TABLE OF CONTENTS MRO materials management is a decision-making process. It requires balancing financial differences between competing interests.
At a 90% service level, there is a 10% chance that a part will not be available when required. The costs associated with a stock out include lost production (downtime cost), materials expediting cost, reduced maintenance labor productivity, etc.
If the service level is increased to 95%, then there is only a 5% chance that a part is not available. Although this change reduces the probability of incurring a stock-out cost, the additional inventory stocking level increases the capital investment costs, the holding cost, the size (and cost) of the storeroom, etc.
The more inventory that a company holds, the higher that its investment cost will be. If a company sets the safety stock at a high level (reorder point = minimum on hand quantity + safety stock), it will incur higher costs. Conversely, a higher investment cost generally corresponds to a higher MRO stores service level.
The question facing a company is "What service level can you afford?"
| 100% | Capital investment too expensive for almost any plant |
| 95% | A good target for most companies |
| 90% | Downtime cost will be too high for almost any plant |
When larger quantities are ordered, they increase the holding cost, which is based on the total investment in the spare parts. However, ordering costs...
