Maintaining healthy levels of Maintenance, Repair and Operations (MRO) inventory is essential to the smooth running of your manufacturing, distribution or wholesaling operation – even if MRO goods aren’t part of your final products.
Here we give you a complete guide to MRO, from what it is, to what sort of items it covers. We also give you the 10 best practices to reduce your spend on MRO goods while maintaining a steady flow of the items you need – including the KPIs and software that will assist you.
What is MRO inventory?
MRO stands for Maintenance, Repair and Operations and refers to the MRO of the machinery, equipment, and tools necessary to run a business. MRO inventory includes all the consumable materials and supplies necessary to undertake that maintenance and repair, in addition to operational activities. MRO inventory also includes wearable goods like uniforms and protective gear.
MRO inventory examples
MRO inventory includes consumables such as cleaning supplies, safety equipment, office supplies, tools, and spare parts. Maintenance and cleaning supplies are the most frequently used MRO inventory items, followed by safety equipment and items used for forklift repair.
- Cleaning supplies
Cleaning supplies account for a significant amount of MRO inventory because they include a myriad of things such as disinfectant & cleaning sprays, liquids, and powder – as well as the tools necessary for their use like rags, dust cloths, brooms, brushes, mops and buckets.
- Safety equipment
There are two types of MRO inventory that fall under Safety Equipment. Firstly, there is the safety equipment used as a general protective factor for anyone working or walking within the site. Barriers, signage, non-slip mats, lockout tags and locks all fit within this category.
The second type of safety equipment is the personal protective equipment (PPE) provided to individuals: hard hats, safety glasses, footwear, protective or disposable gloves, earplugs, masks, face shields, respirators – and even sunscreen. In many industries PPE accounts for a significant amount of MRO inventory spend, and as the current pandemic has shown, it is essential to maintain effective MRO inventory control.
- Forklift repair
Forklift maintenance and servicing is an important activity to increase the lifespan of this equipment. The MRO inventory required for regular forklift maintenance includes filters, spark plugs, hoses, oil, coolant and grease, as well as the tools necessary to undertake any forklift maintenance and repairs.
- Maintenance equipment
Maintenance equipment includes the tools and repair components necessary to maintain equipment, including spare parts and related inventory, tooling equipment and industrial components that enable the ongoing operation of machinery and the plant. This includes cutting fluid, lubricants, valves, bearings, and such parts, such as those for motors and gears.
- Laboratory equipment
This MRO inventory is the consumables used in laboratories and any testing and research facilities. Laboratory equipment includes such items as glassware, Petri dishes, vials, bottles, microscope slides, beakers, syringes, test tubes and weighing dishes. It also includes PPE inventory, such as lab coats, gloves, glasses and masks.
- Office supplies
Items from furniture to lighting fixtures – as well as tech equipment like desktop computers, laptops, printers, scanners, and paper shredders – are all office supply inventory. But it is the highly consumable stationery items such pens, pencils, notebooks, pens, pencils, tape, staplers and post-it-notes that can be costly, particularly as these are the items that are most likely to – and often do – go missing.
What is MRO inventory management?
MRO inventory management is the challenging task of controlling and optimising MRO inventory replenishment. Effectively managing MRO inventory requires you to determine the maintenance, repair and operational (MRO) processes critical for business functions and those MRO inventory items necessary to ensure continuity of operations. Replenishment cycles should be based on how frequently and in what quantities each item is used, to achieve the right balance between not running out and holding excessive MRO inventory stock.
The three broad approaches employed to achieve this are internal, third-party and hybrid:
- Internal MRO inventory management uses in-house costing analysis, just-in-time inventory methods, and other inventory control techniques. The main benefit of managing MRO inventory internally is that it is generally cheaper and gives your business greater overall control.
- Third-party or Vendor Managed Inventory (VMI) is where MRO inventory management is outsourced to a third-party supplier. Third-party organisations that are dedicated specifically to inventory management can be contracted solely for the purpose of MRO inventory control. This can simplify MRO inventory and improve productivity because the business can focus on more critical activities and goals.
- Hybrid MRO inventory management is simply a combination of internal and vendor managed inventory whereby certain aspects of the company’s MRO inventory is managed in-house and others by a third party. For example, you may look after PPE and office equipment in-house but have a supplier of maintenance equipment monitor this inventory on your behalf who raises purchase orders when stocks are low.
Why is MRO inventory management important?
MRO inventory management is important for companies to ensure machinery and equipment can remain operating and in good condition. It requires managing inventory stock to maintain optimal levels so that the requisite materials, parts and supplies are kept in the right amounts needed. Effective MRO inventory control is crucial for the continuity of manufacturing operations and business productivity.
Not having the correct products, tools, or components on hand to maintain machinery and equipment can lead to costly downtime in a factory and/or lost employee time. Equally, the absence of PPE puts staff at risk and may also violate local safety regulations.
MRO inventory can account for a sizeable portion of a business’ total procurement spend. That means efficient MRO inventory control is essential to ensure the company has sufficient supplies to meet its business needs while minimising expenditure. The tasks involved in the management of MRO inventory include the purchase, storage, usage, and replenishment of the products and supplies needed for the operation and maintenance of company assets.
What makes MRO inventory difficult?
MRO inventory is difficult because companies frequently underestimate the complexity, cost and impact MRO inventory management has on their operations, and because of this it is treated as an afterthought.
Spending by individuals or individual departments is a key challenge of MRO inventory management. When different departments order and accumulate their own departmental ‘stash’ of MRO supplies, there is the risk of orders being duplicated and inventory wasted.
