MRO and Spare Parts Management Considerations
Written By: Predrag Jakovljevic
Published On: January 11 2005
Service Parts Management
Service or spare parts have lately become both a blessing and a curse for many like manufacturers of complex finished products. On one hand, contract manufacturing, maintenance repair and overhaul (MRO) or depot repair activities, and aftermarket service parts use or sales can generate additional revenue streams (even at a multiple level of original product sales) with high margins, and contribute significantly to corporate profits and thus offset typically lackluster growth in other mainstream operations. Yet, on the other hand, these companies must maintain large inventories of highly expensive, often slow-moving parts but susceptible to obsolescence, to satisfy customer demands for immediate delivery and action.
The need for better service parts management is finally gaining top-level management attention in many aerospace and defense (A&D) companies, and in similar complex manufacturing or asset intensive industries, since excessive inventory carrying costs and obsolescence losses are being recognized as an unexploited opportunity for savings and a better bottom line performance.
The situation becomes even more complicated with rotable parts, such as interchangeable elements of an aircraft that are removed, rebuilt or reinstalled, almost as a rule always on a different aircraft. In this industry where every nut and bolt is important for safe operation, it takes an immense attention and effort to track interchangeable components and subassemblies for costing, replacement scheduling, and mean time-for-failure (MTFF) prediction. A&D companies design low-volume, high-cost products for high reliability, but still maintain stocks of complex and expensive spares, since in this industry, the impact of any failure is large and requires adequate stocks of parts at several locations for rapid replacement in case of repair. On one hand, minimizing the number of new parts introduced into the market—and subsequently into inventory—should be a major aim, particularly as parts face obsolescence from new finished product introductions, but, on the other hand, rotable parts and reusing ("harvesting") repaired components only add to the complexity and likely impaired efficiency of this process.
Lot and serial tracking capabilities, the so-called tail effectivity, permits users to tie every part (within part lists and diagrams) on a plane back to that one entity. Serial number (tail) effectivity for the aircraft and aerospace industry is enabled since within the appropriate enterprise resource planning (ERP) and back-office system, a table should carry information on each serial or tail number for each item used, including the original date the serial or tail number was added, received, or stocked, as well as item information, such as the original vendor lot number, inventory quantities, weighted average costs, and the last inventory adjustment date.
The MRO companies also have very stringent requirements they must meet regarding tracking parts and condition codes. This functionality allows for demand by item condition to be matched against inventory by item condition, and it also allows for inventory management and material requirements planning (MRP)-based supply planning by condition code. While these functionalities may sound ordinary and appear to be offered by many vendors as supported' when responding to requests for information (RFI), subsequent product demonstration often reveals the need for some tweaking or even for a major modification in order to satisfy stringent customer requirements. The devil is always in details.
As an example, the native ability to run MRP by condition code is not a feature typically found amongst a majority of mainstream ERP systems. To enable an ERP system to track the condition of a component (e.g., new, overhauled, once used, refurbished, or a combination of these) and to restrict mixing inventories of materials with different condition codes, would require a colossal modification. When a system does not have this condition code capability, the MRO operation will then need to use multiple item numbers. This work-around causes confusion and significant problems in terms of planning, work order supply or demand management, and it creates a big opportunity for bloated inventory and for mistakenly using the wrong item condition in a customer's repair if work order substitutions are not always carried out precisely. It can virtually invalidate the initial reason the company purchased the ERP system in the first place.
MRO Operational Flow
Also, the operational flow of an MRO business is very different from the typical manufacturing company, and this capability for both planning and costing is critical to properly manage and represent costs, determine pricing and portray margins in an MRO company. Without the condition code capability by item it is extremely cumbersome to maintain multiple item costs for the same item or to plan it appropriately. Conversely, with this capability there is no need for workarounds in regards to item planning or costing. Namely, when a single item with multiple conditions such as "new", "used", or "overhauled" exists within the system, it allows each item or condition to be uniquely planned and inventoried, as well as carry its own cost.
Another requirement is the ability to advise users if any given part revision can be mixed in inventory with other revisions or shipped for a particular order. Each Revision Level may indicate, for example. on a scale from 1 to 99, a specific item's fitness for inventory mixing or shipment. During an issue or shipment, the astute ERP system should review whether or not the fitness number associated with the location allows specific items to be placed into inventory or shipped. As products are revised over their life cycles, certain combinations of features will not coexist properly. Using the Revision Level feature, users are assured that the system is determining if the lot or serial number can be mixed or shipped with existing quantities. They can also stop a given item or revision from being used, preventing its receipt in store locations and issues from all locations throughout the company.
Other nifty MRO-oriented feature would be component tracking by illustrated parts list (IPL) for aircraft and related maintenance organizations, whereby the solution quickly pulls together the unique bill of material (BOM), (i.e., IPL), needed for any particular job, even though on-condition repairs cannot be determined until after a technician review specifies the required labor and material, whereas users can maintain information generated about the returned item from the initial receipt of the part through quoting, repair, shipping, and invoicing. Further, the returned items information from receipt to invoicing for MRO organizations enables users to track work orders, purchase orders, sales orders, inventory, approvals such as Federal Aviation Agency (FAA) airworthiness Form 8130, and costs by both project item and condition code, whereby the module maintains a capabilities file by item number that automatically determines if the user is allowed to perform the work which needs to be done, assuring the shop only undertakes repairs on items for which it is certified.
