Published November 7, 2011
A large manufacturing facility is operated profitably by Bob, the Plant Manager. Indirect Materials – MRO – account for just 7% of the total plant spend and 80% of Bob’s headaches.
Plant personnel were running out of parts all too frequently, causing a plethora of emergency orders and excessive freight costs. Downtime as a result of MRO ineffectiveness had a significant negative effect on production schedules.
What to do?
Bob separated “M” and “R” (maintenance and repair) from “O” (operations). He placed all M&R parts into free access, charged the parts to one plant service account and allowed personnel to take whatever they wanted. The “O” parts (critical spares) were locked up in a cage with high levels of safety stocks.
In the free issue (M&R) areas, plant Purchasing simply replenished what was missing without regard to who used what and/or in what quantities. Bob’s theory was that, although the M&R was uncontrolled and excessive, worker productivity was increased and downtime reduced. In other words, free access MRO was worth the extra expenditures.
Along came a 3PMRO (Third-Party MRO) stores expert who explained to Bob and his staff that 3PMRO onsite storeroom management would give Bob’s plant total control of M&R as well as O and solve the supply problem and provide optimum TCO (Total Cost of Ownership). This is the best of both worlds – personnel efficiency, still no downtime and significant reduction in price, usage, inventory, freight and personnel.
Here comes the rub. Bob said that corporate staff Procurement had established long-term agreements that needed to be addressed. When corporate heard of the 3PMRO proposal, they said, “We have given you all the tools you need … LTAs (Long-Term Agreements) and SAP systems to manage your plant. Use these tools to manage MRO!”
Bob’s options were to challenge corporate in that the 3PMRO proposal would produce substantial ROI (Return on Investment) benefits or return to his existing free-access situation at existing excessive costs.
Bob elected to decline the MRO challenge because of all the other operational opportunities that needed to be addressed.
What has happened here?
Disciplines have clashed … one concerned with an existing process that does not meet the needs of the other.
Corporate discipline has stated that the company has invested millions in a process … use it! The plant discipline complies and foregoes the savings that would make Bob’s plant more profitable.
Conclusion: Established programs do not necessarily have beneficial applications in all manufacturing functions, especially not in MRO.
Bob’s plant has established Lean principles with a high level of success; and yet, he must put up with a “Fat” MRO operation that diminishes the ROI benefits from Lean.