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Don't Let Your MRO Inventory Manage You: Part 1

By Doug Wallace


As a reminder, here is the current state that is likely to exist in this case:

Parts are scattered around the site, maybe organized but most likely not. If anyone knows what’s there – let alone how many and what condition they are in – it’s probably in someone’s head, in a notebook or possibly in a spreadsheet if you’re really lucky. Some of it is usable, some not. The department owner orders parts with little consideration as to lead time, price, quality, or reliability. The directive given to the purchasing department is “just get me what I want as soon as possible.” There’s no sharing of information, which can lead to duplicate parts purchases. If the part is needed urgently, you may even pay extra to expedite it.

At best, this method is costly due to carrying excess inventory, expedited shipping fees, or lost inventory. At worst, it can be risky due to the potential of using poor quality parts in your asset repairs leading to repeat failures, or being out of a critical spare and incurring significant asset downtime.


Whether you call them rat holes, squirrel holes, stashes or “satellite storerooms,” keeping spare parts and other materials in uncontrolled areas is not a best practice, or even a good practice. These items need to be sorted, identified, and properly stored in an appropriate environment where they can be effectively tracked, managed, and cared for to ensure that they are in good working condition when needed.

In this situation, the first thing to do is identify all of the areas where parts physically reside. Get rid of anything that is damaged, obsolete, excess, or otherwise unusable. For each remaining item, collect basic part data, such as description, manufacturer and manufacturer ID, supplier and supplier ID, estimated cost, quantity on hand and if possible capture the asset(s) which use this item in order to build a bill of materials (BOM) for your asset hierarchy. Some of this information may come from the part itself or its packaging. Other details may have to be obtained from associated purchase order data or other sources like personal records or even tribal knowledge.

Assign temporary locations so the items can be easily found and retrieved. Once all of this information has been collected, create and publish a spreadsheet with the pertinent inventory data so that everyone knows what you have, how many you have, and where they are. Capturing this information while you are working with your parts and have the information at your fingertips will also pay huge dividends when you implement a CMMS/EAM system later.

The next step is to establish processes to track receipts and issues so that the inventory in each area can be kept up to date as parts are taken out or put back. Periodically verify the actual physical inventory against the perpetual inventory balance shown in the spreadsheet, and make adjustments as necessary to ensure that the on-hand balance is as accurate as possible at all times. Maintaining these transactions in an EAM, as part of regular maintenance activities, will be the most efficient and reliable way to keep your inventory data current. Once you have done the work to collect, categorize, label and properly store your parts, you do not want that data to become out of date because of lack of systems and processes.


There are two main goals at this point:

  1. Have a functioning main storeroom with possibly a few controlled point-of-use satellite areas.
  2. Have a basic inventory control system to keep track of the material contained inside.

Achieving that objective requires all of the “Crawl” elements to be in place, and should be considered only a short-term solution as the storeroom is designed and set up, materials are transferred to the new area, and the information contained in the spreadsheet is ultimately uploaded into the system.

After the scope of usable materials has been determined, estimate the minimum floor space that would be required to house all of the existing inventory as it is currently stored in pallet racks, shelves, cabinets, drawers, etc. Factor in additional space required for aisles, work stations, transport of handling equipment, and designated spaces for basic functions such as receiving, kitting, and returns. Allow for some margin of error or possible future expansion.

Find a suitable location with adequate square footage and vertical height to accommodate the existing inventory and other spaces. Consolidate existing material into smaller footprints where possible to reduce the amount of space required. Make improvements as necessary to the area to ensure that the materials are properly protected from the elements, such as fire, wind, rain, and snow. This step could include repairing or replacing the roof and windows, installing sprinklers, painting walls and floors, etc. Establish basic controls such as doors, cages, and locks to limit access.

Develop alternative layouts for the area, as shown in the diagrams below, and determine which one provides the best combination of space utilization, material flow, access and control. Once the storeroom is ready for occupation, transfer material to its designated spot in the newly prepared area, noting the quantity of material moved, as well as the specific location where individual items have been placed.

While it is possible to track inventory manually, it is much more effective and efficient to have an inventory management system in place to record basic storeroom transactions and keep real-time, on-hand information. Ideally, the system should be implemented before moving material into the new area, so that available part and inventory data could be uploaded or entered into the system from the very beginning of the new storeroom operation, and basic processes could be automated and expanded to include things like requisitioning, purchasing, and returns.

In lieu of a CMMS/EAM system, continue the established manual processes so that the on-hand inventory of each item in the new area can be kept up to date on the inventory spreadsheet as parts are put into and taken out of inventory. Periodically verify the actual physical inventory against the perpetual inventory balance shown in the spreadsheet, and make adjustments as necessary to ensure that the on-hand balance is as accurate as possible at all times.


At this point, all of the elements of “Crawl” and “Walk” should be in place, and it’s time to make incremental improvements to move your storeroom operation from basic functionality toward world-class operation.

Upgrade the storeroom infrastructure as necessary to ensure adequate lighting and protection from dust/dirt, heat, humidity, and other adverse environmental conditions. This could require installation or replacement of HVAC or air flow systems.

Upgrade controls as necessary to ensure the security of the materials stored inside. This could include things like magnetic locks, card swipe or thumb scan access, video monitoring or motion sensors.

Upgrade storage media to incorporate newer equipment and consolidate materials into a smaller footprint. This includes things like high-density cabinets, carousels and mezzanines. Redesign the physical layout as necessary to optimize space and material flow.

Implement visual management tools such as signs, labels and storeroom maps.

Consider use of vending machines to control items such as PPE and consumables.

Partner with key suppliers to implement consignment, vendor stocking, VMI, and free issue programs to reduce inventory carrying costs and improve storeroom productivity.

As you begin to crawl, you will capture the information that will help establish the foundation for your storeroom. As you learn to walk, you will have a functioning operation in place that effectively manages the materials required to support Maintenance and Operations. As you start to run, even slowly at first, you will find opportunities to improve your physical space and manage inventory costs to stay on pace with your competition. And as you run faster and faster, you will approach the ultimate goal of having world-class materials management in place that will make your site a flagship for your enterprise and the envy of your peers.

To support your journey, it will be critical to have a fully functional CMMS/EAM inventory control system in place, and the sooner you have one, the better off you will be.


Doug Wallace is a materials management subject matter expert, providing assessment, process re-engineering, implementation, training, coaching, and other management consulting services to identify areas of opportunity for process improvement, increased productivity, and cost reduction. His primary focus is on implementation of best practices in procurement; materials management; warehouse operations; inventory optimization; and utilization of associated business and information systems.

Doug has more than 35 years of combined practical and consulting experience in the semiconductor, cement, refining, mining and metals, specialty chemical, pharmaceutical, shipbuilding, and other manufacturing industries. He is APICS certified and is a PROSCI certified Change Management Professional. He can be reached at dawallace@rcn.com.