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THE MISSING TOOL For Maintenance & MRO

INVENTORY CONTROL
BOMs – A Maintenance & MRO Inventory Savings Model
MRG has performed hundreds of plant assessments in a wide range of industries, including
Chemical Processing, Heavy Metals, Pharmaceuticals, Power Generation, food & beverage
processing and a wide variety of Light Manufacturing. During the course of these assessments,
MRG came to the conclusion that a consistently missing maintenance best practice is the
availability of accurate Bill of Materials for plant equipment. Only a handful of plants visited by
MRG have complete Bill of Materials available, which incorporated the majority of the spare
parts in their MRO inventory. Not surprisingly, these plants are also considered pacesetters in
their respective industries.

The focus of this report is on the differentiators that separate these few pacesetters from their
competitors. The following chart depicts the results possible when complete BOMs are in place.
The chart is based on real data from a midwestern refinery that was undertaking many capital
improvement projects during the eight-year time span requiring the addition of numerous spare
parts to support new equipment. The chart shows that in spite of a large increase in the
accumulative value of new spare parts, the overall effect on the total inventory value was
negligible. While other practices such as regular evaluation of inventory levels using an EOQ
and order point model and the daily practice of ABC cycle counting contributed to the control of
the total inventory value, the primary reason for the results depicted in the chart were because
of accurate and complete BOMs. The spare parts for old equipment removed from service were
easily and safely deleted from inventory because the plant use of every stocked spare part was
known.

Mananged MRO Inventory Story

$6,000,000

$5,000,000

$4,000,000

Total Inventory Value

$3,000,000
Accumulative New Inventory Value

$2,000,000

$1,000,000

$0
1
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
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BOM Definitions

There are many different names tied to the lists of parts that are carried in an MRO inventory to
allow the proper maintenance of a plant’s equipment. To avoid confusion in our discussions,
the following definitions are provided for clarification of the terms we will use:
• OEM BOM – The complete listing of all components used by the original equipment
manufacturer to build a piece of equipment.
• Work Order BOM – The listing of materials required to accomplish the work described in
the job plan
• MRO BOM – The listing of components the equipment owner has determined are
necessary to maintain equipment and document the system of record materials catalog.
o Stocked Parts – The components that are listed on a MRO BOM and are carried in
inventory.
o Non-stocked Parts – The components that are listed on a MRO BOM and are ordered
on request only.

The MRO BOM will be our primary topic of discussion.

Industry Pacesetters Have BOM Goals

In the area of MRO BOMs, MRG research has determined that the differentiator between
pacesetters and the rest of the pack is that the pacesetters have clearly defined goals plant
personnel involved with MRO BOMs are working towards. In fact, one interesting point is that
comprehensive MRO BOMs tend to only exist in pacesetter plants. The following are the most
commonly occurring goals the pacesetters have achieved or are working towards:
• All stocked spare parts and desired non-stocked parts are assigned to MRO BOMs on
all applicable equipment. New equipment is addressed procedurally.
• When the initial MRO BOM project is complete, spare parts that have not been linked to
equipment are removed from the MRO inventory
• Some form of best practice analysis method(s) is used when developing MRO BOMs.

Industry Pacesetters have a Best Practice BOM Strategy

The following strategies differentiate pacesetters:

• Pacesetters use a standard methodology to build MRO BOMs. This methodology is
ingrained in the plant culture and fosters using consistent procedures so that the right
parts are stocked to support plant production and cost control goals. MRG has found
that standard methodologies typically include the following practices:
o Formal analysis is performed to identify critical wearable parts. This analysis is
performed at a minimum on all equipment categorized as critical to the plant’s
operations. The results from this analysis become the main driver for MRO BOM
development for critical equipment. Equipment deemed less important to the
plants operations will have wearable parts identified by using less intensive
analysis.
o Prior to building equipment specific MRO BOMs, lists (or templates) of typical
wearable parts are built for each equipment class (if component failure and cost
analysis determines spare parts are required) present at the plant. In addition, a
maintenance factor is assigned to each equipment class that ranks the tendency
of the particular class of equipment to require maintenance.

