S2:E30 MRO Storeroom Optimization with Andy Gager

Andy is the CEO of AMG International Consulting, and he holds over 25 years of manufacturing experience ranging from warehousing operations to plant management. 

Summary

[Embedded content: https://anchor.fm/upkeep/embed/episodes/S2E30-MRO-Storeroom-Optimization-with-Andy-Gager-etc7r9]

Episode Show Notes

• What are some best practices for an MRO storeroom? 

• What's the purpose of an MRO storeroom? 

• Why do MRO storerooms have a bad reputation? 

Podcast Platforms

• Anchor FM

• Apple Podcasts

• Spotify

• YouTube

Transcript 

0:00:05.1 Ryan Chan: Welcome to Masterminds in Maintenance, a podcast for those with new ideas in maintenance. I'm your host, Ryan, I'm the CEO and founder of UpKeep. Each week I'll be meeting with a guest who's had an idea for how to shake things up in the maintenance and reliability industry, sometimes the idea failed, sometimes it made their business more successful, and other times their idea revolutionized an entire industry. Today, I'm really excited to have Andy Gager here on the show. Andy is an industry expert in supply chain, operations best practices, and so, so much more, Andy holds over 25 years in manufacturing experience, ranging from warehouse operations to plant management, and now he is also the CEO of AMG International Consulting. So Andy, welcome to the show. I'm really excited to personally learn from you.

0:00:51.3 Andy Gager: Hey Ryan, thank you so much for having me. It really is an honor to be participating today and what a great team you've assembled and what an amazing job all of you have done.

0:01:01.7 RC: I can't take any credit for that, it's all the team. For me, I just have these big crazy ideas, and it's all about the team, the community, the people that we serve that helped make UpKeep into what it is today, but today it's not about us, Andy, this is all about you, your background and how you got into this space.

0:01:21.3 AG: I've been doing this for a long time now, so I've been consulting or coaching or facilitating trainings for almost 20 years now, and I've circumvented the globe several times now, working with some of the finest folks in the world. My background has really been entirely in manufacturing from the operational standpoint, and I won't go through my whole history, but at one point, I was the director of global sourcing and another company I was a manager for warehousing and distribution for an international group, and I got involved in maintenance and reliability really by chance when a consulting company actually reached out to me and asked me if I would be interested in becoming a consultant. So it really was by chance, and I bring the operations side of this whole maintenance reliability to the table, so it puts me in a very unique position with my clients and then our industry.

0:02:21.1 RC: So today we wanted to basically deep dive, head in to this topic around MRO Storeroom Optimization, which is I think something that you know so much about, Andy. What's the purpose of a MRO Storeroom? Why is it important to have an MRO storeroom? Why does it get such a bad rap? 

0:02:44.7 AG: Yeah, right on. Look, we can have the most talented maintenance group in the world, and we can have the best maintenance planners and the scheduler in the world, but look, if I can't picture the right materials, then we're gonna remain in a reactive state forever. So my definition of an MRO Storeroom is risk mitigation. That's exactly what I say, it's a risk mitigation. So the sole purpose of a spare parts warehouse is to ensure that we have the right parts at the right time to support the operation in the assets of the company. Companies struggle with what is the right amount of inventory. Based on my experience, 58% of a typical storeroom inventory has not been touched in over three years. Again, that's a lot of cash that's being tied up of the remaining 42% of active inventory, meaning my definition of active is that we have at least one inventory a year, 60% of that is overstocked, and again, the easiest thing that we can do with our min-max levels when we run out of something is to jack those min levels up, so that's why we're experiencing this 60% of overstock.

0:04:01.0 AG: Now, I'm certainly not saying that the 58% of inventory is obsolete, I'm not. There are many reasons for that inventory, some of those are classified as critical spare, some are based on our supplier issues, some are, materials are no longer available from those suppliers, I have never been asked to conduct a assessment of a MRO Storeroom in order to recommend reducing the size of that warehouse. Okay, quite the opposite, it's 100%. They bring me in to do this assessment, I do the assessment, and then they at the end, they said, "Okay, Andy, how much more space you think we need, if we give you more space, what are you going to do with it?" So there is an optimal inventory value to optimize the operation, anything over that value is throwing good money at just in case inventory, but more importantly, anything less than that value, we're exposing the organization unnecessary risk.

