It’s 2009: Does anyone know where their MRO is?
It continues to amaze me that companies big and small, well-known and obscure, cannot give an accurate figure of what they spend and/or of the value of their MRO inventory.
When asked what a company’s MRO spend is, there are estimates that can vary 100%, 200%, 300%. About $1.5 million. No, it’s more like $2.5 million, if we count the pallets and shrink. Wait, the spot buys are another $1 million.
This lack of information does not exist within the supply chain for production materials, capital equipment, or other important areas of business so why do companies allow it to exist for indirect-MRO materials?
I have been in the MRO business for 50 years and have not seen much of a change; it is baffling that this condition continues to exist especially in today’s economy when control of all costs is so critical.
This situation is further clouded by a level of obfuscation based on who is responsible for indirect-MRO, job protection, supplier preference and the like. Some personnel who want to protect against change will devalue the MRO spend to prove that change is not worth the effort or the cost of changing. To negotiate better pricing, many will increase the spend estimate in order to get the better pricing even though in practice, the spend never reaches the amount estimated.
Inventory values vary based upon who is providing the reporting and rarely includes floor and sub-stocks. Values also vary based on whether the inventory is asset or expense-based (asset more; expense less). The store’s supervisors say they have less inventory; “We are efficient, but we need more inventory to increase fill rates and guard against downtime.” CFOs say less, unless it is an inherited asset, and then they say more. CPOs want less inventory so they can buy more. Distributor salesmen want as much as stores can hold–hey are on commission so they want to sell more, not less. Manufacturers who sell through distributors want the distributors to stock more; the distributor wants to stock less and get the client’s MRO storeroom to stock more. The plant CEO wants less spend, less inventory, parts on hand when needed in order to exceed plan. Inaccurate estimates cause inaccurate measurements and erroneous conclusions.
It is rare when all are on the same page!
A clearly defined indirect-MRO analysis—one that shows a true and objective picture—can be the first step in optimizing indirect-MRO costs that will in turn contribute to corporate net profits.
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Cari Palmer commented:
SupplyPro has a vending solution to help manage MRO and assets. Client and enterprise visiblity to usage an on hand is available with a few clicks. And it's easy to integrate into the client's existing purchasing and management systems. Visit www.supplypro.com or call 513-671-4933 ext 107 if interested!
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Vending commented:
Fastenal offers a vending machine to help companies keep track of
their MRO
VanNote commented:
IDG USA LLC provides MRO inventory tracking, purchasing, etc.
Scott Dailey commented:
MRO supplies generally would not be included in the balance sheet
of a company. Why? Because in most cases the items are expensed as
they arrive at the facility. The IRS allows this, and companies
take advantage of it, as it lowers their pre-tax profits and thus
their tax liability.
auditman74 commented:
Are you saying we can't trust the balance sheets of large
companies? There's a shock.
skillington commented:
Well written article; may have future as English teacher. I there
SAP solutions available to properly track and value MRO in real
time? Cna it be inegrated with raw material tracking?
Scott Dailey, C.P.M. commented:
Well done, great article and a great place to add value if you are
a purchasing professional looking for a new challenge.