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o The equipment class MRO BOM templates are used as the “standard” to be
modified as required to fit individual equipment requirements.
o After the individual MRO BOMs are created, formal analysis is performed to
assign initial stocking levels based on:
Part critical
Equipment criticality
Equipment class maintenance factor
Usage exposure (The number of times the part is listed on plant BOMs)

• Each plant has at a minimum one MRO BOM champion. Larger plants may have
specialists for some of the maintenance crafts. For example different people may be
responsible for overseeing the BOMs required for rotating equipment and
instrumentation. The MRO BOM Champion coordinates all spare part requirements and
spare part stocking levels. The position ensures that the assignment of existing spare
parts to BOMs is completed. In addition, the position is responsible for prioritizing and
guiding the movement of all existing equipment through plant MRO BOM methodology.
Finally the position is responsible for ensuring that MRO BOMs for deleted equipment
are removed and the spare parts are removed from stock or their inventory levels are
adjusted to fit new service requirements.

Typical Best Practice MRO BOM Processes

The following tasks, listed chronologically, make up the typical MRO BOM project at a
pacesetter plant:
• Equipment population is accurately cataloged & classed
• Equipment classes identified & assigned
• Equipment class maintenance factors assigned
• Equipment criticality assigned
• BOM templates developed for appropriate equipment classes
• BOM development plan in place based on criticality & maintenance factors
• New equipment add process in place
• Deleted equipment remove process in place

Typical BOM Structure

The following list depicts all of the elements that can be found in a MRO BOM. Not all elements
have to be present, but large MRO BOMs for complicated equipment will typically use
Assemblies and Sub-Assemblies to break the BOM into more manageable views with a goal of
reducing craft time locating the needed parts.
• Equipment
– Assembly
• Sub-Assembly
– BOM Record Identifier
o Inventory Description
o BOM Description
o Inventory OEM Part Number
o BOM Item, Drawing or Reference Number
o Overhaul Quantity

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Typical BOM Element Definitions

• Assembly or Sub-Assembly – Actual spare part or dummy BOM record to which other
spare parts are attached. Typically used to logically breakdown large BOMs
• BOM Record Identifier – The unique record key consisting of the equipment and
inventory record identifiers
• Inventory Description – The description contained in the spare part’s inventory record
• BOM Description – Alternate or additional description describing function of spare part
on the equipment
• Inventory OEM Part Number – Original equipment manufacturer part number
• BOM Item Number – Item, reference or drawing number relating the spare part to it’s
location on the OEM BOM
• Overhaul Quantity – number of times the spare part is used in the equipment or
assembly

Potential MRO Inventory Savings

MRG has found that the savings potential is based on the extent to which best practices are
followed in these areas:
• Inventory Control
• BOMs
• Maintenance Reliability
o PM/PdM
o Recurring Problem Solving (addressed via RCFA and RCM based FMEA)
MRG research on best practices in industry plants, including power generation, has further
found that the typical possible savings are in the range of 20% to 50%. Again, the savings
potential depends on the current best practices in place.

Distribution of Potential MRO Inventory Savings

The savings distribution can best be described as a cylinder divided according to the following
formula:
• Maintenance Reliability (30%) – The following assumptions were derived from a NPRA
study for the refining industry but are applicable to any heavy industry.
o PM/PdM (15%) – Savings derived over time by reducing equipment failures
which in turn results in reduced part usage and gradually allow lower spare part
stocking levels
o Recurring Problem Solving (15%) – Savings derived over time by root cause
failure analysis and the implementation of solutions discovered as a result of
reliability centered maintenance (RCM). The solutions result in reduced part
usage and gradually allow lower stock levels
• MRO BOMs (30%) – This assumption was made from MRG research & assessment
results. Being the focus of the report, this subject is discussed in greater detail in the
next section.
• Inventory Control (40%) – This assumption is also from MRG industry research. This
area of savings results from the implementation of basic inventory management
methodologies. It includes procedures such as security, cycle counting, order quantity
and order point modeling, accurate descriptions and tracking key performance indicators
and other leading supply chain practices.

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Plant Savings from MRO BOMs

It has been proven that a cost reduction up to 50% of the MRO inventory value is possible. The
actual potential percentage of savings is based on the current state of the plant’s MRO BOM
program, the current level of MRO inventory management and the sophistication of the
maintenance reliability program at the plant. MRG research indicates that MRO BOMs are on
average 30% of the total savings value. The direct inventory savings come from eliminating
spare parts no longer supporting plant equipment, reduction of spare part stocking levels
because total potential need for each spare part is now known and can be more accurately
forecast and from the elimination of duplicate spare parts as a result of the MRO BOM building
process.

