As Good as Gold - How to optimise your MRO supply chain with 4 unique considerations

From way back in time when Australia first ran trains, drove trucks, flew aircraft, and operated mines, manufacturing plants and ports, we have had organisations doing Maintenance Repair and Overhaul (MRO). Considering trains first operated in Australia in 1855, we have had MRO in Australia for at least 164 years.

So, what is the historical significance for organisations who do MRO in Australia today? And how does this correspond to the cost of supply chain and other factors supporting their MRO operations?

Old habits die hard. Whilst it is unlikely MRO organisations are still running their operations as they did 164 years ago, it is highly likely (due to the age of many organisations) that some practices and processes are outdated and lacking efficiency - particularly in the supply chain supporting the operation.

It is these outdated practices and inefficiencies that offer a gold mine of potential supply chain cost saving opportunities in many MRO organisations around Australia (and the world). For most organisations the MRO is a department that produces cost and little or no revenue. Therefore, anything to reduce cost while at the same time improving the service provided by the MRO department (or even just improving the service for the same cost), is something that most senior executives take interest in. Even for those organisations whose sole business is to provide MRO services to other organisations, improvements to cost and service will have a direct impact on their bottom line and is therefore worth pursuing.

Many MRO organisation have embarked on a journey to optimise their supply chain management, improve service and reduce costs. However, their goals have often been compromised by implementing supply chain management concepts, processes, tools and strategies that were not designed for MRO.

Most supply chain management concepts and tools have been designed and tailored to suit the larger industries involved in retail, trading and distribution and manufacturing. Too often MRO organisations try to implement them ‘as is’ but unless supply chain management concepts and tools are tailored to the MRO environment, initiatives to improve supply chain management outcomes or costs may not meet their goal. And often people will go back to the old and inefficient ways of doing things, because it “works better”.

To be able to realise the opportunities for reducing cost and improving service in MRO organisations, it is crucial the supply chain management considerations that are unique to MRO organisations are well understood:

  1. Demand Planning
  2. Supply Planning
  3. Supply Chain Performance Management
  4. Customer Fulfilment

Why are MRO organisations different to organisations in other industries, and why does it require unique supply chain management approaches? Primarily this is due to;

  • The nature of the “end customer”
  • The end of the MRO supply chain generates cost, not revenue

The MRO supply chain “end customer”

The MRO supply chain has two customers.

Customer One: The main supply chain for an MRO organisation relates to the supply and inventory management of the spare parts and consumables used in the MRO process. So unlike other industries, the end “customer one” of the supply chain is not an individual or an organisation buying or using something (although they are the customer of what MRO services support). The end customer or user at the end of an MRO supply chain is the piece of equipment (often referred to as a “repairable asset”) that is being maintained, repaired or overhauled, which the parts or materials being delivered by the supply chain are fitted to. The node in the supply chain just prior to the “end customer” (i.e. the piece of equipment being maintained) is normally a human, which is the maintenance technician conducting the MRO work. So, there is still a human element to the “end customer” of an MRO parts and consumables supply chain. This is “customer one” of the MRO supply chain.

Customer Two: To ensure a happy customer with any organisation it is essential to tailor supply chain management objectives and strategies to meet their individual requirements. With MRO, the end “customer one” of the supply chain does not have feelings (the equipment). However, the customer of the MRO service does (this is “customer two”), as does the maintenance technician who is providing the MRO service. The customer of the MRO service (customer two) is the individual or organisation that requires the MRO work on the repairable asset or equipment so that the equipment is in a “serviceable” condition and is “available” for their use. Keeping the customer of the MRO service happy requires ensuring that their equipment or asset is available when they want it – and not held up for scheduled maintenance/repair.

There may be many factors determining whether a maintenance technician can complete MRO work on time, one of them is “spare part and material availability”. This is the part where the supply chain plays a role in keeping the ultimate end customer (“customer two” - the MRO service customer), and the maintenance technician (representing “customer one”), happy.

