Corporate MRO (Maintenance, Repair, and Overhaul) inventory strategies range from “just-in-case” to “just-in-time,” each carrying risks at their extremes. Finding a balance that aligns with an individual facility’s unique requirements is crucial to reduce costs associated with holding unnecessary spare parts while maximizing equipment availability.

The “just-in-case” culture

The “just-in-case” approach often overlooks the costs of holding spares that may never be used. This strategy, commonly adopted by teams focusing solely on the supply side of spares demand, leads to purchasing decisions based on spot market prices without forming partnerships with suppliers. Consequently, maintenance operates on a reactive basis, resulting in inventory levels significantly above the industry average for their sector.

The “just-in-case” culture

In contrast, “just-in-time” advocates understand the need to optimize spares demand at the equipment level, recognizing the opportunity to better utilize cash for enhancing equipment efficiency and performance. These organizations foster long-term supply arrangements with key suppliers who, in partnership, maintain a backup stock of critical, long lead-time items. This approach typically results in inventory levels below the sector’s industry average.

Understanding the cost of holding inventory

To ascertain inventory holding costs, one must consider the Inventory Carrying Cost (ICC) or Holding Cost Factor (HCF), representing the cash investment tied to owning and storing inventory before its necessity arises.

The HCF, a percentage of total inventory value, encompasses capital costs, handling, insurance, labor, obsolescence, shrinkage, and storage space costs.

Industry experience suggests annual holding costs range from 15-40%, with a typical range of 20-25%. For instance, an organization with a 22% HCF and $10 million in inventory incurs $2.2 million in annual inventory management costs.

Introduction to the M-BoM

Maintenance Bills of Material (M-BoM) are pivotal in distinguishing “best in class” facilities from their counterparts. These documents are integral for facilities committed to operational excellence, yet surprisingly absent or incomplete in many organizations.

The role of the M-BoM in operational efficiency

Facilities without M-BoMs often face challenges from the outset, with many operating for years without them. The lack of M-BoMs is frequently attributed to unavailable data or resources, perpetuating inefficiency through workaround practices.

The Impact of Not Having an M-BoM

The consequences of operating without an M-BoM program are significant, leading to escalated failure costs and unnecessary inventory expenses. A comprehensive M-BoM should cover complete units, internal and peripheral parts for repairs, and consumables.

The “1-10-100 rule” (Labovitz, Chang) as it applies to the impact of not having M-BoMs can be expressed as follows:

“For every dollar your company might spend preventing a data problem by ensuring the quality is right first time, you will spend ten dollars on inspection and correcting the mistake after it has come to light.

In the worst case – and should the problem go unnoticed initially – a failure occurs later, in part as a result of the poor quality data, you will probably spend one hundred times what you could have paid to prevent it from happening at all”.

Key success factors for an M-BoM

Effective M-BoM management involves early data integration, alignment with failure response, robust processes for technical upgrades and managing retired assets, and a culture that values accurate M-BoMs.

Bills of Material in SAP Plant Maintenance (PM)

There are three main categories of a maintenance BoM in SAP PM:

• Material BoM;
• Equipment BoM
• Functional Location BoM.

Note: The following information is for guidance only. The information is taken from available SAP published information at the time of writing. Your own system may have a different configuration.

SAP Plant Maintenance tailors M-BoM for specific maintenance needs, offering structured maintenance planning and efficiency through categorized M-BoMs like Material, Equipment, and Functional Location BoMs. This system aims to streamline maintenance tasks and reduce redundancy.

What function does and M-BoM perform

The maintenance BoM performs the following important functions:

• Structuring of the object. The structure of an object must be displayed as clearly as possible from a maintenance viewpoint;
• Spare parts planning in an order. If a technical object uses a BoM, you can use this during the planning or maintenance order to plan spare parts;
• Spare parts planning in the task list. Spare parts can be planned in the task list based M-BoM

Material BoMs are always used in SAP PM if a number of identically constructed objects have to be maintained. The aim is not to create a M-BoM for each technical object, but to create just one M-BoM, and then assign this to the relevant technical objects. This avoids the use of redundant M-BoMs.

The procedure for creating a material BoM is as follows:

1. Create a material.
2. Create a material BoM for the material

The M-BoM must then be assigned to one or more technical objects such as equipment or functional location. You can make the assignment or assignments in the respective master record by using the Structure view.