0:05:00.8 AG: Now, that's the tactical inventory value that we need to identify, which is out there, it's a challenge, but we need to understand what that value is, strategically, how do we manage that inventory? Do we implement vendor managed inventory? Do we do consignment? Do we put in place supplier agreements? And I'm a strong advocate for. Do we put in MRO vending machine strategically placed around the facility? I suggest that we convert the MRO storeroom into a profit center, and that's by ensuring that we have the right inventory, and if we have the right materials at the right time to the right specifications, which is important, and I'll talk about that perhaps later on. Then by default, we're going to impact this thing called Mean Time To Repair, which essentially adds value back into the organization.

0:06:00.2 RC: This is potentially locking up millions of dollars away, and it has a big, big impact to the company's bottom line. So maybe the question is like, is it a graveyard? Obviously, I don't believe you think that way, but why does it get such a bad rap? Why do people believe that this is just like this dark place that you lock up millions of dollars. How do you debunk this? 

0:06:29.9 AG: Yeah. We do wanna try to minimize that inventory, but we don't wanna tie up too much cash into that just in case inventory. So I've never heard a maintenance manager ever say to me, "Hey, sure, go ahead, throw it away." Don't throw that motor away 'cause we can rebuild it, we can take parts of it, but essentially, that asset is no longer of any value and it's taking up space. So as I said before, my definition of a storeroom is risk mitigation, so that's why it's considered the best practice for the storeroom operation and report to maintenance. I've worked with some companies, some organizations where the store room reports in the Finance Department, which is not considered the best practice that we have competing KPIS.

0:07:16.8 AG: Finance wants to control costs, and one of their KPIS might be to reduce costs, and what's a better way to reduce the inventory value, so let's put a KPI in place to reduce inventories by 10%, which I have seen. So that is one of the KPIS I've actually seen in the industry is, "Okay, year over year, we need to reduce our inventories by 10%. After seven years, I'm gonna be operating at less than 45% of our current inventory." That's an incredible exposure of risk to the organization. The KPI should be to determine what is the right value and then manage that number, so the goal is to break down those vertical, I call them, the vertical functional cylinders and align those KPIS throughout the organization, so we can meet the corporate goals and the MRO objectives.

0:08:16.4 RC: What are the best elements of a great and effective MRO storeroom? What are some of the best principles, best practices that every organization you believe should follow when spinning up their MRO story? 

0:08:30.2 AG: The number one is inventory accuracy, so what's in your CMMS or what's in your computer system or your SAP or Maximo, or whatever that case may be, what reflects in that system absolutely must reflect what's in the bin or what's in that location. That's why maintenance text lose faith in the store room and they create this squirrel mess, it comes down to money. If I have a whole staff of maintenance technicians stashing company assets, that's tying up cash, I've always told my staff over the years, there were only three certainties in life, it's death, it's taxes, and you will do cycle counts.

[laughter]

0:09:15.3 AG: You will do daily cycle counts to ensure that the accuracy of the inventory. So again, what's in the box is what's in the bin, what's in the bin is accurately reflected in the box, so think of this as more of a quality audit of your processes, either the process failed or 99.8% of the time someone fail to follow the process. Ensure, that you're rotating the materials, implement this thing called first in first out or FIFO. One of the things I suggest is that you stamp the materials when they arrive in the receiving dock. So you date stamp those things, so you're ensuring that that material is being rotated. Implement a robust PM program for your material storage, how do we store bearings, they need to be stored horizontally, not vertically, how do we store our belts, we don't store heavy belts on pegs. Get rid of the junk, okay? If the item truly is obsolete get rid of it.

0:10:15.5 RC: I think what you also find a lot of our listeners might be going through right now, is like, "Alright, cool, we have an MRO Storeroom, I think we do a good job," but maybe they're wondering, I'd be wondering, personally, what are some good indicators of poor storeroom practices and signs that maybe, "Hey, we actually need to make our MRO storeroom a priority."

0:10:41.4 AG: Look, an open door policy on the store room just doesn't work unless you have a very disciplined group. So when I teach my MRO class, I suggest everybody that they make up a sign, the sign is gonna say, "Look, take whatever you want, as matter of fact I'll even hold the door open for you or the gate open for you, just tell me what you take." So my system reflects whats in the bin and what's in the bin accurately reflects on the system. Now, the other indicator I look at is, what's the percentage of my POs that are FedExed overnight? Because that indicates to me that we don't have the right parts in our inventory, that we're consistently spending premium dollars to overnight items in here. So that clearly tells me that we have an issue with our stocking levels. The other indicator that I take a look at and is the financial one, is our inventory returns, how well am I managing our inventory in our dollars? So if your inventory returns are 0.006, 0.007, that tells me either you have a whole lot of inventory or you have a boat load of obsolete materials still on the books, which by the way, if you're a publicly traded company, you're in violation of Sarbanes-Oxley because typically, those assets will show up on the balance sheet, and if it's obsolete, by law you need to write those off.

