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MRO Stock Management: Centralized vs. Project-Based Approaches

By Kayla Tyree

Order Tracking and Expediting Link in Supply Chain Circle
MRO Stock Management: Centralized vs. Project-Based Approaches

Critical to nearly every type of business, Maintenance, Repair, and Operations (MRO) stock management is a very important logistical aspect to account for when considering the needs of your company. MRO stock management refers to the maintained stock of spare parts, supplies, and additional materials necessary to keep a business running. This includes tools and components that manufacturers may need to keep production lines going and machines in working order. One way to differentiate MRO stock from general stock is by assessing what parts or components don’t contribute directly into a final product or service. If it is not used to create a finished good, odds are it likely belongs in the MRO stock category. According to an article on MRO advantage in manufacturing, MRO stock expenditures typically account for a range of 0.5% to 4.5% of revenues. Since this type of inventory is vital in ensuring nearly every department maintains productivity and stays in working order, it is crucial to find the right balance between overstocking and not stocking enough.

Importance of MRO Management

Just as with any other type of inventory management, MRO stock management can often be complex and difficult to manage properly due to the need to store hundreds or possibly thousands of item types to account for various business needs. Not having the necessary parts and materials on-hand to repair machines and keep operations running can lead to hours or days of downtime that can subsequently cause major problems for a company. The resulting loss of revenue from having to locate, order, and wait for parts to arrive can be very detrimental to a business’s overall bottom line. These delays can also translate into a decrease in customer relations, which would only further contribute to revenue losses. That being said however, it is also important not to overstock MRO inventory as doing so could cause stock pileups of unnecessary parts or products that take up precious space in a stock room and wastes capital that could otherwise be used for other needs. In order to avoid either sides of this spectrum, companies can decide to use any number of MRO stock management practices to keep production running as optimally as possible.


There are many various ways to ensure efficiency in your inventory planning. Itemizing, categorizing, and standardizing your management system can be huge help in ensuring maximum productivity. This basically means working to categorize each item based on importance and frequency of usage in order to get a better gauge of what is most important. That being said, one should also choose a specific type of MRO inventory management to adhere to so that they can more efficiently categorize their stock. Below I will primarily be discussing two types of MRO stock management systems that one could choose from in order to help simplify this inventory management problem. The first is a centralized management system, while the other is project-based. To summarize each type, a centralized system essentially involves consolidating all inventory into a single and central location while project-based systems designate specific MRO stock based on individual project needs, giving each project its own dedicated inventory. Both can be very effective in their own ways, but it is important to know the difference in order to decide which would work best for your personal needs.


Centralized MRO Stock Management


Advantages

Centralized stock management systems generally keep one single, comprehensive list of their entire inventory. In doing so, businesses can get a better idea of their overall stock levels, consumption patterns, and usage trends. Being the more data-driven approach out of the two, this method can make it far easier to forecast demand and manage suppliers. Additionally, organizations can consolidate MRO purchasing through a single centralized team which can result in stronger negotiation power with suppliers and economies of scale. Another advantage to this type of system is the ability to better eliminate duplicate purchases, preventing overstocking and minimizing the risk of unessential items. Finally, the centralized management approach makes bulk purchasing far easier, which can often result in reduced procurement costs and volume discounts.


Disadvantages

As helpful as this system can often prove to be, there are still important disadvantages to consider when making a decision. Since items are often ordered in bulk, there is a chance that MRO stock could take longer to reach project sites, which may lead to delays in production. Furthermore, since all items are generally stored in a single location such as a warehouse, those working in multiple locations or on projects in remote areas may come across logistical challenges in procuring their stock, or it could lead to increased transportation costs. Additionally, some companies may find using a centralized system difficult if they wish to move into new markets. This is primarily because they would have trouble moving to a new location should the market not be sustainable for their current storage site.


Project-Based MRO Stock Management


Advantages

Contrary to the centralized approach, a project-based MRO management system has individual inventories dedicated to specific projects. This can provide much more flexibility in customization when it comes to managing project-specific needs. Another advantage to this system is its decrease in overall lead times due to faster response time capability. Redundancy and duplication are also easier to minimize since there are far less items to focus on at once. This method also decreases the likelihood of stockouts and shortages, also due to the fact that there is less inventory to keep track of at once. Furthermore, a project-based approach simplifies tracking and auditing, helping companies to better assess how their spending is being allocated.