Some of the supply chain management considerations in MRO generated by the unique nature of the MRO supply chain customer:

  • Stocking policies and level of inventory held is impacted by parent equipment lifecycle support obligations
  • Stocking policies, distribution infrastructure and agreements need to cater for unscheduled, short notice requirements and tight service delivery times to maintain parent equipment availability rates
  • Stocking policies need to differentiate between a critical part and non-critical part – in MRO it is not as simple as looking at usage volumes or value in determining this
  • The operating nature and obligations of the equipment supported, and the service promise required to meet them

The end of the MRO supply chain generates cost, not revenue

With MRO organisations the more products that go out the end of the supply chain, the higher the operating costs become. This operating cost increase does not necessarily equate to a corresponding or linear increase in revenue as it normally would in most sales or distribution organisations. This is also true for some service (who don’t maintain equipment) and many manufacturing organisations. While MRO supply chain management considerations are very similar to service and manufacturing organisations, a key difference with MRO is that it often does not have a clearly defined material requirement (especially for unscheduled repairs and product lifecycle support requirements). Whereas most service and manufacturing organisations do have a very clearly defined associated material requirement given a manufacturing pipeline or service.

While the end of supply chain generates cost not revenue, as it would in a sales or distribution organisation, the MRO operation can still be profitable (or competitive if internal, when comparing to an outsourced alternative), provided that the MRO services are sold (or made available if internal) in the right balance to when they were required. The act of getting this balance right is generally the task of a maintenance planning role or department. In a best practice organisation, they would work closely with both the supply chain management department and the MRO service user – be that internal or external users – which are the ultimate customers of the MRO service.

For these reasons, applying supply chain management principles and strategies that work well in non-MRO organisations don’t necessarily produce cost effective outcomes that also meet end customer (be that the technician, equipment or MRO service customer) requirements. That is why MRO organisations require some unique supply chain management considerations and strategies compared to other organisations in the areas of Demand Planning, Supply Planning, Supply Chain Performance Management and Customer Fulfilment.

Unique Supply Chain Management Considerations for MRO- Demand Planning

To be able to achieve successful supply chain optimisation (reducing costs / improving service trade off) for Maintenance, Repair and Overhaul (MRO) organisations, it is important to understand the demand planning considerations that are unique to MRO – due the unique nature of the MRO customer and supply chain.

The following demand planning considerations are generally unique to MRO organisations;

1. Integration with the maintenance planning process – generally referred to as “Integrated Demand Planning” or “IDP”, which can be extended (generally known as “Integrated Business Planning” or “IBP”) to include:

  • sales and marketing that drive the sales or requirement of MRO services
  • finance
  • equipment operators (where in-house operation)
  • fleet planning (where in-house operation)
  • engineering & reliability

2. Determining the appropriate use and mix of demand planning techniques, such as:

  • Statistical
  • Deterministic
  • Simulation based

1. Integration with the maintenance planning process

Achieving optimal demand planning outcomes requires close collaboration with the source or customer of demand. In an MRO organisation, the end customer of the parts and consumables supply chain (“customer one”) is the equipment or “repairable asset” having an MRO activity being performed by a maintenance technician. However, the plan as to when the MRO activity or “maintenance event” should be conducted is generally determined by a maintenance planning role (which could in some cases be the maintenance technician) or department – which should be driven by the requirements of the MRO service customer (“customer two”). There are several factors that can influence the maintenance plan, such as:

  • When the customer of the MRO service (internal or external) needs the “serviceable” asset or equipment “available”
  • Government or Original Equipment Manufacturer (OEM) scheduled maintenance requirements, regulations, modifications or upgrades
  • The usage plans for the equipment that directly influence both scheduled maintenance requirements and the potential for unexpected repairs
  • Analysis and input from maintenance reliability departments or condition monitoring systems that can provide input on the likelihood of breakdowns that may require repairs, or when “on-condition” maintenance may need to occur
  • The customer service promise to the MRO service customer
  • Financial and resource constraints
  • Other external and internal environmental factors

In most types of organisations (non-MRO), the process of collaborating with the sources of demand, factors that influence demand, and planning of the execution of delivering to that demand is known as Sales and Operations Planning (S&OP). There are many generic and standard S&OP frameworks that can be adapted and implemented in those organisations successfully. However, trying to implement a generic S&OP framework in an MRO organisation does not normally work, as there is no sale at the end of the supply chain and no revenue generation. The revenue is for the overall MRO service, which the supply chain is delivering into and making assets available to serve. Often the MRO service is not sold and is an internal service to enable the business to operate and sell its services. Thus, an adaptation of S&OP, which considers the points mentioned above, needs to be applied in MRO organisations and is often given the name Integrated Business Planning (IBP), as there is no selling of parts or materials involved.