In addition, MRO BOMs result in other plant savings in areas such as maintenance labor and
the reduction of equipment downtime. Maintenance labor savings of up to 15% are possible.
These saved hours can be “banked” in the PM/PdM program, which will result in even greater
savings over time. The labor savings are a result of the decrease in time spent identifying and
locating parts needed for equipment repair. MRG assessments have found that 10% to 25% of
a craftsman’s time is spent obtaining parts. BOMs will largely eliminate this waste and will also
allow for in-plant deliveries by the storeroom in large plants because visual identification of the
spare part by the craftsmen is no longer required.

Another area of savings is from equipment downtime avoidance. MRG has benchmarked this
savings at 3.5%. This savings is normally calculated based on the value of lost production.
However, since the focus of this report is on MRO inventory supply chain, and not maintenance
reliability the savings percentage and formula has been tied to the MRO inventory value. The
savings come from the fact that required spare parts are quickly located thus reducing the mean
time to repair.

Another area of cost avoidance results from installing the correct spare part and not just one
that fits. Accurate MRO BOMs add quality assurance to the maintenance repair process by
significantly reducing the possibility of installing the wrong part and possibly causing early and
potentially catastrophic failure of the equipment. This is extremely important in highly regulated
industries such as nuclear power, pharmaceuticals, and food processing.

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The following chart depicts the savings available by instituting a variety of maintenance best
practices including BOMs.

MRO Inventory Savings Potential

100.0%
15.0%
90.0%

80.0% 15.0%

70.0%

60.0% 30.0%

50.0%

40.0%

30.0%
40.0%
20.0%

10.0% 15.0%
3.5% Recurring Problem Solving
0.0% PM/PdM
MRO Inventory Savings Maintenance Labor Savings Equipment Downtime BOM Savings
(Expressed as % of Labor) Avoidance (Expressed as % of Inventory Control Savings
Inventory Savings)

Your Total Potential BOM Savings

To quantify the potential savings gained by having a “pacesetter” BOM program, MRG has
developed a MRO Inventory Savings Model in an Excel spreadsheet. The spreadsheet requires
the input of your total plant maintenance costs, MRO inventory value and plant maintenance
labor costs in the BOM Input sheet. In addition, you will be asked to benchmark the status of
your BOM program using the BOM Survey sheet. Using the data you provide, the spreadsheet
will calculate and display the total potential savings possible in the Case Study $ Savings
Calculations & Results work sheet portion of the model. Data entry instructions are provided
and explanations are contained in many of the survey question cells of the spreadsheet.

A sample of the calculator input and output screens are displayed in the appendix attached to
this document.

Investment cost to gain the MRO BOM portion of the MRO Inventory Savings

To assist you in estimating the investment required to obtain the savings possible from a
“pacesetter” MRO BOM program, MRG suggests the following thumb rules, which can be used
to calculate the man-hours need to build the individual MRO BOMs:
• Assume 40% of plant equipment is critical to the process and will require BOMs
• Assume average 2 to 4 hours per BOM developed
• Assume one developed BOM can be copied to 2 to 5 pieces of equipment (dependent
on plant equipment commonality)

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Finally, assume that while labor savings will begin immediately, MRO inventory value savings
will take two to five years to accrue once the MRO BOMs are in place.

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APPENDIX A
BOM Savings Calculator Sample

MRG BOM Survey Input Screen Sample

The survey below reflects the state of typical BOM programs at plants MRG has visited:

MRG INVENTORY SAVINGS MODEL - BOM Survey Shade indicates Input Point
MRO Inventory Improvement Areas Use "clear contents"
when changing any X
Area Survey Survey Characteristic
check box selections
All spare parts and appropriate consumables have been
assigned to all applicable BOMs
All spare parts are assigned to BOMs but many times only to
Which characteristic best descrbes the current status of the equipment BOM the part was originally put in stock for.
BOMs Check only one box
your BOM program? Many, but not all, spare parts are assigned to BOMs

A few spare parts are assigned to BOMs x

No BOMs

All applicable BOM records enhanced.