0:12:09.7 RC: Such good tips here for MRO Storeroom managers. What does success look like when an MRO storeroom is working effectively and efficiently. I would love to hear any success stories you've seen so much the good, the bad, the ugly, the great, I would love to hear any stories you've got from working with so many different companies and different experiences.

0:12:33.6 AG: Success for me is when I conduct an assessment and I ask about the store room, because when I do an assessment, I do interview as many people as I can, including the maintenance technicians, and if the maintenance group can gleam and send accolades over to the store room with excitement, and that tells me that they're in a partnership with them. There have been numerous success stories on how organizations have turned their MRO Storeroom operation around, but really it comes down to leadership and understanding that reliability does not come by reducing your inventories, it comes by having the right materials available when they are required, so cheapest is not always the best.

0:13:29.5 RC: And it kinda goes back to what you're saying in the beginning around aligning a MRO Storeroom manager to the same goals as essentially reliability, and I think that's ultimately what will make an extremely effective storeroom is, and focusing the goals on reliability on uptime and product generation. Yeah, I've learned so much from you in the short period of time, I know you're an absolute wealth of knowledge and we've kind of just scratched the surface here, but I know that we're up on time right now. Real quick, what is something that you wish more people knew about this industry in maintenance and reliability? 

0:14:11.8 AG: Well, reliability is a culture, there's no question about it. Too many organizations I've worked with, see equipment breakdown as break time, so when I work with companies, I often ask the question, "Who do you get your paycheck from?" They all say the same company. So whether you work in operations or maintenance or finance or whoever, or whatever department you work in, we're all in this as a team, we'll never achieve world class or best in class, or whatever terminology you wanna use. When equipment isn't running, we're not making money, and that's the reason why we're here. We're here to make money. And I honestly wish when I was a plant manager years ago, I wish I knew then what I know now, because I can honestly say I would have run my plant probably a lot differently.

0:15:02.8 RC: And I could imagine the way that you're thinking about this is, kind of like you're operating like a business owner, and what I'm hearing from you is that, it doesn't matter whether your KPI is to reduce costs, whether your KPI is to maintain uptime, everyone has to think as a business owner.

0:15:20.5 AG: Oh yeah, no, doubt.

0:15:22.0 RC: Andy, what are some other resources that you still go to, to find yourself learning from, as obviously continue to create more and more educational content. Where do you go for new ideas? 

0:15:32.3 AG: The internet is an incredibly wonderful tool that at least in my lifetime has come around. Before you bought books or magazines or whatever the case may be, and perhaps OJT was the big one, right? But honestly, it's an easy question, I look at industry groups, I am a member of SMRP, I'm certified in several different programs, but I look at these industry groups, I look at some of the blogs that the subject matter experts have out there, there are an incredible amount of resources available on articles, LinkedIn, there's some great information on there.

0:16:13.1 RC: Where can our listeners follow you on your journey and connect with you? 

0:16:18.0 AG: Well, I'm on LinkedIn. So you can look me up on LinkedIn. I do try to post every day, I do try to post some daily tips, but I can also be reached at [email protected], so short for AMG International Consulting.com, but I prefer folks connect with me more on LinkedIn. Thank you so much for letting me talk about something that I really am truly passionate about besides the fact my wife and kids are really tired of me talking about it in a much madness, so I appreciate the opportunity to vent to somebody else.

0:17:00.3 RC: Of course, of course and I hope your brackets doing all right. I know. Mine got racked yesterday.

0:17:05.8 AG: Alright, well, let's go on Oral Roberts, come on.

0:17:09.3 RC: Awesome. Thank you so much, Andy, for joining us and sharing all of your wealth of knowledge and also to all of our listeners for tuning into today's Masterminds in Maintenance. I'm the CEO and founder at UpKeep. You can connect with me, I'm very active on LinkedIn, or shoot me an email directly at [email protected]. Lastly, you can also find me in the Maintenance Community on Slack, it's largest online community for maintenance professionals all around the world. We host weekly conversations, contest, all centered around maintenance and reliability. So I hope to connect with everyone soon. Until next time. Thanks again, Andy.

0:17:42.5 AG: Hey, thank you.

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