MRO: The Fuel That Feeds the Beast

The risk of ignoring MRO can be catastrophic

Maintenance, Repair and Operations (MRO) is by all accounts one of the most over-looked, disrespected areas of the supply chain. A tiny, lowly, ball bearing can bring an operational industrial site to a halt. If a replacement part can’t be quickly found, the result can be disastrous.

In fact, one large CPG company confirmed that if its plant goes down, it loses $20,000 per hour.

It’s absolutely true that MRO is disrespected, said Christopher Moore, Executive Vice President of Field Operations for SDI Inc., a Bristol, Pa.–based integrator of MRO supply chain services to more than 1,200 facilities.

“MRO is the often-ignored stepchild,” said Moore. “It has low visibility and it’s not direct-material related. It isn’t core products but it can shut down the production line quickly. It’s often ignored until [that happens] but after it’s resolved, it’s back to the status quo and everyone forgets about the little emergency that just happened.”

Quite simply, MRO, is an indirect spend that includes materials and services that don’t go directly into the end product but are used to maintain, repair or operate the processes and machines that manufacture the product.

Lessons learned from the field

One of SDI’s customers is Ascend Performance Materials LLC, a Houston-based chemical company with five U.S. plants producing Nylon 6, 6 and its derivative chemicals. In the 1950s, Monsanto formed its chemicals division, which included the production of Nylon 6, 6. In 1997, Monsanto spun off its chemicals division to form Solutia Inc. In 2009, a private investment firm purchased Solutia’s Integrated Nylon business and established Ascend Performance Materials Operations LLC.

Nylon 6, 6 is frequently used when high mechanical strength, great rigidity and good stability under heat is required. Applications include carpet fibers; apparel; airbags; tires; zip ties; ropes; conveyor belts; and hoses.

“There are many categories of expenses that management needs to focus on and act on,” said Tom Barrett, Indirect Procurement Leader, Ascend Performance Materials LLC. “Raw materials are most always critical to the business and operations. The percentage of indirect spend to direct is less and MRO is even less than that. When you look at the MRO space, its 10 to 15 percent of that indirect spend.”

Ascend’s MRO spend represents about 10 percent of SDI’s total managed spend. The MRO opportunity was identified following the final spinoff from Solutia—five plants (two based in Alabama and each of the other three in Texas, Florida and South Carolina) had five operations acting in a silo.

“They were doing what they needed to do to keep each plant running,” explained Barrett. “They had their own local suppliers and initiatives—multi-suppliers, different suppliers, different terms.” In other words, a lot of vital products often can’t be located quickly, leading to expensive downtime.

“MRO is the fuel that feeds the beast,” Barrett added. “It’s the needs and supplies of our business: filters, lubricants, safety supplies, lab supplies and batteries. When [supplies] are used up we need to correspond with the maintenance group—whether it’s a pump, gasket, belts, filters, all the things we need to run a chemical plant, even software, hardware, servers and applications for SAP.”

SDI began with a refit of the largest storeroom at the Pensacola plant. It was ramped up, centralized and running efficiently in nine weeks, primarily via a pick-and-pack model that reduced walk time and wait time.

“We brought them into the modern century by implementing a fully integrated electronic solution that includes a full service online catalog with a user friendly shopping cart,” explained Moore.

The quick timeline was essential for Ascend, as was SDI’s experience. And as a third-party provider, there were limited formal supplier relationships.

“Store operations in an outsourced environment [is SDI’s expertise],” said Barrett. “They’re supplier agnostic and have proven productivity. We agreed to dismantle the [legacy] operation. SDI and a joint implementation team worked with the pilot site, understood where the differences were and knew how to improve them. They leveraged the suppliers that [were right] for us.”

“Now we’re looking at better than 10 percent net savings,” he added. “The process efficiencies and technology go beyond that. It’s an aggressive start, a qualified success and continues to gain steam.”

The 2,500-acre Chocolate Bayou plant near Alvin, Texas, for example, had 40 different storerooms with little organization.

“It was hard to grasp where the parts were—where the inventory was,” said Moore. “Say they had five roller bearings in stock and the process went down; they couldn’t locate the bearings needed to make the repair and often went out to purchase new parts to make the repair when the inventory was on-hand some place on the campus, but no one knew where.”

The storeroom was “an afterthought before SDI,” added Moore. “It was minimally staffed but subject to stock outages and frequent down time. There was no dedicated management of the storeroom. We provide a focus there to improve it.”

Define your MRO objective

In its whitepaper, “10 Essential Points, MRO Supply Chain Transformation,” SDI confirmed its objective “to transform the MRO supply chain from the initial state to one with appropriate automation, performance monitoring, metrics and delivers an overall reduction in total costs.”

There are 10 key points to consider when upgrading, enhancing or refining MRO. Number 10 in the list, includes a number of essential items. They include strategic sourcing; spend analytics and reporting; dedicated teams for end-to-end transaction processing; online customized catalog creation and maintenance; budgeted controls and workflow; compliance monitoring; non-linear forecasting and replenishment; inventory management systems; and commodity expertise.

The key, SDI stated in the whitepaper, is to “understand the fundamentals of MRO.” “The first step is setting realistic objectives and building a flexible framework to allow for the breadth and depth of MRO and facilitate a successful transformation.”

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