The Manufacturing Indirect Supply Chain Survey shows the majority of maintenance teams are small with 67% being in a team of less than 10 people and almost 90% are working in a team of fewer than 50 people.
Small teams and limited budgets bring their own set of problems, particularly around the time and budget available to learn skills or transfer knowledge. These problems are brought into even sharper focus when it comes to the engineering store’s function. The survey found that 70% of engineering stores have less than four members of staff and that 10% of businesses involved their engineers in the stores, while 10% had no permanent staff at all.
The survey showed that businesses of all sizes are currently exploring the idea of outsourcing their engineering stores and MRO procurement function – and that currently outsourcing is used in around 20% of manufacturing companies. However, outsourcing comes in many different guises – and this was apparent in the responses to the question: ‘How is your engineering maintenance parts supply managed?’
The results show that the use of outsourcing runs the full spectrum of options available. From those (about 20% of businesses) that are fully outsourcing their stores, supply chain and MRO procurement requirements to an external supplier to those that are completely managing the tasks themselves with an in-house team. However, fully outsourcing is embraced by an organisation there are benefits to mitigate the concerns.
FINANCIAL MATTERS
The loss of skills and financial efficiency are the predominant motivating factors for people to outsource their engineering stores and MRO procurement. Data from The Manufacturers’ Health Check Report 2022 showed that, in recent times, businesses have stockpiled goods to mitigate delays and shortages.
Overall, stock levels for UK manufacturers jumped by 99.7% from an average of £365,736 in Q3 2019 to £730,681 in Q3 2022. Eriks’s survey supports these findings as in 2016 50.4% of respondents reported holding stock levels in excess of £250k whereas in 2023 this had risen to 67.2%.
Also in 2023, 20% of the respondents reported holding MRO stock in excess of £1 million and 7.5% said they were holding stock in excess of £5 million. These numbers are more worrying than they appear as they indicate that businesses are storing up cash flow and profitability problems for themselves through the natural reaction of ‘stocking up’ to negate supply chain uncertainty.
Eriks asked those answering the survey to confirm the value of the engineering inventory written off in the last financial year. The findings show that 20% wrote off more than £25k and that, on average, the write-off value was £75k per respondent.
While the sums mentioned above seem relatively modest – aside from those businesses that revealed that they are writing off anything between £100,000 and £1 million – what does cause concern from the survey respondents is that more than 50% could not answer the question at all.
The stark conclusion is that, despite the increase in concern about their supply chains, businesses are failing to manage them in any meaningful way save that of stock piling goods which impacts the business negatively due to its impact on cash flow and eventually the bottom line.
Obsolescence is often singularly considered only in the context of the availability of spares for old assets, but it can be a specific problem caused by upgrades to equipment or a facility. Both have an impact on operational efficiency, the latter from the cost of writing off stock and the former from an availability and uptime point of view.
Firstly, especially in the current climate when stockpiling seems to be the norm, a large number of spares will have been purchased for equipment that may be due to be upgraded or replaced – this can lead to write offs due to obsolescence. Secondly, the MRO spares required to maintain a newly installed piece of equipment may not have been factored into the engineering stores budget, nor arrangements made with suppliers to deliver these on the required basis. This situation has led to, at the very least, excess carriage charges due to short lead times and at worst production downtime.
In terms of how each of the respondents monitor and therefore manage obsolescence in their stores, there is a split between good and bad practice. One third of survey respondents had no processes in place for managing obsolescence at all while the other two thirds were either looking at the problem specifically or, one would assume, managing the problem through their computerised inventory management system.
PROCUREMENT
As part of this survey, Eriks wanted to explore and understand exactly who is responsible for what activities relating to the purchase of engineering maintenance spares.
The data shows the purchasing team is highly involved in all aspects, save for the specification of parts. The engineering team is, in many cases, still involved in all areas of the purchasing process and Eriks would view this as an opportunity to involve the stores team more fully and to release engineering resource to maintain production.
For the 2023 survey, Eriks went deeper into this topic than in the 2016 report – and so there is no exact like-for-like comparison. However, the overall conclusion is that the involvement of procurement professionals seems to have increased, while those working in the stores has decreased. This trend is surprising given that, anecdotally, MRO spend represents such a small part of a purchasing professional’s activity that their experience and knowledge is minimal.