A mature IBP process ensures there is the best possible demand signal to input into the demand planning of material and spare parts required for the planned and unplanned MRO activities. However, there are a number of ways this information can be used to create a demand plan, which leads into the other unique area in MRO organisation demand planning – the selection of the appropriate type and mix of demand planning techniques.

2. The appropriate use and mix of demand planning techniques

Given the current systems and technology available, there are three different core types of demand planning techniques that can be applied in an MRO organisation;

  1. Statistical
  2. Deterministic
    a) Fixed quantity
    b) Probabilistic
  3. Simulation based

Statistical demand planning is the process of taking previous usage history and applying an algorithm to generate a forecast based on that usage history. Different systems have varying degrees of sophistication as to what algorithm is used to generate the forecast and what kinds of adjustments, constraints and other external information (such as supersession, alternatively and reliability factors) that can be applied to the demand forecast. Also, some systems have more appropriate algorithms than others for MRO environments, which often require algorithms that work well for low volume, sporadic demand.

Deterministic demand planning is the process of using a list of defined materials (or spare parts) and quantities required for a particular type of maintenance event (the list of materials is often referred to as a Bill of Materials or BOM – not to be confused with a manufacturing BOM), and applying this to the maintenance plan (or demand plan if it is a sub repairable item) to generate demand for each item in the list. Depending on the sophistication of the system being used, there can be an option to apply either fixed quantities or a quantity with a probability that the quantity will be used – which is known as probabilistic demand planning. The degree of the sophistication of the system being used will impact on what is possible and whether probabilities (if being used) can automatically be calculated or not. While the concept of deterministic demand planning is quite simple, there can be a number of detailed considerations that can be applied and the degree of sophistication of the system being used will determine how many of these can be applied.

Simulation based demand planning is the process of simulating the usage pattern of the end equipment that MRO servicing will be conducted on and using known information, such as scheduled maintenance requirements and reliability information, to determine when and where the maintenance will need to occur, and what parts may be required. This process needs to be coupled with a BOM (as defined above) to produce a demand plan for the materials and parts on that BOM. The other considerations that apply to BOMs also apply. Given that this demand planning technique is quite resource and information intensive it is not often used, and when used is generally only used for demand planning critical and high value repairable items.

Experience and analysis conducted by the author, while working with many different MRO organisations, has shown the application of any one of the above techniques on its own will not lead to the most accurate overall demand planning outcomes. Normally a mix is required to achieve the best possible overall demand plan. Additionally, demand planning considerations are normally different for consumable (“throw away”) and repairable items used in the MRO service. Therefore, there is not one single “best” method.

How can the mix of techniques that will produce the best demand planning outcome be determined effectivity and efficiently?

Firstly, it is important that the system being used caters for a mix of demand planning techniques to be applied simultaneously, otherwise it will either not be possible to apply a mix, or not be possible to do it efficiently.

The key considerations when determining the demand planning technique to apply to get the mix of demand planning methods that will get the best outcome are:

  • The kind of maintenance activity the item is used in
  • Maintenance policies for when parts should be changed, particularly for “on condition” and “on inspection” services
  • How often that maintenance activity that uses the item occurs
  • How stable and predictable is the maintenance activity that uses the item
  • How stable or sporadic the usage of the item is overall
  • The drivers of the maintenance activity that use the item (or drivers of the item’s usage) such as the equipment usage schedules or expected usage rates
  • The number of maintenance locations
  • The number of equipment types being maintained and how much part commonality exists

Developing a matrix approach, taking into account the above considerations and the functionality and constraints of the planning systems being used, can enable an efficient and effective process to be developed for setting and maintaining the mix of demand planning settings and processes that will lead to the best overall demand planning outcomes.

Conclusion

When reviewing demand planning process, tools and strategies for an MRO organisation, provided the above two unique considerations of Maintenance Planning Integration and Demand Planning Type Mix have been properly considered, understood and catered for, there is a high chance that supply chain optimisation will be realised, with happy customers and a happy workforce.