SAP transactions for BoMs

SAP M-BoM transactions codes include:

• CS01, CS02, CS03 – Create, Change, Display Material BoM);
• IH05 – Structural Display Material BoM

Obsolescence is ‘the transition from availability from the original manufacturer to unavailability’.

Obsolescence Management involves coordinated activities to direct and control an organization in addressing obsolescence. Its goal is to integrate obsolescence management across design, development, production, and in-service support phases, minimizing financial and availability impacts throughout the lifecycle of a product or facility.

A product may be considered obsolete if its supplier can no longer or chooses not to supply it. This scenario affects various products and the equipment needed to support them, potentially at any stage of the product lifecycle. Obsolescence significantly drives up support costs for long-lifespan systems and introduces vulnerabilities that affect operational availability, maintainability, and supportability.

Not every organization needs a comprehensive obsolescence program. A decision flowchart helps identify the need for an obsolescence review and the intensity required. Ideally, an obsolescence programme is initiated when a facility is constructed, utilizing available relevant documents for the program’s foundation.

However, executing an obsolescence program becomes more challenging over a facility’s lifecycle due to the fragmentation of original knowledge and the potential misplacement, loss, or damage of documents.

The level 4 obsolescence review process

Level 4 is the foundational level of obsolescence management, where the program’s intensity and cost increase progressively from Level 4 to the more intense Level 1.

– A basic Level 4 program includes:A documented and funded obsolescence program;

– A documented and funded Bill of Materials (BoM) process.

The ERP system should highlight key obsolescence-related fields such as predicted last manufacture date; last supply date; supersession part number (current supplier); and alternative part number (alternative supplier).

International standards for obsolescence management

IEC 62402:2019 outlines obsolescence management requirements and guidance applicable to organizations reliant on external sources for the usefulness of their items. It offers a cost-effective process across all item lifecycle phases, including:

— establishing an obsolescence management policy;

— establishing an infrastructure and an organization;

— establishing an infrastructure and an organization;

— developing an obsolescence management plan (OMP);

— developing strategies to minimize obsolescence during design;

— determining an obsolescence management approach;

— selecting obsolescence resolution and implementation;

— measuring and improving the performance of the outcomes of the obsolescence management activities.

This document, replacing its 2007 edition, is now presented as a standard with requirements, while maintaining guidance within informative annexes. It provides a generalized process applicable to all technologies and items.

The SPIR process urgently needs to enter the 21st century

At KOIOS Master Data we have a unique understanding of the difficulties caused by the current SPIR (Spare Parts Interchangeability Record) process. Through our team’s years of MRO consultancy work, we have first-hand experience of how damaging the poor-quality data supplied in SPIRs can be to oil and gas projects. It can have a profound effect on cost, time and resource – cost, time and resource that could be spent innovating and developing a competitive advantage. Not to mention, the unnecessary wastage it can lead to, in an industry that can hardly accommodate it in the current climate. In this age of Industry 4.0, digital transformation and international data standards such as ISO 8000, the question begs – why is data quality consistently letting the side down? When we struggled to find an effective SPIR solution, KOIOS Master Data was born and we set out to create one.

K:spir is the only SPIR software designed this century using ISO 8000 standard data. It creates machine-readable data that retains quality throughout the chain, enabling accurate decision making and resulting in reduced cost, time and resource.

Here, we look at the importance of master data management, the challenges created by the SPIR process, and how K:spir is uniquely positioned to resolve those challenges.

Why is data management so important to the SPIR process?

In this age of ‘data explosion’, most businesses are aware of how poorly-managed data can put them on the back foot. In Experian’s 2019 Global Management Data Research, they found that 95% of organizations surveyed see a negative impact from poor data quality.

Similarly, the Aberdeen Group’s Big Data Survey in 2017 found that the biggest challenges for Executives arise from data disparity, including inaccessible data, poor quality data informing decisions and the growing need for faster analysis. 

The overall effect is a lack of trust in data, to the great detriment of strategic decision making. And when you can’t trust your data to inform business decisions, then cost, time and resource will inevitably suffer.

In the context of the SPIR process, accurate decision making is everything. The SPIR exists as a tool for forecasting spares requirements for the life of a project, its sole purpose being to assist the Owner Operator (O/O) to make accurate decisions. Yet, as many will attest, the data supplied is often inaccurate, hard to access and sometimes supplied by the Engineering Procurement Contractor (EPC) at handover, by which time it is often too late to inform anything at all. 

Experts have raised the question – if you can’t trust SPIRs to make accurate procurement decisions, then are they worth the paper they’re written on?. The process is clearly out-of-date, yet it continues to blight the efficiency of many oil and gas upstream projects.

