MRO Connection presentation on Dispositioning Excess MRO materials to maximize investment recovery

1. "There's gold in them thar hills." Is it Time to Move the Mountain?

3. Non-moving MRO inventory typically Growsat an annual rate of6.7% and nearly 70%of all SKUs purchased on an annual basis will never be used! This is known as Waste!

4. 2007 estimates suggest that U.S. industries purchased a staggering $136 billion in MRO inventory that has yet to be consumed three years later… a not so welcome to 2010. Sadly, cross-industry statistics vary little, where on average 58% of MRO inventory investment does not move in any three year period. Only 6% of parts account for 90% of the MRO inventory expenditures on an annualized basis.

6. wanting to make the right decision about a thing that it becomes overwhelming

8. Hoarder's delight… On average only 17% of new MRO item adds to inventory will be used within the first month, with the second use nearly 8 months later. It gets better for Hoarders as initial MRO inventory orders > 2, 69% on average are not issued within the first 3 years of acquisition. Given that significant percentage of MRO items can be acquired quickly enough to mitigate production risk and still meet resource scheduling objectives, why are companies becoming their own storefronts? Just ask the Hoarders!

9. Playing to Win Mentality Playing to Win in MRO materials takes a mindset that does not accept equipment failures as fait accompli. It views MRO inventory for what it is— “Stock waiting for something to fail before it has value.”

10. Wisdom MRO dispositioning efforts gives organizations the “teachable moment” to begin improving practices for the future. Rational people become irrational when people don’t agree with their rationale. Failure is the only opportunity to begin more intelligently… source: Fortune Cookie Lucky number 50,49, 28, 11, 43, 40

11. MRO Materials Dispositioning Decisions …in the right order Identify excess Select dispositioning strategies Establish dispositioning team(s) Execute dispositioning strategies Prevent future excesses

12. Identify excess MRO materials Virtual Inventory Transaction Non-stock Purchase Orders Physical Inventory Black Stock Structural Chemicals 1 Define Excess MRO Materials Unknown MRO items are by definition excess unless proven otherwise MRO items beyond their shelf life MRO items that are obsolete MRO items that are deemed no longer used and/or needed Readily available MRO items regardless of criticality, in excess of one year’s worth of supply Capital spares regardless of criticality, that have had no usage in the last three years nor a forecasted failure/replacement event to occur in the next one year

13. Select Dispositioning Strategies 2 Strategy 1: Return Cancel it – can you cancel the purchase orders? Give it back – can you return the items? Strategy 2: Redeploy Keep it – should we retain it? Transfer it – can you use it elsewhere? Strategy 3: Market Bundle it – should you market it with the equipment? Consign it – should you entrust it to a third party for resale? Trade it – can you swap it out for another? Strategy 4: Fire Sale Auction it – should you sell it to the highest bidder via a formal auction? eBay® it – should you sell it by using one of the largest internet based auction site? Strategy 5: Clearance Donate it – is there an organization that could benefit by its donation? Dispose it – is there no other option of value?

14. Establish Dispositioning Team(s) 3 Team must Be knowledgeable of an ideal MRO materials system Be aware of the “Hoarder Mentality” Define Value Criticality Likelihood of Failure Availability Focus First on service levels Second on MRO inventory turns

15. Execute Dispositioning Strategies 4 Conduct physical reconciliation Conduct information reconciliation Disposition MRO materials Perform dispositioning accounting

16. Capital/Critical Spares Retention What to keep when no consumption data exists? – THOUGHT STARTERS Value in Use: Is the part associated to an existing asset? If yes, then… What is the likelihood of failure over a the useful life of the associated equipment? When do you reasonably think the failure will occur? Is the part associated to more than one asset? Do you have more than one?

17. Prevent future MRO Materials Excesses 5

18. Additional Insight

19. "There's gold in them thar hills." Is it Time to Move the Mountain?