Often MRO stock that is urgently needed is obtained via expedited, last-minute or on-the-spot purchasing that has higher purchasing and delivery costs. Without centralised MRO inventory control, businesses lack demand and supply visibility. This makes it difficult to monitor consumption precisely and forecast and budget accurately to meet MRO inventory needs.
Inventory management is a challenge in any given scenario, and holding excess stock is always an issue. Turnover of MRO inventory tends to be slow, and with MRO inventory the difficulty of managing stock levels can be compounded when supplies accumulate in one area of the business yet are in short supply in others.
The 10 best practices for MRO Inventory Management
Best-practice MRO inventory management ensures inventory stock is available when needed – and in the quantities needed – while keeping spending within budget.
10 practices you can use to help achieve this are:
- Where practical, train or employ a team member who has responsibility for MRO inventory control – so they have the technical knowledge across all production processes, products, and equipment to oversee MRO stock.
- Identify the MRO inventory items that are essential to your business. Measure their rate of use and minimum reorder points, and implement inventory management software to automate alert levels and prompt stock replenishment.
- Take a comprehensive approach to MRO inventory procurement. Identify identical or similar MRO inventory stock items to determine if spending can be reduced through bulk purchases.
- Train staff on how and where they can find the MRO inventory they need and the procurement processes of the organisation. Give procurement staff opportunities to meet with separate groups within the organisation to better understand their MRO inventory requirements.
- Use a central location for storing MRO inventory that is easily accessible if possible, and use inventory software to track and audit MRO inventory stock. Discourage stockpiling of MRO inventory within different teams; hoarding MRO inventory in this manner is a sure sign that the organisation’s MRO inventory is not being managed effectively.
- Determine if there are demand fluctuations for certain stock items and adjust replenishment to meet these variations as necessary.
- Consider implementing a hybrid approach to MRO inventory control. Discuss Vendor Managed Inventory with trusted suppliers to determine if aspects of MRO inventory management can be outsourced.
- Implement online inventory management solutions to manage and track inventory. Software provides an accurate real-time view of MRO inventory stock, helps to eliminate duplication, and automates alerts when stock is getting low.
- Utilise analytics and demand forecasting functions provided by online inventory management software. While MRO inventory forecasting is not intuitive due to the absence of explicit buyer demand, MRO inventory management – like all successful inventory management strategies – still depends on accurate demand forecasting.
- Conduct regular audits of equipment and processes. Innovative technology or continuous improvement practices may impact the feasibility and frequency of using certain MRO items.
MRO inventory KPIs and supply chain management
Key performance indicators (KPIs) are an effective tool for measuring your company’s MRO inventory control. Several simple metrics will give you better visibility over your MRO inventory management, for example:
- Rate of stockouts: How often stockouts occur for a given item, divided by how many items have been issued – the optimal range for this is under 1%
- Days inventory on hand: The value of your total MRO inventory, divided by the average daily dollars used. This value should be less than 30 days.
- Amount spent on emergency supplies vs overall supply cost. Take your spend on emergency MRO purchases and divide this by your total spend on all MRO goods for the same period. This should be under 2%.
Conduct regular audits of MRO inventory to ensure stock is turning over and not building up into excessive quantities – this could be quarterly, or even monthly. Check for items which may have become obsolete due to changes in production methods, product demand or technological advances.
Lastly, don’t forget staff training on supply chain management, which will help your team expand their skills in this area. With in-depth knowledge of supply chains and in-transit inventory, they are better equipped to maintain optimal MRO inventory control.
Using MRO inventory management software
Inventory management software facilitates effective inventory control, enabling organisations to have the right MRO inventory available at the time it is needed – and this in turn helps reduce costs and minimise administrative tasks.
Software provides real-time insights into MRO stock levels and in-transit inventory. It also automates parts of the reordering process by alerting users when stock levels are low, and providing data on rate of consumption, lead times and more.
Inventory management software makes it easier to track inventory, forecast demand, monitor performance and track historical trends – and this simplifies order scheduling, so you can increase stock when forecasted demand is high and reduce orders in times of lower demand.
The result is less time and money spent tracking down MRO products and putting in rush orders when you realise you’re missing a key part or tool that will impact your operations – which can be costly if you need to expedite delivery, as well as stressful to manage. In other words, managing your MRO inventory effectively using software – as with other inventory – will minimise acquisition and storage costs, and limit the need for last-minute emergency orders.
MRO inventory in inventory accounting
While MRO inventory does not directly generate revenue, it accounts for around 5–10% of the total cost of goods produced. It’s therefore a significant figure, and accounting for MRO inventory requires a combination of strategic planning and budgeting. This involves listing the materials the business and employees need to regularly perform work functions and making financial projections of what MRO inventory the business will require over a year.
When you’re making these calculations, include both everyday equipment (e.g. gloves, masks) and equipment needed only in emergency scenarios (e.g. hazmat suits, fire blankets). Finally, it’s important to undertake a costing estimate of all those items required for the year to ensure purchases are accurately budgeted for.
McDonald’s: Supply chain excellence for MRO inventory management
There are several organisations that have been recognised by Gartner as examples of sustained supply chain excellence, and McDonalds is among this group.
With strong supplier relationships, McDonalds is a benchmark organisation from the perspective of inventory control. Rigid systems and robust inventory control are key components of the company’s processes and critical to its success.
This applies equally to MRO inventory due to the systematic nature of the business, with regulations around food handling and preparation dictating a necessity for PPE, such as gloves and hair nets. Likewise, the cleaning schedule requires there to be sufficient and adequate supply of the MRO inventory supplies that fall within the cleaning category.