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Role of Supply Chain in Effective Maintenance and Asset Management - Part I

Manufacturing companies across the globe are facing the heat of the unique and unprecedented challenges posed by the economic crisis. Rising raw material costs, increased supplier lead times, subdued investment mood, drastically reduced operating budgets and bleak employment outlook have all hampered the recovery of these companies. But the silver lining through all these challenges is that the output has been steadily increasing in the past few months. Manufacturing companies across the globe are facing intense pressure to maximize profitability by reducing cost and optimizing production. Overall competitiveness of any manufacturing firm is based on the Manufacturing Efficiency and a company's maintenance and asset management strategy is core to improving the competitiveness of the companies vis-a-vis their competitors. Effective sourcing and management of MRO spares is integral to ensure the success of the maintenance and asset management strategy. The effectiveness of the supply chain for the MRO spares and how it is managed has a direct relationship with a company's ability to optimize its asset manangement strategy and reap the benefits.

Low Inventory - High Availability Mantra
One of the key performance measures in a successful MRO strategy should be the availability of critical spares. Companies usually experience the Just-in-Case syndrome where spare stock may be purchased for critical items in case it's needed for future use. With the passage of time these items becomes non-moving stock, tying cash at the time of purchase and then often ultimately becoming obsolete and requiring a balance sheet write-off. On the other hand an inventory run out in asset intensive companies can result in increased operational, safety and compliance risks. These risks can lead to a significant production impact which in turn affects the profitability of the companies. Having access to the right spares when and where they are needed is critical to maintaining the continuity of production and avoiding costly downtime. Successful strategies therefore need to find a balance between the availability of spares and other considerations such as the need to minimize inventory thereby reducing the working capital. An efficient MRO strategy coupled with solid asset data maintained helps to minimize the risks associated with non-availability of spares, improve asset availability and increase profitability.

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Misaligned Strategies
Companies attempting  to find a balance between the number of spares to be held in hand and the reduction in working capital ends up spending huge amount of cash in two areas a) Optimize Maintenance and Reliability strategies and b) Optimization of Internal supply chains.

The outcome of both the projects will be in direct conflict with each other. Maintenance strategies focus on continuous improvement by monitoring the performance of assets. The different maintenance activities that should be performed on the assets and the frequency/interval within which such maintenance activities should be carried out are also detailed in the Maintenance and Reliability strategy.

Since internal supply chain optimization is a corporate initiative, the common practice is to view the entire corporate supply chain under one umbrella and MRO supply chain forms just a small part of it. As a result a general recommendation is made to reduce the total inventory to be held in the warehouse or storerooms.

 After spending millions of dollars in strategy formulation the outcome might be as follows:
1) Maintenance strategy optimization projects recommend an increase in number of spares inventory not less as expected by the optimized supply chain.
2) A generic inventory reduction recommendation from supply chain optimization and this fails to consider the fact that asset reliability and performance might get affected.

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