New book says excessive inventory costs plants millions

Most companies waste more than $1 million a year in every plant they operate by purchasing unnecessary spare parts, according to three prominent authorities in the field of inventory management who teamed to write "Production Spare Parts: Optimizing the MRO Inventory Asset" (Industrial Press Inc., $42.95).

Eugene C. Moncrief, Ronald M. Schroder and Michael P. Reynolds have more than 100 years of combined experience as business executives and management consultants. Among them, they have analyzed billions of dollars of inventory at hundreds of plants worldwide. Their collective findings from real-world experiences produce some sobering statistics:

• In a typical production plant, about 30 percent of the spare parts sitting on shelves are unnecessary.
• More than 60 percent of all stocked spare parts have not been used in three years.
• About 35 percent of all spare parts are critical to operations and not easily attainable with short lead time.
• Between 10 and 20 percent of the parts account for 80 percent of the total inventory value.
• Annual carrying costs associated with spare parts is between 20 and 25 percent, meaning the cost to a company of every spare part stocked doubles in four to five years.

In "Production Spare Parts," Moncrief, Schroder and Reynolds explain the theory of risk-based assessment of maintenance, repair and operating inventory and the practices that will optimize a company’s spare parts asset. They also provide useful metrics for setting and monitoring goals.

The 350-page book is written for managers responsible for setting stock levels and purchasing MRO inventory, and for plant managers and corporate executives who are accountable for profit and loss. It includes numerous case studies showing the best and not so good ways to improve inventory performance, and the authors stake out new ground by introducing the Absolute Variance Ratio, a vital tool in monitoring inventory management performance.

The book also explains the factors affecting ROI, how to set and reset reorder points while protecting plant availability, how to determine gross overstocks and avoid unnecessary purchases, and best practices in industry.

“Having a well-managed spare parts inventory means having what you need when you need it – not too much or too little in the storeroom,” said Schroder. “We wrote the book to explain how to manage spare parts inventory and solve inventory problems, even if you don’t know that they exist. While we acknowledge that you can’t predict the unpredictable, we also know that you can manage around it.

“Some companies have millions of dollars sitting on the table, and they have finite resources. Internal auditors sometimes see this idle working capital as an easy opportunity for asset reduction, yet much of this inventory can be justified as necessary to support operations. Our book helps companies identify which is which.”

Adds Moncrief, “We have been to hundreds of plants around the world, analyzed billions of dollars in inventory, and saved companies millions of dollars. It would be a great loss of knowledge if our collective experiences were not recorded and presented so others could benefit.”

The authors met through their work with Inventory Solutions Inc., an Akron, Ohio, firm that specializes in managing production spare parts inventory. Moncrief is chairman of MerriHill Inc., a consulting firm and partner with Inventory Solutions. Schroder is founder and chairman of Inventory Solutions and the developer of the RUSL technology for managing rarely used MRO inventory.

"Production Spare Parts: Optimizing the MRO Inventory Asset" is available through www.industrialpress.com.