Unique Supply Chain Management Considerations for MRO- Supply Planning

It is important to understand the supply planning considerations that are unique to MRO in order to be able to achieve successful supply chain optimisation (reducing costs / improving service trade off).

Supply planning, in simple terms, is the process of calculating when and how much to order. In practice there are several potential inputs into this calculation. Each of these inputs may have many considerations and some may also be calculated to a degree (e.g. the demand plan).

The following supply planning input considerations and constraints are mostly unique to MRO organisations:

  1. The process to determine appropriate stocking policies
    -  Critical spares
    -  Alignment of customer service promise and maintenance plan objectives
    -  Short notice surge stock
  2. Life of type and obsolesce considerations

1. Determining appropriate stocking policies for MRO

The stocking policy should determine how much safety stock, “buffer stock” and “just in case” spares are held over and above the demand plan for each item at each location. This safety stock forms an input into the supply planning calculation. The stocking policy also determines what locations items will be stocked at, which also impacts on the network wide supply planning calculation and outcomes. While many techniques that can be applied in other organisations can also be applied in MRO organisations when determining and setting stocking policies, the following stocking policy considerations are quite unique to MRO:

  • Critical spares requirements
  • Alignment of customer service promise and maintenance plan objectives
  • Short notice surge stock

Critical spares are those items that are determined by engineering and the Original Equipment Management (OEM) as being items that must be fitted to the equipment for the equipment to be able to operate. There are often many items on a piece of equipment (for example a plane, truck or train locomotive) that do not have to be operating (or serviceable) for the equipment to be able to operate, these items would not be critical items. However, some items, such as a core component of an engine for example, are required to be able to operate the equipment, and these would be critical items.

However, as most critical items on a piece of equipment are not expected to fail if they have been serviced regularly, the additional spares held for critical items (just in case they fail) generally should not be a long list of items. To set the list of critical spares required at each location, at which the equipment operates, it is essential for inventory planners and engineering to work closely together reviewing demand profiles, reliability rates, value and availability of those items that are determined to be required for the equipment to be able to operate. The stocking policy should document the process as to how this should be done and how often it should be reviewed.

Once the critical spares and quantity of critical spares required has been determined for each location, it should be inputted into the supply planning calculation. The sophistication of the planning system being used will determine how this can be integrated into the supply plan. Best practice would be to calculate a safety stock for variability in demand and supply at each location, and then integrate the critical spares quantity with that, taking the greater of the two numbers but not adding them.

The alignment of customer service promise and maintenance plan objectives requires that the maintenance department determines a customer service requirement that is agreed to by all parts of the organisation. Often the customer service requirement will be a multi-tiered demand priority system that has a different delivery timeframe associated with each demand priority. The criteria for determining the demand priority should be agreed throughout the organisation and monitored periodically to ensure it is not being used incorrectly. If supply chains are able to meet these demand priority delivery requirements (the customer service promise) most of the time, this should enable maintenance to meet its maintenance plan objectives, as far as the supply of spares is concerned.

The delivery time frames associated with the demand priorities and the mix of demand priorities expected over time will impact the stocking policy and the resulting supply plan in terms of:

  • How close to the customer that item needs to be stocked
  • What items are stocked at what points around the network
  • The network design and distribution strategy
  • Service level goals impacting safety stock calculations

Therefore, the customer service promise, as defined by the demand priorities and the agreed delivery timeframes, have a significant impact on the cost of the supply chain and the amount of inventory that must be held. For supply chain management to be able to develop strategies to minimise supply chain costs, while achieving the customer service promise, it is essential that the customer service promise is well defined, and that maintenance adheres to the demand priority criteria strictly. In the absence of this, it is very difficult to successfully minimise supply chain costs while maintaining maintenance plan objectives. Therefore, close collaboration is required between supply chain and maintenance to develop and continually review customer service promise agreements that will enable this to occur.

Short notice surge stock is extra inventory that is required to be held to service the equipment when there is a surge in the use of the equipment at short notice. This is especially relevant when lead times are long. MRO organisations that service emergency services or military equipment may require the consideration of including short notice surge stock in their spare part supply plans, as these kinds of equipment can have a dramatic increase in usage rates (and subsequent servicing requirements and part failures) at short notice given the nature of what they are used for.

