Inventory Management | Why MRO & Spare Parts Inventory Is Different

Published: June 11, 2013, By Phillip Slater

Have you ever wondered why you can’t seem to get your MRO and spare parts inventory consistently under control while your other inventory types are well managed?

I see many different people challenged by this dilemma. People from finance, procurement, storerooms, engineering, maintenance, and even supply chain. Their key, underlying, and often unspoken, question is: Why can’t we, as good inventory managers who understand both the theory and practice, get this type of inventory under consistent control?

While each department blames another for this problem, the real issue is that they haven’t recognized the root cause: MRO (Maintenance, Repair, and Operations) and spare parts inventories are fundamentally different to other inventory types. This means that many of the standard supply chain and inventory management tools and techniques just do not apply. This includes some of the supply chain and inventory management techniques that have been successfully applied to regular, direct inventories for decades, such as the concept of supply chain velocity (that is, speeding up the flow of an item through the entire supply chain from source to user), Just-In-Time (JIT), ABC analysis, MRP, software algorithms, and even managing for profit per unit.

Not only do these techniques not work with MRO and spare parts inventory, their application can actually be damaging. And not just through excess stock or increased risk. Think about the time, effort, and money that gets spent on this issue without finding a lasting resolution and the impact that this has on employee confidence in the organization’s ability to manage these vital components.

The key ways in which MRO and spare parts inventory is different are that you need to:

• Stock items that you actually don’t want to use but that you absolutely must hold
• Balance both supply chain and technical requirements, which can result in confusing, sometime unpredictable, and complicated demand patterns
• Manage items of small value that are critically important
• Deal with stockout costs that can be disproportionately high compared to the value of the item
• Manage the behavior of users who are part of your team but not accountable for their impact on inventory levels
• Beware of accumulating large holdings of obsolete stock that you won’t be able to sell

Plus, the small "market" that this inventory services (being your plant and equipment) means that you don’t get the leveling effect that happens with the larger, more homogenous, markets experienced by goods for production and sale and on which most inventory and supply chain practice is based.

When you take these issues into account there is no doubt that MRO and spare parts inventory management requires a different approach to regular inventory. So, when you next consider what to do to better manage your MRO and spare parts inventories, ask yourself if you are falling into the trap of applying generic solutions to a specialist problem. If the answer to that question is ‘yes’, then stop before you waste too much time and money.

And if someone in your company is pushing for solutions that don’t suit, then forward this article to them.

Phillip Slater specializes in Materials and Spare Parts Management. He is the founder of the information site SparePartsKnowHow.com, and the author of eight books, including Smart Inventory Solutions and The Optimization Trap. For a complimentary copy of the ebook 5 Myths of Inventory Reduction, please visit www.PhillipSlater.com.

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