Inventory management: a goldmine for unlocking opportunities to save money

8 March, 2021 by Add Energy

To mitigate risk of downtime, assure profitability and the safety integrity of an operating facility, regardless of the sector you are operating in, it is crucial to strike the perfect balance between holding enough spares to mitigate risk whilst minimizing expenditure.

From an inventory management and maintenance perspective, efficiently and cost effectively procuring the right equipment, at the right time for maintenance to commence without delay is fundamental for achieving asset performance goals, and is one of the biggest challenges that operating facilities face during day to day operations.

In our experience, the root cause of this usually stems from the quality and completeness of the data within the CMMS, or lack of it. A lack of standardization, missing information, wrong information and poorly linked data sets are some of the typical contributors to costly and inefficient spare part management.
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Reeve Watt, Senior Consultant at Add Energy works directly with Maintenance and Supply Chain stakeholders to help operating facilities overcome these challenges. In this blog post, Reeve discusses proven solutions that can be efficiently deployed to optimize inventory management amid a cost conscious environment.

The challenges (symptoms and causes)

“Inventory management challenges exist whether you are maintaining a brand new plant or an already established operating facility, commonality of the challenges definitely exist, however there are some variations depending on where you are in the facilities lifecycle.

"Here are some examples of common symptoms and their causes across 4 scenarios:

Symptom 

Cause

New Plant
Surplus Stock

EPC purchased the spare parts based on OEM recommendations as part of the EPC contract and plant stakeholders did not review the SPIR/SPILs prior to spare parts being ordered to align the spares holding with their repair and spares capabilities

Established Operating Plant

Ordering the wrong parts resulting in re-ordering, excessive expenditure, delays in maintenance and potential plant downtime

Incorrect equipment specifications in the CMMS resulting in the wrong part being ordered

Delays in closing out maintenance work orders

Maintenance BoMs not being linked to the work orders resulting in not having the correct part available to complete the maintenance

Acquired Plant 

Excessive procurement costs for spare parts

Poor data standardization resulting in duplication of materials

Aging Plant

Unable to source spare parts for equipment installed on the facility

No foresight and plans in place for how to manage equipment obsolescence

Paying premium prices for last minute orders

Insufficient or lack of “min” stock levels in the CMMS

Proven Solutions

“In our experience, inventory management can be a goldmine for identifying opportunities to maximize the profitability of a facility. The opportunities to save money typically sit within 3 key activities; cleanse, build and optimize.

Data Cleanse, Standardization and Enrichment

“In order to optimize your inventory management approach, you must have access to accurate, consistent and reliable data. Without this foundation in place, initiatives to successfully enhance inventory management processes will be limited. 

“To set the initiative up for success, the following tactics should be considered as fundamental:

Tactics 

Why this will help

Enrich the nameplate data (make, model, manufacturer, size, etc) in the CMMS using datasheets and purchase orders, or complete a plant walk down when this is not available

Accurate equipment specification data in the CMMS will assure the correct spare parts are ordered for equipment installed on the facility

Cleansing and standardization of “Material Master” numbers

Allows businesses to:

  • Identify the correct part with the correct specifications to efficiently and effectively procure the part
  • Identify duplicate items and remove from the CMMS to avoid holding excess stock and control stock changes
  • Identify the correct inspection and certification requirements to speed up the procurement process and assure the part is compliant and fit for purpose

Data Build, Enrichment and Optimization

“Once the foundational data has been laid, companies can then begin looking at options to reduce expenditure, risk and asset downtime through data build, enrichment and optimization techniques. In our experience there are some proven initiatives to consider...

Development of Equipment and Maintenance BoMs (Bill of Materials)

"An equipment BoM provides a list of spare parts that make up a piece of equipment and it is crucial for this data to be accurate so the correct parts can be procured for maintenance, or to be held in stock as a contingency measure for critical equipment.

"A maintenance BoM is a BoM that is linked to a maintenance work order, allowing the maintenance team to effectively prepare for preventative maintenance to commence without delay. The maintenance BoM details every part the maintenance technician will need to complete the work order in a timely manner."

Definition of minimum and maximum stock levels

"To maximize the warehousing space available, optimize expenditure and reduce risk of equipment downtime, companies must set-up minimum and maximum stock levels both on site at the facility and in the warehouse.

"Our recommendation is to always ensure warehouse stock is utilized to replenish stock on the Assets when they reach their minimum level, and the warehouse level should be set at a figure that allows this to happen.

"When the warehouse falls to minimum stock level, these items should be replenished from manufacturers, vendors or suppliers to take the stock back up to the maximum level.

"This task will in turn reduce the footprint both in the warehouse and on the facility, to ensure the items being held are those that are needed and have an ongoing turnover."

Critical Spares Study

"In a perfect world, a risk, cost and consequence analysis to determine storage requirements for critical spares should be completed on all high critical equipment, but many companies do not have the luxury of time or budget to allocate to this exercise.

"If this is the case, we would highly recommend prioritizing the analysis of the top 10-20 equipment types within the “production or safety critical” category in order to gain the most return on investment (ROI) and reduce the impacts associated with equipment outage of such critical equipment. 

"An added advantage of completing this type of study includes the ability to determine what equipment is classified as “surplus” stock and therefore holding it on site or in your warehouse has no value to your business. This study will provide the insights you need to rationalize your spares inventory by “selling off” or “disposing of” unneeded spares."

Centralization of a storage facility catering for multiple facilities in your business

"For some companies who own or operate multiple facilities, having a central store to hold all required spare parts for each of the facilities is a highly cost effective approach to materials management.

"In addition to holding the spares required for operations and maintenance, the team managing the central warehouse could in some circumstances, be the main focal points for managing manufacturers, vendors and suppliers to avoid overstocking, optimize costs and assure management of change is adhered to to avoid future data issues and the impacts they have."

Case Study: Showcasing tangible inventory management cost savings

“We recently completed an inventory data assessment for a client to determine how much a BoM data improvement study would positively impact their business. We assessed the issues to communicate the projected savings and efficiency gains ‘vs’ cost of a BoM development project to help develop the business case for investment, here is a summary of the results:

The issues

  • Value of overstocking totaling more than $9.5M
  • Value of spares on order, which were already over the maximum level was in excess of $1.4M
  • Duplication quantity of spares in stock totaling over $750K, caused by missing part numbers
  • Paying premium prices for spare parts due to last minute orders for critical equipment that wasn't in stock
  • Holding spares for equipment that was decommissioned, in excess of $2.1M

The causes

  • Poor min/max levels due to incorrect critical spares allocation and duplication of spares
  • Unable to identify preferred vendors and negotiate good supplier contracts due to lack of quality data
  • Lack of repeatability due to multiple similar parts being ordered from various vendors with different part numbers (effecting leads times and min/max quantities)
  • Lack of quality equipment Bill of Materials (BoMs)
  • Criticality of equipment was not properly defined

The solution

  • To help the client overcome these issues, Add Energy deployed the following solutions:
  • Materials data cleanse, standardization and enrichment
  • Equipment criticality review
  • Build new BoMs/enhance existing BoMs
  • Min/max level setting”

 

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Topics: Inventory Management Optimization

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