There’s an opportunity here for businesses to involve the engineering stores personnel more fully in the process so as not to not draw engineers away from their key tasks and to fill the knowledge gap that the majority of procurement teams have around the sourcing of MRO spares.
So, what discernible strategy do most businesses have when it comes to the purchasing of MRO spares? The data from the respondents shows there are certainly some rules in place, and Eriks compared how the guard rails compared in 2023 to its 2016 data.
These numbers indicate that purchasing strategy and discipline have veered wildly out of control in the post-Brexit, post-Covid environment. The ‘pile it high’ mentality which has pervaded as a result of the supply chain issues that macro events have created has not been reversed in the face of the pressure to maintain production – at any cost seemingly.
PERFORMANCE
Operating costs are always a major concern to businesses of any type, but they are particularly keenly monitored in manufacturing businesses where, even when budgets are being cut, asset availability is expected to increase.
Eriks asked respondents how they measured the performance of their store’s operation and the time it takes them to get what they need. The company compared the data from 2016 and 2023 in terms of how long it takes them to locate a part (which they have in store).
In 2016, 63.6% of respondents were getting what they wanted in under 30 minutes and this pattern is replicated in 2023 when the timing increments were made even narrower.
According to the report, finding and booking out a part is for the most part a less than five-minute job, which indicates that the majority of engineering storerooms are at least partly organised. But the picture changes when an engineer wants to source and order a spare that is not stocked in the engineering stores.
From the additional interviews conducted in relation to the survey, it seems there are two major bottlenecks in the process of sourcing and ordering a spare part not kept in the stores as a matter of routine. Firstly, the time taken to get a quote from a supplier and secondly the involvement of purchasing personnel adds to the delay in terms of getting the price back to the engineer for them to make a decision.
BUSINESS IMPACT
At its best, streamlining the operation of the engineering stores function and the procurement of MRO spares can assist manufacturing sites to run even more efficiently, optimising engineering, stock and cash flow and procurement timings. But what is the effect of regarding these aspects of a business as an ‘outlier’ or a ‘necessary evil’? The answer, quite simply, is downtime.
Eriks asked respondents, ‘What are the main causes of unscheduled down time at your facility?’. The answers mostly directly correlate with activity that takes place as part of the engineering stores, the supply chain and the MRO procurement function.
Even more blunt was the message that came back through the data in answer to the question ‘Have you experienced downtime in the last year due to spares availability?’. A worrying 51% answered ‘Yes’ and responses showed lead time was the number one concern respondents raised when asked.
There’s a direct correlation between the maintenance strategies of those we surveyed and the incidence of downtime. Eriks asked respondents to confirm the maintenance strategy they mostly use – and the responses are shown in Figure 1.
The big question when analysing Figure 1 is how can the supply chain react in time to prevent downtime when preventive or reactive strategies are used? When businesses are using predictive, condition or usage based strategies there’s a lot more insight into the process and therefore the procurement process can be undertaken without the cost and efficiency pressures that downtime brings. There is some mitigating information however as to the high number of businesses that are seemingly taking a chance on maintaining their production.
Meanwhile, Figure 2 shows the number of businesses that select their maintenance strategy based on the criticality of equipment. As the findings show, 71% were taking calculated decisions about the types of maintenance strategy to be used on a certain type of equipment. The condition monitoring of critical equipment and communication between the engineering and maintenance team and the stores and procurement function allows the right information to be available in advance to have the right spares at the right time.
There are savings to be made by having the correct stock profile and with the tumbling cost of using Internet of Things technology to remotely and automatically monitor the condition of critical machinery the incidence of downtime can be reduced.
Eriks maintains that the supply chain, MRO procurement and the engineering stores function is an area of businesses to optimise and that this can be achieved through a variety of solutions, including the full outsourcing of the function.
As identified in the report, the opportunity to strengthen the overall profitability and resilience of manufacturing businesses through the improvement of the engineering stores function, MRO procurement and supply chain is a real one.
Click here for full access to the MRO supply chain report