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CHAPTER 4

PERSPECTIVES ON STOREROOMS

POV (POINT OF VIEW) IMPACTS HOW PEOPLE VIEW THE STOREROOM

Are they blind? Different people in your organization look at the maintenance storeroom and don’t see what you see. And it is frustrating! To explain this difference, let’s consider the classic story about six blind men examining an elephant.

One day an elephant walks into a village. The villagers had never seen an elephant before. A group of six blind men decided to find out for themselves just what this elephant was.

Each Touched a Different Part of the Elephant.

• “The elephant is a like a tree,” cried the first blind man as he touched the leg.

• “No, it is more like a rope,” said the second blind man who touched the tail.

• “I think that it is like a thick snake,” chimed in the third as he touched the trunk.

• “A snake? No, it’s flat like a banana leaf fan,” said the fourth man, who was touching the ear of the elephant.

• “A banana leaf? Are you mad? It is more like a huge wall,” laughed the fifth man, feeling the side of the elephant.

• “I don’t know what you are all feeling but this elephant feels to me like a solid curved spear,” said the sixth man, who touched the tusk.

They began to yell at each other and argue about the elephant. A wise man, passing by, stopped and asked them, “What are you blind men arguing about?” Almost in unison they said, “We cannot agree about what the elephant is like.”

What Does the Elephant Story Have to Do with Your Storeroom?

One feature of the modern corporation is the departmentalization of functions. Companies take this approach to create operational efficiencies and to manage the span of management control. Thus, most organizations will have the following groups or departments:

• operations

• maintenance

• storeroom and logistics

• purchasing and procurement

• finance

But what happens when these functions overlap? The elephant is your storeroom with its materials and spare parts inventory.

Each corporate function has its own influence on your materials and spare parts management outcomes. Yet each operates independently, often with little incentive to coordinate activities to improve the overall business results. They act based on what they think is needed, based on what they see, each looking at the same storeroom and literally seeing different things.

What Warehouse and Storeroom Employees See

The storekeepers see a bunch of SKUs that they have to receive, store, issue, count, care for, and requisition (Figure 4-1). You can say they babysit the parts, but in most cases don’t own them. They get yelled at by maintenance and operations for not having enough parts and by finance for having too many. They are expected to pick the parts with 100% accuracy and be able to do it immediately. Stores personnel count, inspect, shelve, locate, and reorder each part. They also provide housekeeping, security, and protection from mechanical, electrical, and environmental damage.

Figure 4-1: Storeroom SKUs

Maintenance Point of View

The maintenance department sees inventory as one of the elements needed to efficiently repair the company’s assets. Generally, the focus is not on the parts that are there, but instead on the ones that are not there (Figure 4-2). The department gets yelled at by operations if the part is not available and downtime results. So operations yells at stores to make sure that everything is stocked. In turn, stores yells at operations for not telling them how many of a part they really need or that it was needed at all.

Figure 4-2: The dreaded stock-out

Purchasing

Purchasing sees the paperwork. They may never touch or even see the part. They may have no idea what it does or where it goes. But they experience the hard work to source the parts, locate obsolete parts, and negotiate the best prices and terms (Figure 4-3). They are yelled at by maintenance for taking too long when buying parts for breakdowns. They are yelled at by finance to save more money, which then means that they get yelled at again by maintenance for buying cheap parts that do not last. In turn, they yell at maintenance to give them more time and not have so many emergencies. As you have gathered, there’s a lot of yelling! Purchasing also provides maintenance with meaningful advice such as, “Failing to plan is planning to fail.”

Figure 4-3: The purchasing department finds and buys parts.

Finance

Finance sees money tied up that they believe could be used better elsewhere. They yell at stores, maintenance, and purchasing to cut costs, to cut inventory levels, and to stop spending so much money (Figure 4-4). They see the maintenance role of repair as a pure expense. They get yelled at by everyone else for asking for too much to be achieved from too little.

Finance also monitors the cost of lead time and the cost of capital tied up in transit. They are also sensitive to the cost of obsolescence and, especially, write offs. Write-offs can come from parts that are now redundant or have decayed (e.g., rubber that has become brittle, components that have rusted).