Disadvantages

As helpful as this system can be, it too has its disadvantages. First, because each project requires its own set of MRO items, it can sometimes lead to higher holding costs. This approach also runs the risk of having leftover specialized parts when a project ends that may not be used for a long time. This can increase holding costs even further and raises the risk of inventory obsoleteness, when items become unusable or outdated before they can be utilized. Another problem a business might face with this system is a decrease in volume discounts since each project would need to order materials on a much smaller scale. A lack of visibility can also arise when this system is used. This can make it more difficult to optimize and track stock levels since it has to be done on an individual basis. Additionally, some companies may find it challenging to manage the tracking and distribution of various parts and materials to each individual project location. Finally, those using a project-based system may find it much harder to grow and take on more projects, as doing so would require a significant amount of additional resources and cause the inventory management system to become increasingly complex.


Hybrid Models


Advantages

If neither of these methods seems to fit your needs exactly, you could also consider using a hybrid model of the two. With the hybrid model, various MRO items that are commonly used across various projects can pull from a centralized inventory while still maintaining the ability to order project-specific materials. As with the centralized approach, this method can use data analytics to better identify consumption patterns and trends to optimize spending for each of their inventory types. By combining the best parts of each approach, hybrid systems may accommodate a large range of project variations and allows users to choose if they wish to draw from the centralized stock or order specific individualized project components. It also minimizes the risk of stockouts that the other models may face individually, specifically for this same reason.


Disadvantages

Due to its need to adhere to both model types in various ways, this model can be far more complex than it would be if you were to just choose one or the other. With this approach, it is crucial for organizations to carefully categorize items and determine which can remain centralized and which need to be project-based. That task is unfortunately far easier said than done, as combining data integration from both the centralized and project-based stock can be very challenging. Additionally, this model runs the risk of various project groups facing disputes with one another over the allocation of various centralized items. It is critical for projects to communicate with one another often in order to avoid problems arising from resource claiming. Another important consideration is that the hybrid model will likely increase training difficulty and administrative burdens since it requires a far more complex system. There is also a much higher likelihood of inefficiencies or discrepancies in planning if it is not done carefully and updated often.


Practices to Follow


As helpful as it can be to adhere to one of these inventory management systems, there are several other various practices and methods that an organization could follow to help processes run even smoother. First, regularly auditing and preforming routine inventory checks can aid in increasing stock visibility. Organizing and sorting each inventory item carefully is an important aspect of this that can help those looking for specific materials to find them much easier. Another advantage to preforming these regular checks is the ability to use them to determine usage and spending patterns so that they may be evaluated and condensed as much as possible. Finding a good software that fits with your specific needs can make this process much less difficult. When it comes to MRO management, you should also be very strategic with your choice in suppliers. Minimizing the number of suppliers your business may need can help you be more strategic with your spending and can make it easier to build supplier relations. An additional way to decrease difficulties with your MRO management system is to establish clear policies and guidelines regarding overall management. This includes the whole process from procurement to receiving and finally to issuing supplies. This will help reduce discrepancies in your planning. You should also consider how your chosen inventory management system will tie into other systems you have in use, such as a warehouse management system.


Conclusion


It is so important to do all that is possible in order to optimize your MRO stock management system. Doing so will not only lessen the hassle of an unorganized inventory system, but will also help to increase overall revenue. In addition, it may help your business to reduce stockout risks, increase response times, and lead to overall increased customer satisfaction. By recognizing and weighing both the risks and advantages of each system type, you can work on choosing the right management to help increase your business's efficiency. Considering organizational size, project diversity, geographical spread, and operational capabilities are all necessary in making a final decision. By navigating this choice, your organization can take a step closer to unlocking its full logistical potential. In doing so, it will set itself up for a far more streamlined operation and steady sustainable growth in the ever-changing business landscape.

 

ASCI specializes in helping businesses like yours to address supply chain management challenges. Visit our website to learn more and to arrange for a free consultation.

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