SPIRs dissected 

The shortcomings of the antiquated SPIR process can be summarised into three key areas:

1. DATA IS INACCURATE AND OVER-SIMPLIFIED

SPIRs are generated from paper forms and are transcribed many times, so part descriptions become distorted. Often, parts have multiple descriptions.

Solution: K:spir locks in data quality right at the start of the process, using ISO 8000 standard data. Part descriptions are consistent and safe from misinterpretation, providing confidence in forecasting and reordering. 

SPIRs are usually completed by an Original Equipment Contractor (OEM), who is not necessarily aware of the O/O’s operating and maintenance procedures. Therefore, they do not take into account equipment criticality or maintenance capability.

Solution: K:spir uses the maintenance and repair strategy to determine the spares requirement, reducing wastage and taking cost off of the bottom line.

2. DATA IS INACCESSIBLE AND DIFFICULT TO ANALYZE

SPIRs often provide information in spreadsheets or pdfs, which are impossible to extract data from quickly, if at all. To extract anything meaningful is very cost and time-intensive, and relies on support from IT specialists.

Solution: K:spir provides instant reporting on the completeness and cost of spares, allowing for accurate decision making. The information is fully configurable to the requirements of the O/O. It can also create a Maintenance Bill of Materials (BoM) and is interoperable with maintenance systems.

Information is not portable and has to be re-entered for different systems.

Solution: K:spir generates portable (machine-readable) data saving significant time spent re-keying information and unnecessary data handling costs.

Data exists on many platforms and is not available to all stakeholders, all of the time.

Solution: K:spir is cloud-based, providing simultaneous access to all stakeholders in the chain. This allows for more transparency and accountability at all stages of the project lifecycle.

3. DATA IS SUPPLIED TOO LATE

Sometimes even as late as handover, by which time it’s too late for the O/O to minimize the operating risk. There is no opportunity to make informed decisions, such as ordering spares with long lead times, or calculating warehouse space. This can lead to unnecessary wastage and operational difficulties along the line.

Solution: K:spir provides transparency right from the beginning of the project, allowing for critical decisions to be made early on. 

With its unique set of features and benefits, it’s clear that K:spir can relieve the symptoms of the current SPIR process with immediate effect, saving valuable cost, time and resource.

A SPIR – this is not what efficiency looks like!

SPIRs and effective MDM – who is responsible for getting it right?

As confident as we are in the KOIOS software suite to advance the world of Master Data Management (MDM), there are clearly other factors that need to be addressed, most notably, ownership. It is a thorny area, and one that is being more keenly contested as digital transformation rattles on apace. As the Aberdeen Group puts it, there is a “growing urgency for better data management”, as businesses see the shortfalls of their inability to harness data.

Experian’s report shows that in 84% of cases, data is still managed primarily by IT departments. Revealingly, 75% of their sample thought that ownership should lie within the business, with support from IT. They conclude that organizations should develop their MDM strategy to fulfill the needs of a much larger group of stakeholders, who wish to harness the power of their data to improve decision making and efficiency.

In the context of SPIRs and oil and gas projects, we believe that O/Os should become more demanding over the quality of data supplied to them by manufacturers. It is unrealistic for their IT experts to have sight of the broader operational requirements, with their own priorities being diverse and demanding. It is the Executives who suffer the consequences of the risk taken by ignoring poor data, and the operations and maintenance departments that will experience the pain. Clearly, they need to make their voices heard much earlier in the process. That said, manufacturers and EPCs also need a better understanding of the challenges faced by O/Os, and in our view should share the responsibility for getting the data right from the start.

It is, as previously stated, a tough subject, but we are constantly encouraged by the conversations we have with manufacturers and O/Os alike. More and more key stakeholders are waking up to the power that effective MDM can have in driving business forwards, by freeing up cost, time and resource and supporting strategic decision making. Not just to their own ends, but for industry as a whole to fully realize its digital transformation goals.

Join us in our vision to revolutionize the SPIR process

A radical change to the SPIR process and MDM as a whole is on the horizon. While there may be no silver bullet, we firmly believe that the right software is an essential move forward. The KOIOS software suite is geared towards this larger shift in MDM, but in the case of K:spir, the results can be felt immediately.

Our hope is that O/O’s and manufacturers alike will unite in becoming more discerning and demanding about data quality, working as one to create harmony along the chain. At KOIOS Master Data, we are committed to leading the conversation and driving better data quality.