JAMES KOVACEVIC; MMP, CMRP, CAMAPRINCIPAL CONSULTANT

HIGH PERFORMANCE RELIABILITY

Work Management, Track 5Gate Keeping the Storeroom: The Key To a Sustainable

Materials Management

James Kovacevic• James kovacevic; CMRP, MMP, CAMA• Host of the rooted in reliability podcast• Principal consultant at high performance reliability• High performance reliability is an education & consultancy

firm• SMRP approved provider of continuing education and training

Where Did My Budget Go?• No access control• Stocking 2 years worth of electrical boxes• No naming system for parts• A kitting shelf with parts received 3 years ago• Parts in stock from equipment that was removed 8 years prior• V-belts dry rotted on the shelf, corroded valves, and bearings

out of their packaging• Anyone could stock A part in the control room

Where Is the Control?• Pump, Centrifugal, 500GPM – ABC #98765• Cent, PMP, 500GPM – ABC• Pump – ABC• Centrifigual Pump – 98765

• 6206-2CZ• Bearing 62062CZ• BRG, Roller, 6206 2CZ• Roller, Bering 6206 C2Z

Common Issues in Storerooms

Source: MRO Connection

30% of stock will

30% of stock will

not be usednot be used

8% of stock SKUs 8% of stock SKUs are duplicatesare duplicates

25% of technicians time

25% of technicians time

is wasted looking for parts

is wasted looking for parts

What Causes These Losses• A lack of understanding of the importance of master data• A lack of systems to facilitate master data management• A lack of risk tolerance to stock outs• An inconsistent usage of spare parts

Lack Of Control• The primary reason for poor storeroom performance is the

lack of control;– Lack of data control– Lack of stock control– Lack of financial control– Lack of physical control

Sustainable Storerooms• A level of control is required for a storeroom to succeed• A sustainable storeroom will deliver returns to the

organization;– Financial returns– Uptime returns– Risk reduction returns– Efficiency returns

Types of Control• Financial controls• Physical security• Data governance• Statements of authority (Approval levels)• Software access levels

What’s Your Control?• How do you control what goes into your storeroom? • Is it a security guard? Fence? • Do your control(s) address all the different types in a

storeroom?• If you don’t have the controls, why not?• Controlling what goes into your storeroom doesn’t have to be

difficult or complicated…

Gate Keeping• Many types of control will be addressed by gate keeping the

storeroom;– Financial– Data governance– Statement of authorities

• Gate keeping is controlling what goes into a storeroom, so you don’t have all of the issues in the first place!

The 3 P’s

Why A Policy?• “Intentions and direction of an organization as formally

expressed by its top management” – ISO 55000• Sets the expectations concerning how spare parts will be

managed within the organization• Defines the acceptable level of risk to stock outs and

downtime against cost and performance• Defines who is responsible for carrying out the intentions of

the policy

What’s In A Policy?ABC Inc. Spare Parts Policy

ABC Inc. is committed to the maximizing the return on ABC Inc.’s assets. In order to balance the operational and financial needs with risk, spare parts shall be managed on a risk-based approach*. To meet this required all sites within ABC Inc. shall; •Ensure adequate resources are provided to achieve the contents of this policy •All storeroom staff shall be trained in spare parts & storeroom management practices •Spare part descriptions shall conform to the ABC Inc. taxonomy•Spare parts shall be reviewed using a defined and repeatable procedure prior to being stocked•All spare parts stocked shall be included on a bill of material•All spare parts shall be subjected to a formal cycle count at least annually•All critical spares shall be reviewed annually for criticality and stocking levels•All other spare parts shall be reviewed bi-annually for criticality, stocking levels, and obsolesce•All spare parts shall be issued to a work order•All non-stocked or special ordered parts shall be ordered to a work order•All storerooms shall ensure it is protected from unauthorized access•All storeroom procedures shall be defined and documented•Storeroom and spare parts performance shall be monitored•Continually improve spare parts and storeroom management processes

A high level statement outlining the purpose of the policy

A statement indicating all sites are required to comply

Specific expectations of each site in regards to spare parts

Using A Spare Parts Policy• Used to communicate expectations and intentions• Does not include the “who” and “how”• Used to develop specific procedures to achieve the intent of

the policy

How To Execute The Policy?• Procedures are used to execute the policy• “Specified way to carry out an activity or process” – ISO

55000• Procedure defines the who, where, when and how of the

policy• Ensures all expectations are executed in a consistent and

repeatable way

5 Gate Keeping Procedures• Stock Request• Stock Review• Stock Approval• Stock Creation• Performance Management

Stock Request• Ensures all required information is available to evaluate the

spare part– Part description– Manufacturer– Manufacturer part number– Equipment spare part belongs to– Risk to site if not stocked– Estimated usage per year

• Will reduce the number on “convenience” stocking requests• Submitted to the storeroom for review

Stock Review Procedure• Most difficult and time consuming portion of gate keeping• Spare part catalog review for existing material– Even if already stocked, the spare part may have to be re-

evaluated based on the new requirements• Additional information is gathered and verified; – Lead Time– Cost

• Part is analyzed according to the policy and criteria established

Basic Analysis of Spare Part• Determine the RPN– 1 to 2 = Do not stock– 3 to 12 = Setup stock– 15 to 25 = Setup critical stock