Again, different systems will have differing degrees of sophistication on how this requirement can be accommodated, but best practice would plan to hold the short notice surge stock in addition to any other safety stock and critical spares requirement and ensure that excess inventory reporting takes this surge stock requirement into account.

2. Life of type and obsolesce considerations

Part of the challenge of an MRO organisation, that is not a consideration for most other types of organisations, is how to ensure that they can supply the required spare parts for servicing and maintaining the equipment for the life of that equipment. The life span of the equipment being maintained can be referred to as the “life of type”. In practice many major pieces of equipment are operated for years, even decades. However, the manufacturers of the spare parts that are used in equipment often change, move on, cease to exist or at the very least upgrade and change specification on the spare parts with no guarantee of compatibility or continuing to manufacture the old version. This is known as “obsolesce” and it is something that must be considered and managed in supply planning for MRO organisations.

Once it is known that a part will become obsolete, the MRO organisation must either develop a supply strategy for the life of the equipment using the part, or work with maintenance and engineering to have a new or replacement part approved for use in the equipment. When a replacement or alternative part is to be used this may require a modification to the equipment and from a supply planning perspective requires supersession management. Supersession management is not unique to MRO organisations. However, part alternativity, where multiple parts can be used, generally is. The degree of sophistication in the planning systems being used will determine how effectively and efficiently this can be managed in the supply plan.

When no replacement or alternative part is possible, the MRO organisation may have to consider what is called a “life of type buy”. This is where they would purchase a supply of spare parts to last the life of the equipment being serviced based on the expected life and usage rates of the equipment. Again, the sophistication in the planning systems being used will determine how effectively and efficiently this can be managed in the supply plan, and how it is represented in excess inventory reporting and management processes.

Conclusion

Supply planning in MRO has different and unique considerations compared to retail, distributors or manufacturers. While some aspects are similar, it is important that systems, tools and strategies that cater for the MRO unique considerations and constraints in supply planning are used to ensure supply chain cost efficiencies can be met, while keeping all types of customers and meeting service promises for the equipment being maintained.

Unique Supply Chain Management Considerations for MRO- Supply Chain Performance Management

Monitoring and measuring supply chain outcomes against objectives is key in ensuring supply chain performance is meeting requirements, costs are being reduced, and service promise is being achieved and improving.

There are numerous common or “default” supply chain performance management metrics that are used by many organisations. However, not all organisations are the same. MRO organisations are quite different to many of the types of organisations that these “default” or common measures were historically tailored for (retail, distributors, and manufacturers). As a result, if these common or “default” supply chain performance measures are used in an MRO organisation this can lead to incorrect information and visibility on the organisation’s progress in reducing costs and improving service. Even worse, it can lead to management actions that have detrimental impacts in order to drive a perceived improvement in a metric result that is not appropriate or applicable to an MRO organisation.

To develop a supply chain performance management framework and set of metrics that are relevant to an MRO organisation, rather than just looking at what metrics are commonly used to measure supply chain performance (even in other MRO organisations) the following questions should be asked:

  1. What is the outcome or objective of the supply chain for MRO; and
  2. How is that best measured?

1. What is the outcome or objective of the supply chain for MRO?

An MRO organisation is performing an MRO service, either internally or externally, on equipment or assets, normally to meet a maintenance schedule or to quickly turnaround an unexpected breakdown. The MRO supply chain is feeding the parts required for the MRO service. So, generally in an MRO organisation the ultimate objective of the supply chain is to:

  • Ensure the maintenance schedule is not compromised by “part availability”; and
  • Provide a reasonably short lead time for parts required for unexpected breakdowns – also a form of “part availability” but often more difficult to achieve

As with any organisation, a secondary objective is to achieve the ultimate primary objective at the lowest possible cost. Understanding that “part availability” is the primary key objective for MRO should then impact the kind of metrics and processes that are used to manage the supply chain performance.

What is the difference between “part availability” and Delivered In Full and On Time (DIFOT)?

