Unlock MRO Value. Optimize Spares Inventories Using Analytics. An Oniqua Executive Brief

Transcription

1 Unlock MRO Value Optimize Spares Inventories Using Analytics An Oniqua Executive Brief

2 EXECUTIVE SUMMARY Unlock MRO Value Optimize Spares Inventories Using Analytics SITUATION: Quantifying business value can be elusive Reliability affects business outcomes, but the eternal challenge for maintenance is to quantify its value to the business. For asset-intensive organizations, effective management of the maintenance function enables the ability to deliver service levels, function safely and sustainably, operate efficiently and meet enterprise business goals. CHALLENGE: Pressure to minimize cost while maximizing performance In a dynamic environment of increased competition, tougher regulations and ongoing demands to sustain profitability, maintenance, repair and operations (MRO) practitioners face enormous pressure to trim costs while maintaining service levels and driving operational excellence. As companies add new types of assets to the mix and address ongoing economic challenges, inventory optimization is an increasingly critical practice for minimizing MRO costs and maximizing asset performance. SOLUTION: Adding MRO analytics MRO analytics provide a powerful inventory optimization tool that enhances efficiency, cuts inventory costs, helps drive MRO performance and contributes to organizational profitability. Advanced analytics go beyond simple query and reporting tools by analyzing data for patterns and relationships that might not be apparent otherwise. Analytics can also help forecast future conditions based on current and historical data. RESULTS: Increased savings, efficiencies and performance Using analytics to optimize your MRO spares and consumables inventories can help you achieve these key objectives and more: Decrease inventory holdings and improve asset reliability Avoid costly stockouts while minimizing safety stock Reduce write-offs of surplus and obsolete stock Increase asset uptime and production output.

3 Introduction: Optimize MRO Inventory boost reliability, cut costs For companies in asset intensive industries like oil and gas, mining and utilities effective maintenance, repair and operations (MRO) management enables the ability to deliver increased service levels, function safely (with regard to personnel, the public and the environment), operate efficiently and meet enterprise business goals. In today s dynamic business environment, asset-intensive organizations face especially harsh decisions around how and where to trim costs while meeting productivity and service goals. Even moderate improvements in maintenance performance can yield significant savings. But many organizations do not have the resources or the knowledge base to carry out the necessary procedures required to correctly balance the dynamics of material demand. Consequently, organizations are forced to carry excessive inventory (surplus and obsolete), incur frequent expedition costs (freight), and/or experience costly stock outs. MRO inventory is more than simply a storage area for maintenance materials. Its true intent is to provide the right materials to the right place at the right time, at the lowest cost. Non-availability of critical spares incurs costly downtime. Maintenance schedules can be hampered due to stockouts. Just as bad, the fear of stockout results in overstocking and unnecessarily high inventory holding costs. MRO analytics represent a valuable tool for asset-intensive organizations to cut inventory costs, enhance efficiency and maintain assets and equipment at top performance. Using analytics to optimize inventory and implement best practices into inventory management processes makes MRO operations more effective now, and enables continuous improvement over time. As organizations take on new types of assets and face ongoing economic challenges, inventory optimization is an increasingly critical practice for maximizing asset performance while minimizing MRO costs. Table 1 illustrates why optimization is difficult to impossible without analytics. Table 1: Key reasons to use an analytics tool for inventory optimization Inventory optimization requires significant expertise, time and effort. It is impossible to realistically manage the sheer volume of transactions and item detail for tens or hundreds of thousands of items without an analytics tool. TASK Determine supplier characteristics Determine demand characteristics Identify material characteristics Apply constraints Apply business rules and policies VARIABLES Delivery, locality, availability Movement, volatility, forecasting Criticality, workaround, inventory cost Warehouse space, procurement process, budget Organization strategy, continuous improvement policy 1

