The MRO Dilemma: Safety Stock vs. Service Levels

Sept. 27, 2011
Poor decisions drive costly results.

Every time a piece of equipment breaks down or runs at less than optimal speed because of needed repairs, waste is generated. The most obvious waste is that of lost productivity.

Eliminating such waste presents an interesting dilemma for a manufacturing facility's MRO (maintenance, repair & overhaul) organization: How many spare parts should it carry?

The answer to that question depends on the service levels your company can afford, says Terry Wireman, a prolific author on the topic of maintenance and senior vice president of Vesta Partners.

Carrying more MRO inventory translates to higher inventory carrying costs but also likely higher service levels. Less inventory will reduce the carrying costs, but service levels could be in jeopardy.

So the better question may be: What service level can you afford?

Trying to maintain 100% service levels is likely not an option for most companies, Wireman says. (With a 100% service level, there is basically 0% chance that a part is not available.)

"Most companies could never afford to have a 100% service level because that means you just about built a duplicate plant in your store room," he explained in a recent online seminar.

He says 95% is a good target, with most benchmarks pointing to service levels of 95% to 97%.

A service level of 90% starts to get risky. At 90%, Wireman noted, "you start to get to the point where your downtime costs are going to be too high for almost any plant to be effective."

The maintenance expert also points out that while carrying additional stock will increase inventory holding costs, it may reduce costs associated with paper work, transportation and other processes.

Data collection is key to effective decision-making in this area, he says.

See Also:

Five Common Lean Maintenance Missteps

About the Author

Jill Jusko

Bio: Jill Jusko is executive editor for IndustryWeek. She has been writing about manufacturing operations leadership for more than 20 years. Her coverage spotlights companies that are in pursuit of world-class results in quality, productivity, cost and other benchmarks by implementing the latest continuous improvement and lean/Six-Sigma strategies. Jill also coordinates IndustryWeek’s Best Plants Awards Program, which annually salutes the leading manufacturing facilities in North America.

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