In a retail or distribution organisation there is an agreed list of items (or expected list of items, sometimes known as catalogued or stocked items) that should be available for customers when they want them. Therefore, in those kinds of organisations, if a good DIFOT is being achieved, chances are the supply chain is performing well against its primary objective. However, parts being delivered on time to a maintenance technician in an MRO organisation is only part of the picture. There is a defined list of parts (whether expected or unexpected) that are required to complete the MRO service, and with just one of them missing, a high DIFOT could still be achieved. But, if one part is missing it can result in the MRO service not being completed on time. And if there are constantly parts missing and they take a while to arrive, even though there may be a high DIFOT on the parts that are available, ultimately the end customer of the delayed MRO service will not be happy. And the maintenance technician will attribute that to poor performance of the supply chain. The key difference here, to a retailer or distributor, is that the availability of every single item on a consumer or businesses “shopping list” does not have the same impact on the customer as it does for MRO.

Therefore, for MRO, a measure of how many parts are available for the MRO service (irrespective of when they are demanded) and how much late delivery of parts is affecting the MRO schedule is a more accurate way of measuring the ultimate objective of not compromising the maintenance schedule in an MRO organisation.

2. How best to measure MRO supply chain performance?

As “part availability” is the key supply chain outcome for an MRO supply chain, the primary measure of supply chain performance should be related to this. Across different types of MRO organisations, the measure definition may vary, such as:

  • Asset/Equipment unavailability due to spares
  • Percentage of missed maintenance schedules due to spares
  • Amount of delay to equipment becoming available due to spares
  • Part availability to meet expected and unexpected servicing

Two key complementary metrics that can be used to better understand the driver of the results for this primary measure are DIFOT and customer wait time (CWT). The DIFOT measure is well understood and used, but CWT is generally unique to MRO and service type businesses. The CWT is a measure of how long the customer had to wait when the DIFOT was missed. In MRO, the maintenance technician may not have much choice as to where they can get the part, and therefore must wait. By comparison in a retail organisation (and often for business customers of distributors) the consumer normally has many other places they can get something from if it is out of stock in their preferred shop.

While measuring the supply chain performance is important, measuring the cost of achieving that performance is equally important for an organisation to be competitive and reduce costs. Commonly the value of inventory and inventory turns are the main measures that are used to monitor supply chain costs. While cost of inventory is a key indicator, the cost of the distribution network and the cost of meeting varying delivery time promises should also be a supply chain cost indicator. This is particularly important in an MRO organisation. Particularly the cost of supplying high priority customer demands, which generally have very short (hours or less) service promises.

Inventory turns is a common measure used by most organisations. However, to use this for an MRO organisation can be counter intuitive and lead to management actions that are detrimental to the business. This is primarily due to the drivers of the inventory turn measure and the unique nature of MRO organisations. In a retail or distribution business, increased sales will increase the inventory turn ratio, which is a good thing. In an MRO organisation, to increase the inventory turn ratio an increase in part usage would be required. This may not be a good thing, as in an MRO organisation this could mean more cost and increased part wastage or reducing reliability. In a retail or distribution business inventory can be reduced (which increases the inventory turns ratio) by rationalising catalogued or listed lines to the good performers (high movers or high margin) an MRO organisation must hold parts required to support MRO of the equipment or asset being supported, even if those parts are very rarely used. Therefore, rationalising parts held to improve the inventory turns ratio is not an option, and if attempted will generally lead to disastrous results (very high recovery costs and a very unhappy customer). So, while inventory turns ratio is a very good supply chain cost management measure in retail and distribution, in MRO it should not be used for tactical management decisions, but still may be interesting information to understand cash turnover and long-term strategic decision making.

In MRO, a measure that can be used in a similar way that inventory turns would be used for a retail and distribution business is something that can be referred to as “inventory balance segmentation”. An inventory balance segmentation measure is the proportion of inventory lines that have the right amount of stock, those that are understocked and those that are overstocked. Demand planning and inventory optimisation management actions can be applied to improve the outcomes in this measure, which will result in lowering supply chain management costs, and improving customer satisfaction.