4 The ABCs of MRO inventory optimization Optimization is a journey getting there requires four fundamental steps, as illustrated in Figures 1, 2, 3 and 4: 1. Understand MRO material movement (Figure 1) 2. Establish MRO inventory stocking strategy (Figure 2) 3. Decide on demand forecasting (Figure 3) 4. Optimize inventory stocking levels (Figure 4) To begin, it s important to make an assessment of the true state of your MRO spares inventory. Ask yourself: Is the current situation acceptable? What inventory KPIs are in place? Does periodic stocking decision review occur? Does periodic investment recovery for surplus and obsolescence occur? Does periodic parts catalog standardization occur? Where is improvement needed? MRO Spares Material Flow Warehouse Maintenance Procurement Supplier Receiving Stock & Direct Purchases Order Processing Work or Service Orders Stock Emergency & Unplanned Planned Work Reservation Non Stock Purchase Requisition for Direct Purchases Purchase Order SOH against Min/Max or ROP/ROQ Stock Replenishment Direct Purchases Unused materials Work Site Consignment Free Bins Vendor Held Stock Credit Card Issues, Transfer Orders & Direct Charges (Staging, Kanban) Staging Area Figure 1: Understand material movement through the inbound MRO supply chain 2

5 Analytics provide clear insight to make accurate decisions around having the right spares on hand at the right time and place, for the best cost. What should the stocking strategy be? When is stocking items in the warehouse the right choice? Which items could be handled more effectively by vendor managed inventory (VMI) or consignment? Which spares have usage patterns that indicate whether on demand or direct order is best? Understanding material movement is the first step in leveraging analytics to make accurate stocking decisions. Numerous critical factors come into play: Historical demand Where-used, criticality Replenishment costs Holding costs Planned demand Demand variance Workaround options Stock-out cost risk Pack/set/issue size Lead time variance Calculated lead times (including internal approvals and receipt-to-consumption delays) Selection and application of best forecast models SATELLITE CENTRAL WAREHOUSE Non Critical Spares OEM Materials Insurance Materials Seasonal Materials Replenish on Request Order on Demand (Short Lead Time Items) Planned Replenishment (Long Lead Time Items) Supply Chain Management Critical Spares PM Spares High Usage Spares Consumables Repairable Replenish Based on Stocking Level Planned Replenishment (High Usage) Order on Demand (Low Usage, Slow Moving) Inactive Transfer Out Inactive Transfer to Shared Plants Obsolete Provision Surplus Obsolete Provisions Obsolete Transfer Out Surplus Obsolete Provisions Obsolete Transfer to Shared Plants Disposal Investment Recovery Figure 2: Establish an MRO inventory stocking strategy 3

6 SHUTDOWN REBUILD OVERHAUL PM PLANNED ROUTINE MAINTENANCE SEASONAL MAINTENANCE UNPLANNED ROUTINE MAINTENANCE UNPLANNED & EMERGENCY BOM Material Reserved Material Quantity Required Scheduled Date PM BOM Material BOM Qty Required PM Due Date Past Usage History Reserved Material Quantity Required WO Planned Date Past Usage History Seasonal Material Quantity Projected Expected Due Date Past Usage History Past Usage History PROJECTED DEMAND (KNOWN REQUIRED QUANTITY) DIRECT PURCHASE (KNOWN) FORECAST DEMAND (BASED ON HISTORY) FORECAST DEMAND (BASED ON HISTORY) Figure 3: Forecast demand based on maintenance requirements and item characteristics MRO analytics make it easier for asset performance management and/or materials management professionals to accurately forecast demand. First, establish inventory control segments and set unique strategies for each. Identifying items by criticality further refines the ability to optimize stocking levels. To truly optimize MRO inventory, the MRO analytics solution should provide special logic for optimizing irregular demand and slow moving spares. Optimizing MRO spares and consumables inventory with analytics helps asset intensive organizations like yours: Decrease inventory holdings and improve asset reliability Avoid costly stockouts while minimizing safety stock Reduce write-offs of surplus and obsolete stock Increase asset uptime and production output Cut replenishment administrative costs Save time by managing inventory more efficiently Improve supplier performance Inventory optimization with analytics has helped global energy, mining and other asset-intensive organizations report savings and efficiencies like: Improved service levels on critical spares by 27% Improved warehouse productivity by 15% Reduced total inventory value by 10% Reduced surplus and obsolescence occurrence by 10% Reduced expedited costs by 35% Improved overall supply chain effectiveness and efficiency 4

