Industrial, manufacturing and process organizations continuously require a number of parts for maintenance, repair, and operations (MRO). Consequently, optimization of MRO processes is a permanent challenge faced by all plant managers and their teams. In addition, a highly competitive manufacturing environment, demands optimum management of inventory; as manufacturers struggle to find the right balance between stocking a wide range of inventory to avoid stock-out situations, while under pressure to improve operations and reduce MRO procurement and management costs. But today, emerging technologies have made it possible to deal with this challenge with greater efficiency.
The Problems
Thoroughly reviewing and analyzing all the cost factors involved, and then addressing them in a comprehensive manner can yield up to 40 percent cost reductions. But to make such a positive impact on the cost factors, they have to be properly ascertained and understood. Unless the buyer possess in-depth understanding of the variables involved —quality, quantity, standardization, time element, etc. — s/he will not be able to make much more than 4 to 10 percent difference in driving down the costs. Negotiating lower prices with vendors, for MRO supplies is just not enough; the entire process has to be addressed to make substantial cost reductions. And yes, there are multiple ways in which the total operating cost can be reduced, let’s take a look at what these are.
The Process
Purchasing and procurement functions include: inspection of the quality and accuracy of the MRO supplies, material descriptions, order points/quantities, and lead times, storeroom “best practices” such as design, layout, staffing, technologies, organization, and day-to-day operations. All these activities account for 60 percent of the cost of purchasing MRO supplies. Since these functions account for a major portion of the cost, it is only logical to conclude that this is where major costs savings can be accomplished if things are done in a more insightful and tech savvy manner.
The pre-condition for achieving substantial cost savings is to consolidate all efforts step-by-step, starting with:
- Consolidating products and brands to minimize SKUs (Stock Keeping Unit)
- Consolidating vendors and products to minimize purchase orders and billings
- Consolidating the efforts and time-spend of the people involved in using and managing MRO supplies
In short, streamline and automate the entire MRO procurement and management process, which in turn improves productivity, reduces maintenance inventory value and provides accurate lead-time information, while minimizing time-spend and costs involved.
The Crib
The crib is where it all ends: the requisitioning, management labor, freight in and the seemingly endless paperwork processing . . . all adding up to 60 percent of MRO costs. Realizing that the crib was central in the MRO procurement and management process, AmeriSource worked on automating and improving the crib management.
According AmeriSource’s President Lou Ray, the future of MRO supplies is in automated crib management. With the assistance of Serialio.com (application developers), an Opticon Premier Business Partner, AmeriSource developed an automated crib management solution, based on the self-checkout barcode scanning process one finds at local grocery stores.
- The automated crib makes it possible to reduce costs substantially as it:
- Streamlines the MRO procurement, management, supply, and usage
- Provides structured and accurate product information at all times
- Eliminates duplication and ensures successful location of requisite items
- Eliminates false stock-outs
- Reduces equipment downtime
- Eliminates tedious tasks that take time and effort
How It’s Done
The key components of the automated crib solution include: a badge reader door lock, PC workstation, laptop or mobile device such as a Smartphone, wireless camera and wireless bar code scanner (Opticon’s OPN2002 Bluetooth Companion Scanner). The PC or laptop is connected to AmeriSource’s inventory management software via the internet.
This how it’s all done:
- Authorized employee scans their badge to enter the crib
- PC or mobile device starts an inventory order
- Employee picks up the Opticon barcode scanner and selects items required and enters quantity
- Employee checks and completes order on PC or mobile device
- Employee leaves crib, camera snaps picture on entry and exit from the crib
- Automatic inventory replenishment from AmeriSource’s warehouse as items fall below minimum levels
- Replenishment orders are put away buy AmeriSource’s staff
- Customer is summary billed by cost center once a month on usage with 24/7 access consumption data
The Advantage
The automated crib reduces costs associated with key consumable and MRO supplies, while increasing productivity by streamlining crib operations.
Tangible business benefits include:
- MRO consumptions reduced by 25-40%
- Elimination of expensive and disruptive stock-outs
- Automated purchasing and reduced overall procurement costs
- Reduced staffing costs, due to automation and improved efficiencies
- Increased inventory turn rates, lower stock levels and purged dead stock
- 24/7 access to real time consumption data by cost center, job or work order
- Complete lifecycle management and tracking of inventory and usage, MRO and supply inventory level and location monitoring
Case Study
Aphase II headquartered in Sterling Heights MI has two facilities that provide prototype plastic and metal parts to the automotive industry. Like all other automotive suppliers, they too struggled during the recession in 2009. Nonetheless, they successfully navigate the recession and since then their business has expand considerably.
The growth caused some pains:
- More jobs meant more cost accounting time
- Inventory stock outs of key supplies caused emergency supply deliveries
- A full time employee had to be assigned to keep track of MRO inventory and replenishment
- Consumption of MRO supplies increased more than anticipated with no way to determine the cause
After a brief consideration of vending machines Aphase II decided to implement the automated crib management system. Vending machines simply could not accommodate all the MRO supplies and Aphase II did not want to implement a fragmented strategy. They wanted a complete solution for their MRO supply and management issues. And the automated crib covered every aspect of the problems they were facing. The implementation of the automated crib at Aphase II has since delivered the following results:
- Elimination of one full time employee assigned to MRO supply management
- Eliminated 15 vendors
- Consumption of MRO supplies dropped 27%
- Cost reduction on 20% of items resourced to AmeriSource
- Reduced PO’s and vendor invoices from 200+ per month to 1
- Real time and accurate job costs on 1000’s of jobs available 24/7/365
- Stock outs have been eliminated completely
- Inventory velocity reports allowed for inventory optimization. Leading to a 20% reduction in MRO inventory and elimination of waste from dead inventory.
The automated crib has allowed Aphase II to get accurate costing of all perishables, per job, in real time with no effort.
Moving Forward
In addition to expanding the automated crib functionality and features, the team at AmeriSource is also working on porting the mobile application to support Apple’s iOS mobile operating system, which would allow their customers to use the iPhone and iPad.
About AmeriSource
With headquarters in the Detroit area and branches in Green Bay and Memphis, AmeriSource Industrial Supply has been in business for over 60 years as a full line industrial supply distributor focusing on key consumable and MRO supplies. AmeriSource prides itself on a proven track record of delivering industrial supply cost savings by implementing best practices, consumption controls and simplifying the procurement process. Proof of customer success includes best in class performance with over 98.5% fill rates and order accuracy exceeding 99.8%.