Conclusion

When seeking to understand and manage supply chain performance outcomes with the goal of reducing costs and improving servicing level in an MRO organisation, it is important not to start with the common measures that are out there and consider the unique nature of the MRO supply detailed above to setup relevant measures. If these relevant measures are established and measured in an accurate manner for an MRO supply chain, the business will be well informed to make correct tactical and strategic decisions that will lead to reduced costs and improved efficiency and service outcomes over time.

Unique Supply Chain Management Considerations for MRO- Customer Fulfilment

Keeping the customer happy is key for any business to get repeat business and being able charge a profitable amount for their service. In this respect, Maintenance Repair and Overhaul (MRO) organisations are no different to any other type of organisation. However, where MRO organisations are different, is the types of customer and customer fulfilment requirements.

Therefore, to ensure a good level of customer fulfilment in an MRO organisation it is essential to understand:

  1. Who is the MRO supply chain customer?
  2. The customer fulfilment model that will best meet the requirements of the specific MRO organisation
  3. How to measure true customer satisfaction levels in MRO
  4. How to make your MRO customer happy without holding excessive levels of inventory

 

1. Who is the MRO supply chain customer?

For an MRO organisation, the end customer of the parts and consumable supply chain is a maintenance technician conducting the MRO work (as per the “customer one” definition earlier).

Hence, the close collaboration with maintenance technicians and planners (who are aware of “customer two’s” requirements) will enhance supply chain’s understanding of the customer requirements and improve its ability to develop and implement appropriate customer fulfilment models. This collaboration is two-way, as the way maintenance technicians use and transact in the supply chain management system or ERP will also impact on how well supply chain can serve them.

The maintenance plan and types of maintenance can be driven by a range of external factors, as well as the ultimate end customer (“customer two”) of the MRO service. It is also important for supply chain management to understand these factors and the impacts they have in order to be able to better tailor customer fulfilment models for the maintenance technicians who demand on the supply chain.

2. Customer fulfilment models for MRO organisations

Well-designed customer fulfilment models in MRO organisations are generally quite unique when compared to other types of organisations. Customer fulfilment models can consist of:

  • A multi-priority demand system
  • A methodology to determine when to use each priority of demand
  • An agreed delivery timeframe for each demand priority
  • The process for raising demands and the delivery mechanism for each demand type
  • An agreed supply chain performance rate target, which could be segmented by demand priority

A well-designed customer fulfilment model will trade off the customer requirements (both customer types “one” and “two”) with the cost of operating the supply chain. This should be considered when designing and agreeing on the parameters of the customer fulfilment model with the customer. The customer fulfilment model should also be periodically reviewed to ensure it is continuing to meet customer requirements, while meeting supply chain cost objectives. It may need to be tweaked from time to time.

The best customer fulfilment model will not be the same for every MRO organisation. Therefore, the understanding of the immediate customer (the maintenance technician), the drivers of the end customer, the nature of the equipment being serviced, parts, suppliers, logistics, storage constraints and other environmental factors all need to be taken into consideration to determine the best customer fulfilment model. For the customer fulfilment model to be successful all parties must understand, agree and work within the principles and guidelines of the model.

3. How to measure true customer satisfaction levels in MRO

The success of customer fulfilment (or satisfaction) should be measured to ensure the customer fulfilment model is meeting objectives and the customer is happy. To be able to measure “true” customer satisfaction, it is important to understand what the customer really wants, and then create a system and process that can measure that. Measuring something similar, but not exactly what the customer wants, will not provide an indication of “true” customer satisfaction.

In an MRO organisation, generally what the customer (“customer one”) wants is “part availability” for the MRO servicing events. A simple measure of Delivered In Full and On Time (DIFOT) does not give the full “part availability” picture. To be able to measure “part availability”, as it is relevant to the specific MRO organisation, requires a good understanding of the customer objectives and the agreed customer fulfilment model.

The customer (“customer two”) objectives could relate to how often MRO services are completed on time, and whether all the resources (which includes spare parts) required to complete an MRO service are available when needed. Therefore, a measure that provides a view of this, with respect to the impact that the supply of spares has on these objectives, is required to measure “true” customer satisfaction.

The DIFOT measure, a measure of Customer Wait Time (CWT – which is how long the maintenance technician is waiting for a part that was not available) and a measure of “asset availability” are good complementary measures to understanding “true” customer fulfilment satisfaction.

