MRO inventory optimization: What it is and how has Covid highlighted its importance for business profitability?
For years, many businesses have underestimated the time, effort and materials invested to keep factories, buildings, airplanes, and other complex mechanisms performing as they should. While virtually every business person could tell you what “ROI” stands for, not nearly as many know what the acronym “MRO” represents.
Thanks to Covid-19 and other economic forces, that appears to be changing. Indeed, it’s become nearly imperative for leaders to know not only that MRO is short for “maintenance, repair, and operations” but that it’s a business function that can be pivotal to an organization’s growth and profitability. Accordingly, there’s been a surge of articles and reports on MRO lately, explaining how a fresh approach to these critical tasks can make all the difference.
In this blog, we’ll concentrate primarily on the parts management function of MRO and explain how MRO parts inventory management can be greatly enhanced with an automated storage and retrieval solution (ASRS).
A closer look at the hidden costs in Maintenance, Repair, and Operations (MRO)
Morder Intelligence recently issued a report predicting an upsurge in MRO expenditures over the next five years as it reviewed what’s in store for handling the spare parts, equipment, and consumables a company uses to manufacture an end product. “These include spare parts, equipment, pumps, and valves; consumables, such as cleaning supplies; plant upkeep supplies, lubricants; and activities completed to restore or maintain the functioning of required equipment,” the report said.
Not exactly sexy stuff, and as Thomas Insights classified them, they’re considered an “indirect spend” – almost out of the limelight compared to “direct spend” items such as the parts and materials that actually end up in the product itself. Perhaps because the direct spend is literally more visible in the product and the finances that underlie its costs, it tends to get the attention of those who must market the products and determine their profitability.
Even before the pandemic, that had started to change. As Morder Intelligence summarized it, manufacturers started to realize they needed to better equip themselves to control MRO expenditures to reduce total cost and stay competitive in maturing markets. Buyers demanded higher quality, while the C-suite wanted larger profit margins. The upshot: MRO needed to perform optimally and run efficiently.
What’s driving MRO departments to implement automated storage and retrieval solutions?
MRO is the kind of activity that goes largely unnoticed when things are running well but incurs blame when they aren’t. Imagine a factory cranking out widgets that banks on profitability by manufacturing thousands every hour. If a key machine in the assembly line fails due to poor maintenance or worn-out parts and the factory has to shut down for half a day, the company takes a significant financial hit. Or consider an airline that has an MRO operation to keep its engines properly maintained. If a critical component is not in stock, the airline loses revenue for each hour its planes are grounded instead of carrying passengers.
Avoiding downtime is therefore a huge driver of a well-functioning MRO. What every organization needs to avoid downtime is good data, including when maintenance will need to occur and whether the right parts will be in place when that maintenance commences.
With the rise of the Industrial Internet of Things, predictive maintenance has become a way of anticipating when maintenance will be needed. But MRO spare parts storage is a different data question – and one that can be aided with an automated storage and retrieval solution (ASRS), such as Modula’s vertical lift modules and horizontal carousels.
With Modula’s units, the number of parts currently stored and the patterns of usage is all tracked automatically through the Modula warehouse management solution (WMS). These units can be seamlessly integrated with a company’s ERP for a wider perspective of parts inventory, the flow of parts through supply chains and the periodic consumption figures that help companies anticipate parts needs.
Modula’s storage systems also aid MRO operations by allowing all needed components to be stored in one, high-density storage location rather than scattered across a building – or even several buildings. That also leads to quicker turnaround times and better operations. (See our case study on Safran Aircraft Engine Services Brussels’ MRO facility for an example.)
The impact of Covid on MRO: Why they’re now key to profitability
Covid had a double whammy effect on MRO. First, the uncertainty of supplies and the unpredictability of the demand for products led departments to guess what was needed and scramble to find the parts they’d need to meet the uncertain demand. Second, the departments themselves struggled to safely deploy workers not only to perform the operations but to retrieve the parts they needed.
“For years maintenance routines have been done ‘the same old way’ without a second thought,” Machinery and Equipment MRO magazine said in a recent report. “Now with social distancing, fewer staff, and less operating capital in the maintenance budget, the need for smarter ways of doing maintenance have been developed. Getting the job done with the added COVID-19 challenges, maintenance staff have had to examine what really needs to be done, to be more specific on what to inspect, and how to inspect it to ensure the reliability of the equipment.”
Using automated storage and retrieval systems to maintain a competitive edge
“Beyond masks, social distancing is the next most important factor,” Michael Fiorito, Modula’s director of global business development, told Modern Materials Handling magazine. “And the fewer the number of people needed to access inventory in both restocking and picking operations, the better it is with Covid.”
Jim Owens, senior vice president of supply chain solutions at SDI, said the pandemic has amplified the need for an organization to reconcile the competing forces in stocking up MRO with supplies. “Maintenance wants an overabundance of parts. Finance wants as few parts as possible. Procurement wants to buy in quantities to get the lowest price. Engineering wants only the highest quality parts,” he told Modern Materials Handling. “Instead, we are now at a point where one person should be responsible for all risk mitigation in the MRO parts buying, and for that matter, the parts management cycle.”
Michael Fiorito of Modula summarized it this way in the Modern Materials Handling article: “While significant shifts in parts management have not resulted from Covid, the disease has certainly provided a compelling reason for companies to re-examine their practices and make a change that gives them better control over all aspects of MRO parts management.”
Learn more about how Modula solves challenges for MRO parts management, as well as nearly every other material storage need businesses face in our customer success stories.