On April 20, 2020, the NYMEX WTI crude oil futures contract price for May deliveries collapsed into NEGITIVE TERRITORY for the first time in history, settling around -$37 per barrel. You read that right. Companies had to pay people to take oil. I'm having a hard time expressing what that felt like. It was so shocking that most people I worked with didn't even speak about it. Looking back on it, it was probably the single most influential event that helped shape my philosophy around running supply chain in asset intensive industries like oil and gas. As the old saying goes- "Iron Sharpens Iron", thank goodness it didn't break me!

Early that morning, my phone began blowing up. A steady stream of texts from friends, family, my wife, my mom, and more flew in all day. Panic set in. There was a phone call from my boss, Jenny, who gets all the credit for the title of this article, that changed my mindset that day. Jenny was a breath of fresh air and was always at least four steps ahead of any perceived catastrophe we were dealing with. She didn't panic. Like normal, she asked about my family and then jumped right in. Here's pretty much how the conversation went:

Jenny- "Justin, how are you?"

Me- "I'm not sure."

Jenny- "Well, this stinks. What are we going to do about it? I think the ops guys are going to be reaching out to get some data on what we can do to lower costs. I'm sure the PM system will be pretty valuable now."

Me- "For sure. I hope we can keep the wheels from falling off."

Jenny- "Well, Justin. Just like my mom and dad said to me when money was tight growing up- It's time to eat from the pantry. I'm sure we have enough inventory, on or off the books, to get through most of the problems we have out there."

Me- "You're a genius. Hold my beer…"

THAT was the exact moment that changed my career path. We went to work, and discovered that she was right, and along the way, learned exactly how to use the system the way it was designed to be used. It is the foundation of our Maintenance Health Check we use to help organizations around the world optimize their indirect material supply chains. It's so simple that it almost feels unbelievable. However, time and time again, I meet good people that just don't realize what's hiding in plain sight.

A few months ago, we helped a company complete the Maintenance Health Check starting with the items they had in their warehouse. Luckily, we had a seasoned technician working alongside us who was incredible. He helped us identify stuff laying around on the shelves and painstakingly looked items up in OEM maintenance books while we counted, labelled, and organized their materials to then update their ERP system. It was apparent that there were a lot of good ideas and intentions in the warehouse, but they just lacked a good system of organizing the shelves. After a week of cleaning shelves, labeling bins, and consolidating like kind items on the shelves, we walked away feeling accomplished. We identified over 400 parts that were physically there, but not in SAP's inventory. What was even better, their maintenance leader (who had very similar leadership capabilities as Jenny) congratulated the team and recognized the team for all their hard work.

Fast forward a few weeks. The maintenance planner called us to share that the inventory we uncovered and documented had already paid for our entire engagement. They had 3 major PM's due in the following 3 weeks and the vendor who usually supplied the parts had told them that the items long lead items were going to delay the PMs. He was able to search for and identify quickly within his inventory that their business had all the parts needed to perform the PM ON TIME. Now imagine his joy when he called his boss to say not only were they able to execute the PM on time, but they were also going to save over $80K in working capital because they already had the parts in inventory.

We see this all the time. I have lived it over and over again, AND IT NEVER GETS OLD. This is why I do what I do. I love helping people connect the dots, and it really is simpler than you think. Here's the playbook:

Step 1- Get your inventory right.

Most people think this means doing a physical inventory check. While that's part of it, it's not the first move. We teach folks to do a little spring cleaning first. If you're running SAP IM (with only one bin per material per storage location), you must get all identical materials in the same bin first. Without doing this, you will end up writing things off that are located in multiple spots. It's a Must.

Once you organize your materials, label your shelves with a logical (AND SORTABLE) bin system to make putting up, pulling, and counting stock a breeze. If you hire someone to do this, make sure you have an internal team involved. This is hard work and people need to remember "the suck" of doing it so the system stays neatly organized.

Step 2- Turn on MRP- for everything.

This is a huge deal. Surprisingly, a lot of the people we speak to don't understand how MRP works and we hear a lot of people say they don't use MRP for non-stock items. Here's the deal, you'll NEVER EAT FROM THE PANTRY if you don't have SAP check inventory before you buy it. Nonstock IS an inventory strategy to be used for items we plan to consume well in advance or we know local vendors keep on their shelves.