7 Inventory Optimization Analytics Business Rules SUPPLIER CHARACTERISTICS Locality Lead Time Availability STOCKING STRATEGY New Parts Addition Policy DEMAND CHARACTERISTICS Consumption Movement Forecast ITEM CHARACTERISTICS Criticality Work Around Option Inventory Cost Return to Inventory Policy Parts Catalog Standardization Policy Replacement Part Policy WAREHOUSE CHARACTERISTICS Limitation / Constraints Parts Criticality Assessment Policy STOCKING OPTIMIZATION (MIN/MAX & ROP/ROQ) Yes Optimization Results Requires Changes to Existing Yes Make Changes to Stocking Level No Time to Review? Figure 4: Optimize Inventory Stocking Levels; a continuous process Inventory optimization is not an end state, but a continuous process. A comprehensive MRO analytics solution should provide proactive obsolescence management by providing visibility into upcoming or potential obsolescence instead of reacting to a list of non-movers after some fixed period. Additionally, continuous data cleansing ensures that duplicate items are eliminated, item information is accurate and complete and that item descriptions are standardized. With the detailed reports generated from MRO analytics, inventory managers can more easily and accurately determine the optimum quantity of spares to stock and eliminate excess inventory. 5

8 Summary and conclusion MRO analytics enables asset-intensive organizations to efficiently and effectively gather all pertinent data associated with inventory items and apply algorithms to: Facilitate greater control of asset condition, maintenance schedules and work processes. Limit unnecessary costs, reduce total cost of ownership and boost asset productivity. Improve maintenance efficiency, inventory performance, supplier management and supply chain effectiveness. Understand exactly how MRO helps drive productivity and bottom line performance. Using analytics to optimize MRO spares and consumables inventory can help drive key MRO goals: safety, reliability, compliance and cost management.. 6

9 About the Author Try Oniqua with your own data. Steve Pak has more than 20 years of supply chain, plant maintenance and operations management experience with Fortune 500 companies. In his role with Oniqua, Pak applies his background and experience with business process optimization and re-engineering to help Oniqua s clients leverage analysis, insights and best practices to optimize MRO operations and achieve greater efficiency and profitability. oniqua.com Contact Oniqua Australia Brisbane, Australia Level 5, 16 Marie Street P.O. Box 1119 Milton Brisbane Queensland 4064 Australia Phone: Perth 9 Havelock Street West Perth Western Australia Oniqua Europe Regent Centre, Regent Road Aberdeen, AB115 NS United Kingdom Phone: +44 (0) Americas Denver, USA 7900 E. Union Avenue, Suite 920 Denver, Colorado USA Phone: Santiago, Chile Av. Pedro de Vlavidia 555 Of Providencia - Santiago - Chile Phone: Africa Johannesburg, South Africa P.O. Box Parkhurst Johannesburg, 2120 South Africa Phone: +27 (0) Oniqua provides Intelligent MRO (maintenance, repair and operations) capabilities that are transforming the way Oil & Gas, Mining and Utilities companies manage their capital-intensive assets. Our unique cloud-based offering combines the world s most advanced MRO analytics technology with analyst services, consulting, master data cleansing and industry expertise to optimize the performance of materials management and operations & maintenance activities. Oniqua does the heavy lifting on behalf of customers so they can achieve rapid benefits in the form of reduced waste and costs, minimized risks, greater efficiencies and smarter decisions across their MRO operations. Oniqua is proud to serve many of the world s largest energy and resources companies, including BHP Billiton, ConocoPhillips, Dow, BP, Newmont Mining, Rio Tinto, Freeport McMoRan, Tennessee Valley Authority, Nebraska Public Power District and many others. Oniqua is owned by international oilfield support services company ASCO. The company employs over 2,500 people in four key regions, namely the Americas, Europe, Middle East & Africa and Australasia. The company currently has sales in excess of $1bn. Through Oniqua and its other businesses, ASCO offers a wide range of services including inventory and materials management, offshore supply base management, onshore oilfield support, environmental services, personnel and training, advisory and technical services as well as fuel services. ASCO s global headquarters is based in Aberdeen. OWNERSHIP AND COPYRIGHT The ownership and intellectual property contained within this document belongs to Oniqua Pty Ltd and cannot be replicated, copied or used without the written consent of Oniqua Pty Ltd. Product names mentioned within this document may be trademarks of their respective companies and are hereby acknowledged. Copyright 2015, Oniqua Pty Ltd. All rights reserved.