Last but not least would be a variance of IPL, called illustrated parts breakdown (IPB) system, which is essentially a computerized, interactive tool used to develop an "owner's manual" to assist in the MRO of large end items such as aircraft. The system maintains all data required for the composition and production of IPB manuals and has the capability to be linked to "illustrative data" or drawings and documents, all of which can be updated in real time. The IPB "manuals" include front matter (i.e., table of contents, list of illustrations, list of applicable service bulletins, etc.), maintenance parts lists (MPL) containing illustrations, part numbers, descriptions, quantities, notes, codes, and a part number and reference designation index.
The IPB "illustrated parts list" assists maintenance and supply personnel in requisitioning, storing, issuing, and identifying parts, which are listed in "disassembly" sequence, such that the mechanic working on an installation or assembly should remove the lowest-level part first. Some IPB modules were designed to meet the distinct format and style specifications of military aircraft, yet they can also be easily modified to produce manuals in the Air Transport Association (ATA) 200 format of commercial aircraft. They should also be capable of storing and maintaining multiple publications for various aircraft models and IPB component manuals at one time.
EAM and CMMS
However, in the greater schema of things, the enterprise asset management (EAM) and computerized maintenance management systems (CMMS) applications continue to grab headlines as a realistic way to reduce expenses and increase revenues. For one, maintaining an adequate level of repair or service parts inventory based on forecasted equipment usage can prevent already limited funds from being over-allocated, just to achieve a false sense of security. Also, an effective preventive maintenance program can improve equipment utilization and availability, enabling production schedules to be achieved, especially when an exorbitantly expensive equipment replacement is a no option during depressed economic times.
Therefore, A&D companies require an ever broader suite of functionality ranging from a strong engineering foundation and customer service front end to support demand management, all bundled with a set of administrative and reporting capabilities and integration to financial and human resources (HR) management software, as to share information that drives operational efficiency, such as inventory control and labor control. Bad news for smaller MRO-oriented ERP vendors like Relevant Business Systems or Cincom Systems could be the fact that some of their direct and likely competitors like Oracle, IFS, Intentia, SAP, and Ramco Systems offer more integrated capabilities like automated maintenance scheduling, tracking and management; remote diagnostics; reliability centered maintenance (RCM); fleet or facility management and planning; centralized access to engineering data; parts planning, sourcing, valuation and category spend management; asset performance reporting, and so on.
For more information, see EAM Versus CMMS: What's Right for Your Company? and Cincom Sticks to CONTROL of ETO and MRO.
Competition also comes from the pure-play MRO likes of Avexus, Manugistics (after its acquisition of Western Data Systems [WDS], see Manugistics Indulges In The Open M&A Season), Xelux, Pentagon 2000, the CORRIDOR product from CONTINUUM Applied Technologies, Mxi Technologies, Sinex, and so on. For a more complete list of vendors that have the aspirations for this field, see ERP Vendors Moving to Aerospace and Defense Markets.
The takeaway of the above discussion should be that only a handful of ERP systems in the market offer natively the aforementioned mission-critical capabilities for MRO companies. Moreover, companies who are related project manufacturers, engineer-to-order (ETO), build-to-order, jobbing shops, or contract manufacturers should think carefully when selecting an ERP system. Given the maturity of the ERP market, its ongoing consolidation, and that fact that competitive advantage is hard enough for manufacturers to find, they should not compromise on their requirements. Especially small and mid-size enterprises should ask hard questions about the scope of an ERP system, and how it supports MRO project based idiosyncrasies. After all, a new system should always be about improving the business and not a mere technology initiative.
The vendor that listens to your needs instead of telling you what "great things" its software can or cannot do, and which speaks your language and uses your terminology and vernacular is a good candidate to be a vendor that understands your business. Still, as a sort of a litmus test, prod each vendor to tell you what percentage of its sales would belong to your industry. Vertical focus indicates that software contains industry-specific features and that ERP vendors have certain industry expertise. Also, in implementing an industry-specific application, it is important to ensure that the application provider's implementation team includes members with in-depth knowledge and experience in that industry. Vendors geared toward certain industries should have solid integration skills or strong relationships with systems integrators that have industry-related expertise. This should significantly streamline implementation time by eliminating a lengthy vendor or integrator learning curve.
Often, buying a completely integrated solution is not an option when the companies have either an accounting or project-management system in place, which they will not simply rip-and-replace. Thus, prospects should assess the contesting vendors' flexibility to integrate to legacy and other third-party applications, and to keep up with new versions or upgrades to both solutions. Built in interfaces to commonly used third-party products like Microsoft Project, Microsoft Office, AutoCAD, Crystal Reports, etc., should be questioned, possibly during software demonstrations.