Guest Column | September 24, 2009

Guest Series: Indirect Material And MRO Cost Savings

By Robert Holmes, WinWare, Inc.

Indirect material is defined as any inventory that does not go into the final product but is used during the manufacturing process. This includes MRO (maintenance, repair, and operations) items, tools, machine parts, chemicals, shop rags, and other inventory items. These items play a key role in manufacturing the product but are peripheral to the product being manufactured. This inventory is thought of as a cost of doing business, but in reality, it is a cost of doing business that — with the right technology to support inventory distribution — can dramatically impact the bottom line. After all, this inventory is not considered an asset for your organization; it is considered an expense. Because of this, any reduction in this inventory immediately hits the bottom line.

Manufacturing companies of all sizes depend on indirect material to keep their plants running smoothly and to meet production goals. By properly managing indirect material, you are increasing the effectiveness of those processes. Always having those materials needed to complete the task and being able to locate them quickly are crucial to obtaining smooth processes and achieving the goal of becoming lean. Having those items on hand without carrying too much inventory is a lean principle we always attempt to reach and is crucial when this inventory is attached to a process. Lean is sometimes defined as eliminating or reducing waste. By effectively managing inventory, you eliminate wasted money on excess on-hand inventory, wasted time searching for tools, wasted man hours searching for inventory, wasted production time attempting to locate items, and wasted money on pilferage and hoarding of inventory.