Inventory Optimization for Measuring and Test Equipment (Part I): Defining the Problem

September 26, 2016

Inventory Optimization for Measuring and Test Equipment (Part I): Defining the Problem

This is the first in a series of blog posts that documents the journey of a large electric utility in its quest to optimizing its extensive inventory of measuring and test equipment (M&TE).

Whether you are an aficionado of the Theory of Constraints, LEAN, some other formal process improvement methodology, or just based on your own practical experience, you know that properly dealing with inventory is one of the keys to improving effectiveness.

When we think of inventory, we often focus on the raw materials and supplies needed to support a manufacturing process or the service we provide. While these are certainly a type of inventory that needs to be addressed, there is another type of inventory that must also be considered.

This other inventory is the inventory of facilities, equipment, and tools we use to produce the product or service we offer. This second inventory, due to not being seen as a process consumable, is often overlooked when dealing with the inventory issue. Ironically however, this second category of inventory may have as big if not a bigger impact on operational effectiveness.

The reason is two fold: First, if not maintained in sufficient quantities it can directly impact the ability to produce a product or service. Second, this type inventory represents not only the “inventory” waste as defined by LEAN it also can also involve the “over production” waste. There is not only the challenge with managing the cost and stock level of this type of inventory, but this second type of inventory often requires daily care and feeding. If there is excess inventory it means you are expending production resources to maintain this unnecessary inventory. A simple illustration is machines on a production line. If you do not have enough of those machines you may not be able to meet your production goals. However, if you have an excess of those machines, you are not only incurring the acquisition cost but also the on-going maintenance cost for a piece of equipment that is not being used.

This particular story is about this second type of inventory. It involves measuring and test equipment (M&TE) that is used to support the production of electricity via nuclear power plants. While in the nuclear industry the control of M&TE is specifically mandated by Title10, Part 50, Appendix B of the Code of Federal Regulation, other industries have similar regulatory requirements, or just a recognized commercial need to have accurate M&TE to ensure quality standards. Whatever the basis for the M&TE program, it involves inventory costs.

Opioid Stewardship

As the nuclear power industry faces competition from solar, wind, and low-cost gas production facilities, the need to reduce cost in all areas has become a necessity. The cost of its mandated M&TE program is just one area that has to be examined.

As with all inventory issues, the question is, how much M&TE inventory do we need to have on hand to ensure we can safely and reliably maintain the nuclear facilities without incurring excess cost? For M&TE this cost is not only the cost of buying and storing the equipment, but also with supporting the required periodic calibration of that equipment.

The problem definition thus became, “How do we determine the right level of M&TE to maintain and support?” As all M&TE used to support nuclear power plants is required to be uniquely identified and calibrated as specified at intervals, answering the question of how much current inventory was on hand was fairly easy. We quickly determine we had just shy of 17,000 total items in inventory. This inventory represented over 2,000 difference models of equipment that was being maintained in support of 6 operating nuclear facilities.

The hard part was determining the correct inventory levels for each of the 2,000 models needed to support both normal operations and peak demand during periodic maintenance and refueling outages at each of the 6 facilities. After unsuccessfully trying to “mine” and manipulate the data from our database we realized we were going to need additional resources.

Part II of this blog will share how we went about defining the resources needed to assist us, and the process of selecting the right vendor to support our needs.

About the Author
Dean Williams is a graduate of the United States Merchant Marine Academy at Kings Point with 40+ years of experience in a variety of industries and positions. Dean’s passion is process improvement, which he brings to all of his activities, whether as the manager of a large electric utility calibration lab, industry representative on various committees and boards, or as a process improvement consultant.

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