Key Takeaways:
Every year, institutional and commercial facilities waste millions of dollars doing system improvements and upgrades to storerooms and inventory management processes. But maintenance and engineering managers too often avoid a critical and significant cost-avoidance task — cleaning up their inventory data first.
By skipping this critical step, they data dump existing information into their new computerized maintenance management systems (CMMS) and miss the opportunity to clean up the information in their legacy systems that would help them truly identify spending habits. As a result, the database is not fully utilized, prohibiting managers from making the most impactful business decisions for their storerooms.
The best place to start with any process improvement is to assess current practices. By first organizing and assessing existing inventory data, managers then can apply more strategic approaches to purchasing products and managing inventory.
Many storerooms are plagued by the stigma, “They never have the right parts!” These storerooms share several important characteristics:
To add to these challenges, multi-site organizations often have greater than 25 percent of the same items in their inventories but do not realize it. They could easily save time and money by using the same part numbers and collaborating on volume purchase.
Sadly, 18 percent of a technician’s time is spent searching for needed parts. Most storeroom databases have common inconsistencies related to parts descriptions, manufacturers, naming and part numbers. Standardization can help managers overcome these sources of waste and increase uptime, thereby maximizing wrench time and the use of maintenance staff.
Data scrubbing is not just a way of cleaning up a database, it also establishes consistency.
For example, a cement manufacturer embarked on a data scrubbing journey. They cleaned up data at four sites — one in Canada and three in the U.S. Midwest. Item descriptions were standardized using the noun, modifier and further specification format, and they created a corporate catalog consolidating all items.
They discovered that 11 percent of their inventory was duplication, and more than 23 percent of inventoried items were at excess stocking levels. They returned these items to the supplier for credit and created $1.1 million in cash flow opportunity.
Obsolete materials also were identified and disposed of, generating over $140,000. They were able to develop a long-term strategy that targeted slow-moving inventory items. Finally, they implemented a policy to work together to stock and share highly valued spares, which further reduced stocking levels and saved additional money.
Once a database has been scrubbed, the next step for a manager is to turn to the purchasing strategy. Mid-sized U.S. companies that do not approach purchasing strategically miss over $134 billion in supplier savings. Companies that use a strategic approach have reduced their inventories up to 50 percent while increasing uptime, availability, and ultimately, profitability.
One proven approach to purchasing is to incorporate a strategic sourcing policy. This is a straightforward way to improve and consistently re-evaluate purchasing activities. It leads not only to operational improvements in quality, cost and service levels but also to increased profitability, financial stability and business growth.
It is important for managers to understand the value of strategic sourcing. To view inventory strategically, managers need to ask, “Are the items in our storerooms assets or liabilities to the organization?” and “Are we short-term focused, looking merely at work in process, or long-term focused, expanding to the impact on capital?”
Strategic sourcing can make every aspect of purchasing efficient. The process seeks to identify critical long-range supply issues, evaluate supplier relationships and tap into technological expertise.
Global markets have become more complex and competitive. Organizations are downsizing and requiring more flexibility and agility. But this scenario presents opportunities and makes establishing a global sourcing program critical.
Managers can start the process by testing after taking several key steps: Decide what to buy by gathering facts and information. Determine department and facility needs in terms of quantity and timing, and define quality requirements. Communicate effectively and set a target price. Once established, prepare for negotiations.
Once the purchasing vision is shaped from a global perspective, managers can scope a sourcing plan that considers the following:
Standardization is a cost reduction technique. By standardizing the inventory within one facility or multiple locations, managers can reduce the number of different items. They also can reduce costs through substitution, which keeps equipment functioning while a specific item is acquired, and through simplification, which selects the most readily available parts and materials by eliminating unnecessary features or costs.
Vital to establishing a strategic sourcing program are these steps:
Investigate. Examine and collect data to establish baselines. Once baselines are established, define needs and develop a sourcing strategy based on those needs.
Solicit. Determine a methodology for receiving bids, and evaluate the bids , such as online, reverse auctions and formal requests for quotation. Negotiate contracts, perform a total cost of ownership evaluation, and look at the big picture in supplier selection.
Implement. Focuses on supplier management policies and contract administration.
Managers also need to monitor supplier performance and manage changes in business.
Studies show that facilities applying these practices can reduce total acquisition costs by twice as much as their competitors. There are clearly bottom-line improvements for the organizations that more effectively manage the information in the database and use that data to drive supply chain improvements.
Optimized inventories are planned and not just coincidence. Managers need to use inventory data effectively to make strategic decisions and look for opportunities to reduce costs. By doing this, they can transform storerooms into profit centers by applying strategic policies and effective supply chain management.
Andrew Gager, CMRP, CPIM, CAMA2, is CEO of AMG International Consulting. He has more than 20 years' experience partnering with organizations to achieve strategic goals, and he is a frequent speaker at NFMT conferences.