Which characteristic best describes your use of a special
Many BOM records enhanced.
BOM description (overriding the item's inventory
BOMs Check only one box
description) field that describes the use of the part in the A few BOM records enhanced.
specfic application?
No BOM records enhanced. x
All applicable BOM records enhanced.
Which characteristic best describes your use of the
BOM field (or fields) that can be used to store specific Many BOM records enhanced.
BOMs drawing numbers, item numbers or reference numbers Check only one box
A few BOM records enhanced.
that reflect a parts use or location on the applicable
equipment’s exploded parts drawing view? No BOM records enhanced. x
All applicable BOM records enhanced.
Which characteristic best desribes your population of Many BOM records enhanced.
BOMs the "overhaul quantity" or "quantity of the part used" Check only one box
A few BOM records enhanced. x
field on the applicable BOM records?
No BOM records enhanced.

All appropriate OEM substitutes identified & assigned.

Which characteristic best describes the status of your Many appropriate OEM substitutes identified & assigned.
BOMs program to indentify all appropriate OEM substitutes Check only one box
A few appropriate OEM substitutes identified & assigned. x
and assign them to BOMs in place of the OEM part?
No appropriate OEM substitutes identified & assigned.

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MRG BOM Survey Results Screen Sample

The table below reflects the survey results of typical BOM programs at plants MRG has visited:

MRG INVENTORY SAVINGS MODEL -

BOM Survey Results
MRO Inventory Maintenance & Equipment Possible
Survey Questions
Savings Storeroom Labor Downtime Points
0 0 0 16.0
0 0 0 12.0
BOM program status 0 0 0 8.0
4 4 4 4.0
0 0 0 0.0
0 0 2.0
Use of special BOM description 0 0 1.0
field 0 0 0.5
0 0 0.0
0 0 2.0
0 0 1.0
Use of optional BOM fields
0 0 0.5
0 0 0.0
0 0 2.0
0 0 1.0
Use of overhaul quantity field
0.5 0.5 0.5
0 0 0.0
0 6.0
0 4.0
Use of OEM substitutes
2 2.0
0 0.0
Total Points From Survey 6 4.5 4.5
Maximum Possible Points 22 22 22
% of Maximum Possible Points 27% 20% 20%

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MRG BOM Savings Calculations Sample

The table below reflects the savings potential based on the model calculations. Note that the
savings presented because of PM/PdM, Recurring Problem Solving and Inventory Control
Savings have been inserted as an example to support the presented case study and are not
actually part of the model calculations.

MRG INVENTORY SAVINGS MODEL - $

Savings Calculations from BOM Survey
Case Study Inputs

Case Inputs Case Adj Inputs

Total Annual Maintenance $ $10,000,000 $10,000,000 Shade indicates Input Point
Total MRO $ $4,633,306 $4,633,306
Total Maintenance Labor $ $5,500,000 $5,500,000

Base Savings Benchmarks

Maintenance Reliability
Recurring Inventory
Problem BOM Control
PM/PdM Solving Savings Savings
MRO Inventory Savings 15.0% 15.0% 30.0% 40.0%
Maintenance Labor Savings (Expressed as
% of Labor) 15.0%
Equipment Downtime Avoidance
(Expressed as % of Inventory Savings) 3.5%

Case Study Saving Percentages Adjusted by BOM Survey Answers

Maintenance Reliability
Recurring Inventory
Problem BOM Control
PM/PdM Solving Savings Savings
MRO Inventory Savings 4.5% 4.5% 21.8% 12.0%
Maintenance Labor Savings (Expressed as
% of Labor) 11.9%
Equipment Downtime Avoidance
(Expressed as % of Inventory Savings) 2.8%

Case Study $ Savings Calculations & Results

Maintenance Reliability
Recurring BOM Inventory Total
PM/PdM Problem Savings Control Savings
MRO Inventory Savings $208,499 $208,499 $1,010,903 $555,997 $1,983,897
Maintenance Labor Savings (Expressed as
% of Labor) $656,250 $656,250
Equipment Downtime Avoidance
(Expressed as % of Inventory Savings) $128,995 $128,995
Totals: $208,499 $208,499 $1,796,149 $555,997 $2,769,143

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MRG BOM Savings Graph

The graph below reflects the savings potential based on the model calculations:

Case Study $ Savings

$3,000,000

$2,500,000

$2,000,000

Equipment Downtime Avoidance (Expressed as %

of Inventory Savings)
$1,500,000
Maintenance Labor Savings (Expressed as % of
Labor)
MRO Inventory Savings
$1,000,000

$500,000

$0
PM/PdM Recurring BOM Savings Inventory Total Savings
Problem Control Savings
Solving

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