• Determine minimum quantity– Min = (usage per year / 365) x Lead time

• Determine maximum hold quantity– Max = min + average consumption during lead time– Avg. consumption during lead time = daily usage x max.

lead time

Advanced Analysis of Spare Part• Determine the RPN – (lead time x probability of failure x criticality)– 1 to 30 = Do not stock– 31 to 94 = Setup stock– 95 to 125 = Setup critical stock

• Determine minimum quantity– Min = (usage per year / 365) x lead time

Advanced Analysis of Spare Part• Determine maximum hold quantity– Max = Min + Economic order quantity (EOQ)– EOQ = √(2DS/H)• D = Usage per year• S = Ordering cost per order• H = Inventory carrying cost

• Determine safety stock (predictable usage)– Predictable usage safety stock = (max lead time – normal

lead time) x normal consumption rate– Normal consumption rate = expected annual usage / 365

Advanced Analysis of Spare Part• Determine Safety Stock (unpredictable part usage)– Unpredictable usage safety stock = K x √D• K = Acceptable level of coverage

• D = Average consumption during lead time = (expected usage per year / 365) x max lead time

• If your CMMS does not allow for safety stock, add to the minimum quantity

Level of Acceptable Coverage

50% 75% 80% 85% 90% 98% 99% 99.9%

K Factor 0.0 0.7 0.8 1.0 1.3 2.1 2.3 3.3

Make The Analysis Simple

info@HPReliability.com

Part Number

Part Description Part PriceAsset

Criticality

Normal Lead Time

(Days)

Max Lead Time (Days)

Expected or Historical Usage per

YearStrategy

Critical Part?

Min Max EOQSafety Stock

FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0FALSE No 0 #DIV/0! #DIV/0! 0

While every effort is made to ensure accuracy, not every situation can be accounted for, therefore al l calculations should be reviewed for accuracy and appl icability. High Performance Reliabil ity can not be held accountable for the outcomes associated with the use of this calculator

Spare Parts Calculator*Assumes a PO Cost of $100 and a n Hol ding Expense of 24%

*Assumes a l l Parts have a cons is tent pattern of use

Stock Approval• The Stock Request is routed to the appropriate individual(s)

with all recommendations from the Stock Review• The individual(s) will sign off and final approval to stock the

spare part• Sign off is typically based on price of stocking the spare part

or level of risk to not stock.• The Stock Request is than routed back to the storeroom for

stock creation

Stock Creation• Vital to the long term sustainability of the storeroom• Cleanses the spare part’s master data to the appropriate

taxonomy and data standard• Review the spare part against the catalog one last time to

prevent duplicate SKUs• Identify bin location • Create spare part in the CMMS• Add the spare part to the Bill of Material (BOM)• Activate the spare part and order initial quantity

Performance Management (PDCA)• Review performance of the gate keeping process;– Master data compliance– Right, first time data– Processing time

• Review performance of the storeroom– Stock turns– Stock outs– Material $ / RAV

• Use this metrics to make improvements to the process and the stocking levels

Who Will Gate Keep?• People are vital to the success of the gate keeping process• People have the ability to make or break the process• All staff need to be trained on the process• Often times the process will fail because people will fear the

new process

Why The Fear?• Running out of stock• Extended breakdowns• Accountability for no stock• Past experience• Move to risk based spare parts stocking• Change

Risk Based Spare Parts• Remember, stocking parts is generally an insurance policy. • If you have a robust work planning & scheduling system and a

good equipment strategy, you shouldn’t need to stock a lot of spare parts to begin with

• This is why defining the level of risk and evaluation criteria is so critical and different between businesses.

Manage The Fear• A Policy• Procedures• Evaluation criteria developed by a cross function group and

approved by senior leadership• Training• Change management

And a RACI• Used to ensure procedures are followed• Keeps everyone on the same page• Provides a single point of accountability

Technology• Can be used to assist with the gate keeping process, but is not

required• May reduce or eliminate data entry errors• Improves reporting• Automated work flow • May be expensive

Automated Or Manual?• Regardless if technology or a manual solution is utilized, make

sure it fits for your business and systems• All of the principles in gate keeping apply regardless of

approach

Common Issues in Gate Keeping• Emergency orders are when a part is needed yesterday and

cannot wait for the process.– Overcome with an exception process, so after the part is

ordered, it is reviewed and stock accordingly• Processing time exceeding a few days will stop the process– Overcome with a calculation sheet, technology and a

service level agreement

After Gate Keeping• Now remember that storeroom we talk about in the

beginning? • What do you think happened to them after they implemented

a gate keeping process?• Do you think the storeroom looks and operates the same

way?

Show Me The Money!• With the new process in place and after reviewing all spare

parts against this new process, within a year the storeroom was able to;– Reduced the storeroom value by $450 – Prevented unneeded spare parts by $50k– Reduced duplicates by 38 SKUs

• All while improving uptime, as they were able to free up money to stock the right parts

Why Not Gate Keeping?• Implementing a gate keeping process is not easy, but the

benefits are dramatic• So what is stopping you from the implementing a gate

keeping process?• You are leaving money, performance and risk on the table

Questions?