4. How to make your MRO customer happy without holding excessive levels of inventory

One way to meet the demand of the customer fulfilment model and to ensure customer satisfaction is to have large amounts of inventory stored close to the customer. While the customer (“customer one”) may be very happy about this, holding large amounts of inventory will not lead to a cost competitive supply chain. Inventory optimisation is the process of balancing customer service objectives with cost to set optimal inventory levels. It also involves understanding variability in supply and demand and determining which locations in the network to hold what amount of inventory to achieve the desired customer service levels at the minimal cost.

To be able to do this effectively in an MRO organisation, the MRO specific customer fulfilment model for that organisation must be well understood, and this must be able to be inputted, at least to a certain degree, into the inventory optimisation system and process. Stocking policies for critical items, surge stock and obsolescence must also be in place and reviewed frequently. The degree of sophistication in the systems and processes being used will impact how well the inventory can be optimised. If optimisation can be achieved, it will be possible to meet a high level of customer satisfaction without needing to hold high levels of inventory, thus reducing supply chain costs.

Conclusion

Keeping the customer happy at the lowest cost is important in any business type. MRO has some unique customer fulfilment considerations compared to other types of organisations. When these customer requirements are properly understood and optimisation strategies are tailored specifically to them and the MRO environment, experience has shown optimisation of costs and customer satisfaction can be achieved with the right tools, process and a clear and agreed customer fulfilment model.

In Summary – How to realise Supply Chain Optimisation in MRO

Supply chain optimisation – the trade-off between costs and customer service, with the ultimate holy grail of improving customer service and efficiency while at the same time reducing costs.

MRO organisations have been around for a very long time, and therefore there is generally a lot of opportunity to improve supply chain optimisation by changing outdated work practices. However, many MRO organisations have tried and not been as successful as they could have been, as they have applied “supply chain management for the masses” which is not tailored to MRO.

In order to be able to realise the gold mine of opportunities for reducing cost and improving service in MRO organisations (while at the same time improving moral in their workforce) it is important that the MRO organisation look beyond the toolsets, concepts and default metrics designed for “supply chain management for the masses” (generally manufacturers, distributors and retailers) and take the time to understand how supply chain management is unique for MRO in;

  1. Demand Planning
  2. Supply Planning
  3. Supply Chain Performance Management
  4. Customer Fulfilment

And in understanding that an MRO supply chain has;

  • Multiple levels of customers that behave differently and have less options than customers to other types of organisations;
  • Have operational and equipment constraints that required tailored stocking policies;
  • Are different to other types of supply chains that mean MRO tailored measures are needed to result in correct and effective tactical and strategic supply chain management decisions; and
  • The MRO supply chain being delivered generates cost, not revenue.

Senior executives who are able to stop people going back to the old way of doing things, that “work better”, and move forward with modern, more efficient tools and work practices, will ultimately lead them to achieving supply chain optimisation and improving the organisation’s objectives and bottom line.

 

Authored by Nathan Berry, Manager, GRA

 

Download – PDF (3.2 MB)
Reproduction of GRA whitepapers and articles

GRA permit the reproduction of GRA authored whitepapers and articles so long as all the following conditions are understood and met:

  • Entire credit details must be included:
    • Author's name(s)
    • GRA name and contact details
    • GRA URL link to the original article
  • All hyperlinks within the article must also be retained
  • Articles must not be resold
  • GRA retain full copyright.

If you have any queries about reproducing a GRA article or whitepaper, please contact GRA Marketing

Testimonials

"We commissioned GRA to complete a detailed review of our supply chain and identify opportunities to improve our performance. GRA created a clear and comprehensive strategy to transform our business towards best practice and enable our supply chain to become a source of competitive advantage."

– Melinda Johnston, Supply Chain Transformation Lead, Allnex

Typical results

  • 20-40% inventory investment reduction
  • increased service levels ranging up to 99.9%
  • 10%-15% reduction in supply chain operating costs
  • 5%-20% spend management savings
  • the ability to fund business initiatives from operating cash flow (OCF) improvements
  • improved return on capital employed (ROCE)
  • a minimum 3:1 ROI (10:1 to 30:1 typical)