With the elephant in your storeroom, it seems that everyone is yelling at everyone else! And no one sees tine; bigger picture.

Figure 4-4: Finance worries about the cost of stores, maintenance, and purchasing.

But what if they could all see the entire elephant, if each group could understand the perspective of the other? Understand what they were trying to achieve and the constraints within which they were working. Maybe then they could have a meaningful discussion about the management of this strange beast known as materials and spare parts inventory management. And maybe then they could work out a way to collectively improve the overall business results.

MISALIGNMENT OF ACCOUNTABILITY AND REALIGNMENT OF ACCOUNTABILITY

The core problem of misalignment of accountability was introduced to me by Phillip Slater, a leading consultant in Melbourne, Australia. This misalignment makes many of the issues we see with the maintenance inventory and warehousing function inevitable.

Having No Effective Constituency for the Spare Parts Causes Bad Decisions

Despite the risk management the parts provide, the maintenance inventory is often the first stop in any cost reduction project. It is easy to cut because there has never been an effective advocate for having either the part or a guaranteed access to the part. We could say that neither the parts nor the dollars should be the focus. Instead the focus should be on the function of the part and the criticality of that function to the success of your organization. This distinction is often missed. Before we investigate the function of the part, let us look at mistakes being made in maintenance warehouses around the world.

Games

Suppose that in order to improve long term profitability and viability, we design some games to enhance the company’s performance. These games may have prizes or just bragging rights.

Finance’s game is to improve the company’s working capital and profit. Therefore, they cut unnecessary expenses and reduce all inventories they can find. Perhaps they encourage operations to institute JIT (Just-in-Time) into the manufacturing process. They find a good amount of money invested in maintenance inventory parts that apparently are never used. Working capital improves over the period measured; finance wins their game for making the company more efficient.

The maintenance department’s game is to increase uptime to X%. To achieve that level, the department implements improved PM (preventive maintenance), PdM (predictive maintenance), and PrM (proactive maintenance) practices. With these improvements, and the effective insurance policy of critical (though very slow moving) spares, they believe they will win their game too.

The details of the insurance policy will be discussed at length in Chapter 5. For now, the policy states that in spite of maintenance’s best efforts to keep running machines running, if a critical machine breaks, they (maintenance already has the expertise and tools) can fix it quickly because they have invested in the expensive, long lead time spare parts to make the repair. The investment in the parts is the premium of the policy; the reduced downtime in case of a catastrophic event is the payout.

Finance won their game partially by liquidating slow-moving, long lead time spare parts. The probability of a breakdown does not change with the reduced maintenance inventory. But if there is a breakdown, the likelihood of a long downtime event increases to a certainty the more that maintenance inventory is reduced. Long downtime events cause the maintenance department to lose their uptime game, causing the company to lose money, market share, and customers.

Misalignment of accountability is a condition where you winning your game causes another group to lose their game, while the company is no better off. How is it that finance wins their game and yet they do not bear the consequences of their strategy?

If maintenance is accountable for maintenance-related downtime, then it seems that the inventory should be in their control.

The misalignment of accountability (the problem) and the realignment of accountability (solution) are both concerned with how accountability is aligned with managerial power. It is important to align the accountabilities so that the people who are responsible for an outcome have the power, funding, and tools to carry out their job. If the alignment is correct, the organization maximizes the use of resources to achieve its production and financial goals. If it is not correct, the different factions fight to optimize their own games or area, with no care for anyone else!

Who is and who should be accountable for the maintenance inventory? Furthermore, who should approve adding SKUs or removing SKUs to the inventory? Who sets the ROP and EOQ? These are important questions.

The first step is to determine the mission of the maintenance inventory. The reasons we need an inventory of spare parts are discussed in length in Chapter 1.

For now, we can answer the question “Why do we have the inventory?” simply. The inventory is a tool to boost profit or enable profit at all. (During a breakdown, no part might mean no production until the part is received). In some cases, the inventory also supplies parts and consumables for safe operation or to avoid either safety or environmental issues.

