Published June 22, 2012
Fred, the purchasing director for ICE Fish Co, has recognized that the MRO storeroom consumes an inordinate amount of personnel time from all departments. The MRO buyer is totally consumed with stock-outs and rushes which causes users to build up secret sub-stocks to guard against stock-outs. Accounting processes over 35,000 transactions; over 20% requires additional verification, matching, etc. The plant manager is confronted with MRO storeroom deficiencies daily and in bi-weekly management reviews. The MRO buy is just 4% of the total buy; it creates 75% of the transactions processed, an upside-down situation.
The storeroom is blamed for many of the plant’s ills including downtime, failure to meet production goals, reduction in site profitability and disgruntled employees.
Corporate will not invest more dollars in MRO for personnel, inventory and needed computer controls because those investments will not guarantee that the present MRO situation would improve.
The MRO consumption rate is $2 million per year; the inventory value is in question and is a source of conflict among management. Various disciplines had estimates that varied by hundreds of thousands of dollars. A minimum figure was determined to be over $2 million which constitutes a negative stock turn. Even with this excessive inventory level, there is a 20% stock-out rate which generates a high level of one-time, rush purchases at a higher price than the existing price for stock units. In addition, the one-time buy is usually purchased in packaged quantities when just one or two pieces are needed. The remaining quantities go into uncontrolled sub-stocks which contributes to negative cash flow costs.
Fred was tired of angry requisitioners coming into his office with fish on their boots and leaving fish stains on his carpet. He opined, “I must get out of the MRO business.” To his credit he made the correct decision and selected an expert 3PMRO provider. After a joint study of what was needed, a service agreement was signed with an implementation schedule and start date. Sponsors were assigned by both companies; both sponsors agreed on the complex factors to be addressed as the process moved forward.
The 3PMRO on-site personnel will attend all production and down-time meetings to acquire a clear path to problem solving needs and to communicate actions.
Sponsors will meet with key suppliers to negotiate price levels, technical support and new product testing for continual productivity.
The 3PMRO provider will meet with all supervisors to establish proper min/max quantities, identify critical spares and to prepare for spike usage.
Management agrees that Purchasing will be involved during a transition period of three months. After that, Purchasing is out of the parts business and able to perform the professional purchasing management that was denied because of the MRO situation. Purchasing now manages the MRO services via monthly performance reviews. There are no requisitions / purchase orders created or traditional receipt/invoices to be processed.
Transactions are reduced to two invoices per month with zero matching errors. All required audit and chargeback data are in place. Accounting personnel are recovered for more critical duties.
Purchase cards are eliminated along with the ensuing questionable auditability of the single order / receipt / charge-back scenario.
Inventory is reduced at the rate of 15%/year while fill rates reach 98% … 100% for defined critical spares.
The site manager spends no time on the vagaries previously created by the inadequate conditions of stores. Downtime is reduced, production is increased and site production goals are enhanced.
The now reliable MRO storeroom is able to provide maintenance with the support to enable them to provide a reliable pant for ICE Fish Co. Fred is out of the MRO business … ICE Fish Co. can do what they do best … CATCH FISH.