Spend Matters welcomes this guest post from Kevin Tacik, of GEP.
Internal and external environmental factors affect an organization’s maintenance, repair and operations (MRO) spend and cause MR “Woe” each and every day. This comes in the form of exposing vulnerabilities in MRO reliability during manufacturing. Organizations often tend to find quick fixes, gamble on running production non-stop and approach MRO spending with the attitude of “If it ain’t broke, don’t fix it.” This vision results in inefficiencies, and ultimately, the organization becomes uncompetitive, as the only way forward will seem to be passing the increasing costs down the value chain.
What is necessary to optimize MRO into a lean, agile practice based upon standardization, simplicity and speed to eliminate inefficiencies? The answer is Kaizen. Organizations are increasingly turning to “Lean Transformation” practices such as this to improve processes, reliability and productivity to deliver better results and customer satisfaction.
Kaizen is a Japanese business philosophy focused on “continuous improvement” of working practices and personnel to improve efficiency. Masaaki Imai-San introduced this philosophy to the Western world in his book “Kaizen: The Key to Competitive Success.” “Kai” (Change) + “Zen” (Good) is centered upon events that are cross-functional and provide transformational opportunities for organizations. The guiding principles are as follows and can be universally applied in business:
- Big results can be achieved through small incremental changes over time
- Good processes bring good sustainable results
- Go see for yourself to grasp the current situation
- Speak with data, manage by facts
- Take action to contain and correct root causes of problems
- Kaizen is everyone’s business
MRO is a perfect example in supply chain and procurement where “Lean” and “Kaizen” practices can improve all operations. Applying incremental changes using Kaizen thinking can result in reduced transactional costs, avoidance of inventory obsolescence, increased working capital, and improved metrics such as mean time between failures (MTBF) and mean time to repair (MTTR). Organizations can use “Kaizen Events” to help manage the total cost of ownership (TCO) and develop a more desirable and sustainable future state. The following are MRO areas on which to focus continuous improvement practices:
- Buy-Channel Strategy — There is often a question of what supplies and at what percentage should MRO goods be purchased. Using a Kaizen can help identify the most optimal buy-channel.
- Material Master Based Items (Stocked) — This buy channel controls minimum and maximum stock levels of mission critical spare parts. However, this ties up working capital if not managed effectively. Kaizen events can help identify key parts and monitor optimum stock levels (e.g., insurance spares for key process equipment).
- Catalog — This buy channel is adaptable and flexible and provides organizations a simple way to purchase high-transactional MRO goods via ERP systems that conveniently communicate with suppliers via hosted or punchout catalogs. Maximizing this buy-channel can lead to increased compliance to contract pricing. Kaizen events can identify key products and suppliers that can benefit from deploying a catalog. This is not the best solution for critical spares since a lead-time is associated (e.g., lubricants, gaskets, pipe fittings, etc.)
- Spot Buy — This channel is reserved for highly specialized “non-recurring” purchases. A strict approval process for spot buys should be in place to limit rogue spend that depletes savings. This spend should be monitored regularly to highlight items that are increasingly “recurring” in nature and to identify opportunities for part standardization to eliminate the recurrence. Kaizen events focused on spot buy spend are prime targets to identify and reverse leakage.
- Procurement/Purchase Card (P-Card) — This buy channel should be strongly discouraged for MRO spend. P-Card spend is difficult to track and adds to savings leakage when contract pricing is not enforced through other buy channels. Also, this MRO tail spend is not tracked through the ERP system and therefore cannot be leveraged in negotiations.
- People, Process & Technology — Kaizen events can help identify and assess MRO purchasing tools and techniques within an organization to improve reliability practices. Borrowing heavily from Kaizen and Lean, simple techniques such as using “Fishbone/Ishikawa Diagrams,” the “5 Whys Exercise” and “A3 Problem Solving” can help drive continuous improvements. Kaizen events focused on challenging status quo within people, processes and technology can yield big change.
- Integrated E-Procurement Platform — Effectively managing a simplified, streamlined platform tool that incorporates MRO negotiated pricing will lead to decreased savings leakage and improved utilization of the proper buy-channel.
- Training and Education — Identifying gaps in knowledge and increasing awareness via training and education will infuse adoption and compliance into the entire procure-to-pay process for MRO. Guiding buyers and end-users to the proper buy-channel and preferred suppliers will lead to improved savings and an overall more educated work force.
- Standard Work Plans — MRO changes can be sustained only if the internal user is viewed as “the customer.” The process should be centralized around eliminating inefficiencies in the eyes of the end user (e.g., engineer, technician or buyer) who plays a critical role in the success in both MRO and reliability. Focus should be on standard work processes for the end user that answer and improve upon the following:
- How can processes be changed to improve efficiency for the end user?
- What modern and digital techniques improve the speed of decision-making?
- Is there an opportunity to increase the kitting of parts in sequence for repair?
- Are standard work cards and policies introduced to instill best practices?
- Demand Management — What demand management practices are currently observed? Kaizen events can unveil opportunities to harmonize SKUs and rebalance inventory to better predict future demand. This leads to improved service, reliability and cost per inventory item.
- Strategic Sourcing and Supplier Relationship Management — MRO focus on strategic sourcing and supplier relationship management can lead to improved savings, reliability and partnerships. Kaizen events focused on the supplier network can work to the advantage of both enterprises by creating a built-in culture of “continuous improvement.”
In conclusion, Kaizen and lean management philosophies can help organizations better manage MRO by developing a powerful, systematic approach to analyzing and transforming processes. This is done by focusing on incremental change outcomes that drive desired long-term, sustainable results. Teaching an organization to focus on continuous improvement and developing a workforce of sensei who master these skills can lead to better decision-making, increased business effectiveness and improved competiveness in the marketplace.
For more strategic thinking on procurement, visit the GEP Knowledge Bank.