ISO 55,000 helps organizations realign accountabilities by tying all decisions to the mission. Once the organization has a mission (and vision, values) then decisions can be examined for their alignment to that mission. Uptime Elements (Reliabilityweb.com) directly calls for leadership to make sure all decisions have a clear line of sight from the decision to the mission of the organization.

Service Level Agreement

The mission is determined by top management in consultation with maintenance and operations. The expression of the mission is the service level agreement between warehousing and maintenance.

Discussions should consider how critical this plant’s product is to downstream operations, whether it contributes greatly to the company’s success, and whether this is our only plant. Based on sound economic analysis, the leadership team chooses the risk they are willing to take.

This agreement includes performance levels by part critically. If we all agree on a 99.5% service level for critical parts, then SIC (statistical inventory control) calculations based on either data or our best estimate will regulate the overall inventory level on the shelf and that determines the dollar value of the aggregate inventory. Over time, as we collect more data the “guesses” will improve.

The service level agreement does not preclude creative ways of operation. The service level might be achieved by a variety of strategies. For major, expensive, and critical parts, the service level might be achieved by vendor stocking or by plants sharing the part, as well as by physical stocking.

As we demonstrated in the discussion about point of view, everyone has a “view,” an interest, a measurement, or a key performance indicator (KPI) that they are held to. The problem with these varying views is that the overall profit of the organization suffers from decision making that favors any one limited point of view.

Accountabilities

Let’s look at some of the accountabilities of people in the storeroom and in maintenance for spare parts.

The people responsible for uptime and maintenance (maintenance):

• The maintenance department sees inventory as one of the elements needed to efficiently repair the company’s assets; it needs PM parts to avoid the need for repair. If a machine breaks down and the part is not on the shelf and not available from a vendor, the maintenance department might have to improvise to keep the plant running.

The people responsible for the storeroom (stores or supply chain):

• Storekeepers see a lot of SKUs that they must receive, store, issue, count, care for, and requisition. They have to issue the correct parts and may also have to kit jobs ahead of time.

The people responsible for buying the parts (purchasing or supply chain):

• Purchasing sees the paperwork. They may never touch or even see the part. They must contend with a large numbers of suppliers, many emergencies, and a lot of hysteria that maintenance brings to bear.

The people responsible for the funding of the storeroom (finance):

• Finance sees money tied up that they believe could be used better elsewhere.

The battles to add new parts, to increase inventory value or warehouse size, and to optimize the inventory are being fought on a daily basis. As we’ve demonstrated, the complete picture is not flowing to the people making decisions. People who are ignorant of the consequences to the company may make decisions that are short sighted and actually ignore the bad effect on the business.

RACI charts are developed for each business process. In this case the development and maintenance of the service level agreement is the responsibility of the stores people, but ultimately top management is accountable. Maintenance personnel are consulted. The RACI (Responsible, Accountable, Consult, and Inform) chart seen in Table 4-1 shows who should be making decisions, who is ultimately accountable for the decisions, who you go to for advice, and who has to be kept in the loop. The RACI chart can frequently untangle the misalignment of accountabilities. Table 4-2 provides a guide to the RACI chart. In this example, we are defining generic roles. You may choose to designate specific jobs or titles such as Plant Manager instead of Top Management

Table 4-1: RACI – Responsible, Accountable, Consult, Inform

	Responsible	Accountable	Consult	Inform
Service level agreement	S	T	M	O
Deciding stock levels	M	S	O
Which parts stocked	M	S	E

Table 4-2: Roles for the RACI Chart

T	Top management
F	Finance
S	Storeroom leadership
M	Maintenance leadership
O	Operations/ Production leadership
E	Engineering

COMMON COMMENTS ABOUT GOOD AND BAD STOREROOMS

Table 3-3 summarizes a lot of comments that help you summarize the strengths and weaknesses of your storeroom. How many of these comments can you circle?

Did you know that the most common cause of interrupted maintenance work is no parts? Studies indicate that parts are the cause of up to 40% of lost tool time. These parts include those that are:

• Not identified ahead of time

• Not in stock, but should be

Table 4-3: How Many Can You Circle?

