take note of the general state of a spare. For example, visible signs of damage, corrosion, or dust can be taken as red flags while performing cycle counts.
Managing MRO inventory is so much more than just reducing inventory quantities and streamlining spare parts. Proper MRO management is a step towards ensuring that the right parts are available at the right time. By having an optimized MRO process, organizations can build the confidence of being equipped with the necessary tools to achieve their goals.