PRO TIP: the only materials that don't have MRP turned on in the MRO world are obsolete materials and those we don't want to order. You SAP folks out there should use PD "Plan on Demand" for all items you don't want to stock. Reach out to me if you want to debate the point.

Step 3- Make sure your critical equipment has a BOM, Maintenance Plan(s), and Task Lists with parts added to them.

I like to keep MRO simple. I know this is going to trigger some of the more experienced folks reading this, but let's keep this simple for the sake of this article. The point of this section is all about forecasting and demand planning. Let's break this down into 2 sections: Planned Work and Unplanned Work.

Planned Work is all work I have time to plan. This is where I can trim inventory and order "On Demand". See the PD comment in the "Turn on MRP- for everything" section above. Examples of items that fall into this category are:

Low impact items that are kept on the vendors shelves.

Items that we use on Preventive Maintenance Plans

Other items that we have capacity to wait for delivery.

I'll get into this in other articles, but this is the baseline for category management and forecasting. In my industry days, this is how we forecasted our PM programs, set up Outline Agreements to lock in bulk buying power, and turned on auto PO's. This is the magic sauce.

Unplanned Work drives what we should be stocking. Anything that we can't wait for needs to be on our shelves, and depending on how critical it is, counted and preserved to ensure we have what we need when we need it. Examples include electric motors that have preservation plans to turn the shaft to keep the bearings from flattening.

PRO TIP: THE BETTER YOU PLAN, THE LESS INVENTORY YOU NEED TO HOLD. I'm not saying you don't need inventory, but I am saying (in my best Texan accent) if you suck at planning, you better be damn good at counting parts.

Step 4- Run MRP every Day (We did it multiple times a day)

It amazes me to hear people say they only run MRP once a week. MRP is your ERP's secret weapon. Not running it daily is like keeping your star player out of the game because you're afraid he or she is going to get hurt. Once you trust your inventory, MRP will keep you in line and signal buyers to act when things are needed. Now the trick is to identify what needs to be ordered first. Read on, my friend. This is where it gets good.

Step 5- Manage by MRP Exception

If you're a SAP user and you're still reading this, thank you. Hopefully this will make up for listening to me preach for the last 10 minutes.

I meet people, weekly, who have been running SAP for years and have never heard of the "Stock Requirements List" Tile (S/4) or MD04 Tcode (ECC). If that's you, stop right now, launch SAP and find it. If you don't have access to it, call IT and get it. IT IS THE REASON WE DO ALL OF THIS WORK.

Now open it up, type a material in and look at the exception column. If you have a number, that's an MRP exception. SAP is telling you that you need to do something to balance supply and demand. If you open the match code box and look at the exceptions, you'll notice there's a bunch of them built into SAP.

PRO TIP: There's a method to the madness. I won't go into them here, but this tool is exactly what drives priority for planners, buyers, warehouse folks and more. MRP Exceptions are the best thing that ever happened to Supply Chain.

Step 6- Follow the Priority Matrix when allocating parts to competing work orders

Now that you're planning your work and using MRP, you're inevitably going to run into the issue of 2 people needing the same part and only having one of them. What do you do in this instance? The answer is NOT "First Come, First Served". This is where you ask your reliability or operations team for the company's "Risk Matrix" and start asking questions around how not having this part will affect the company's People, Environment, Production and Reputation. The one with the bigger impact ALWAYS wins. Operations is a Team Sport, and having a clearly defined Risk Matrix is essential to success.

PRO TIP: These scenarios are essential to optimizing and categorizing inventory. In the example above, if both work orders have the same high impact to the risk matrix, it might be time to make a stocking decision. I'll cover my views on this one in another article too! If you're not sure what I'm talking about when I say "Risk Matrix", google "3x3 Risk Matrix". I'm shocked how many supply chain folks don't realize their organizations have one.

Step 7- Categorize your inventory

I added this last because it's an evergreen process. Inventory needs fluctuate with the needs of the business. It's important to review inventory levels constantly through an objective lens using real data, not emotions, to drive decisions. For example, items that are used solely on high priority corrective maintenance work orders should be stocked and reviewed to ensure we're not holding too much (or not enough). After all, as we drive failures out of our business the need for these spares should diminish as well. As they do, we reduce the reorder points and consume the surplus over time. Just like my mentor Jenny always said, "It's time to eat from the pantry."

No truer words have ever been said. Now let's go change the world.