Good Storeroom	Bad Storeroom
1. Don’t run out of critical items!	1. Stock-outs on critical parts when they are needed.
2. Adequate storage with limited access.	2. Parts not bought when the system says to buy them.
3. Storeroom is kept clean and neat — one item per bin.	3. Inventory for units no longer in service.
4. Well-established and well-understood procedures for getting, returning, and accounting for maintenance materials.	4. Inventory on shelf for one year or more.
5. Craftspeople can identify and obtain parts without supervision’s authorization.	5. Inventory cannot be reconciled.
6. Little hoarding of parts by craftspeople.	6. Parts can be added to or taken from inventory without proper paperwork or computer entry.
7. Quick and well-defined withdrawal procedures even after stores hours (where storeroom is not open as many hours as maintenance works).	7. Slow parts window.
8. Requirement that all parts removed are recorded on work orders or an equivalent document.	8. Hoarding of parts by craftspeople.
9. All parts must be received, priced, and physically checked, counted, and signed for.	9. Inflexible and hard-to-use computer system for inquiry and research.
10. Periodically and randomly sample the waiting time at the counter for parts — work to reduce it.	10. Purchase orders issued after item was received.
11. All parts are assigned locations.	11. Items are routinely purchased with petty cash on a rush basis.
12. Periodic physical inventories are taken to verify quantity and location.	12. Little knowledge of location, inventory level, usage.
13. Some means for recording usage, price history, where used, and substitutions.	13. No established min/max, reorder points, EOQs.
14. Periodically shop for parts and evaluate vendors.	14. No competitive bids or sweetheart deals with certain vendors (not partnerships).
15. Nothing gets added to stock without stores team approval.	15. Parts purchased but never used, no accountability of parts used.
16. Periodically review applications and specifications of parts.	16. No attempt to help craftspeople by pre-kitting work.
17. Periodically review part usage and lead time to adjust min/max and economical order quantity (EOQ).	17. No proper storage; unlimited access to parts room.
18. If you don’t use it, don’t stock it.	18. No physical inventory taken.
19. Divide parts into classes for different treatment.	19. Excessive hoarding of parts by mechanics outside of the parts room.
20. Be sure new assets have parts requirements developed before they are needed.	20. No knowledge of the current value of the inventory.
21. No field re-engineering (without documentation).	21. No analysis of the current value of the inventory.
22. Parts for retired assets are reviewed for use elsewhere or disposed.	22. Tough to find parts by descriptions or by where used.
23. Be sure broken, bad, or ruined parts are disposed of promptly.	23. Different reference numbers in different storerooms.
24. Have an area for incoming and outgoing rebuildables.	24. No knowledge of quantity on hand at the moment.
25. Parts for PM and other routine jobs are entered on a bill of materials and pulled together as a kit.	25. Multiple vendors make it hard to keep track of cost.
26. Job material requirements are transmitted to the storeroom in advance of the job (by the planner or supervisor) when the job is firmly slotted to begin.	26. Constant calls to vendors for emergency drop-offs.
27. Don’t run out of toilet paper!	27. Field re-engineering changes parts needed without changing bill of materials.
	28. Bad relationships among stores, maintenance, and purchasing.
	Bonus Symptoms:
	29. Craftspeople rely on supervisors to get them materials.
	30. Craftspeople rely on planners to get materials.
	31.Craftspeople rely on superintendents to get them materials.

• In stock, but can’t be found

• In stock but misidentified

• Not in stock and shouldn’t be, but no one knew that

Findings From Some Experts

The authors of Production Spare Parts (Moncrief et al.) list their conclusions from 25 years advising maintenance stockrooms in a variety of industries. Although these conclusions are not “truths,” they are items to watch for.

• 80–90% of the SKUs in the warehouse are rarely used.

• 40–45% of the SKUs have overstock.

• Only 50% of the overstocks will be used up within four years if they are not reordered.

• 40% of the overstocks are first-time buys.

• About 70% of initial buys are high, 10% are low, and 20% are okay.

• Lower cost items are ten times more likely to be overstocked.

• Items with longer lead times are more likely to be understocked.

• Vendor partnering can reduce stock levels by 20–30%

• Pareto analysis works great with inventories.

• Sharing spares with other plants can reduce stock by 20–35%.

• Shorter lead times can reduce stock by 20–30%.