Oracle E-Business (R12) Min-Max Planning for MRO item using

Automatic Sourcing

Satya Mahanti

UTI

Introduction — Oracle Inventory provides basic inventory planning—Min–Max planning,

and Reorder Point planning, though it is not nearly as robust as the functionality
provided in Oracle Demand Planning. Min Max Planning is a two bin replenishment
method where when one bin is emptied or stock levels falls the below minimum level it
will replenished to maximum stock. Min-Max methods are evaluated from the viewpoint
of a non-manufacturing environment.

While most manufacturers invest significant time, energy and resources into an
Enterprise Asset Management strategy, Maintenance, Repair and Operating inventories
(MRO), have for the most part, remained misunderstood and mismanaged portion of a
company’s asset base. In fact, there exists enormous potential for establishing a
competitive advantage by optimizing purchasing and management of MRO inventories.

Maintenance, repair and operating (MRO) inventory are a crucial part of any business,
comprising a major portion of the annual budget. However, it frequently is an area
where inventory management best practices are ignored. Significant cost reductions
and improved performance can be achieved in MRO inventory with minimal investment
by applying basic principles.

Effective management of MRO inventory is challenging and complex. Traditionally, the

management of MRO inventory has resolved around manual and subjective ordering
based on flawed historical information. The inferior plant fill rates experienced by the
majority of manufacturing companies are evidence of this vulnerability. Twenty-two
percentage of time maintenance personnel are unable to respond to equipment
breakdown due to stock outs in MRO inventory.

MRO inventory definitions can be varied depending on your point of view or type of
business. For the purpose of this paper, MRO takes on the more conventional definition
of Maintenance, Repair, and Operations characterized as a class of parts and materials
purchased by a business to adequately stock inventory levels in support of its internal
requirements. The accounting world views MRO as “indirect material”, whereas “direct
material” actually part of the finished product. At the core, MRO is about effectively
managing spare parts inventory availability of critical production, facilities, and fleet
equipment that business depend upon daily. The challenge is keeping just enough
material on the shelf to maintain high level of equipment availability, uptime, and service
management while not breaking the cash flow. The straightforward solution to
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maintaining equipment uptime is to simply maintain more parts in inventory. That way,
whatever the service level requirement may be, you have the inventory on hand –
whether you need it or not. But keeping stockrooms filled with excessive amount of
spare parts comes with real cost to the business. Money tend to rapidly get ties up
inside the stockroom with unnecessary purchased, shelves filled with infrequently used
parts, and there’s that dead inventory that never gets used but the carrying cost live on.
MRO inventory can have a powerful impact on what the bottom line of business might
look. But properly managed, it can also create significant value through efficiency and
competiveness for entire organization. MRO Inventory is defined as supplies consumed
during production that do not part that do not become part of the finished good. This
includes items such as repair components, office supplies, cutting fluids, lubricants and
tooling. It also consists of more mundane items, such as cleaning, maintenance and
safety supplies, as well as any furniture and other commodities not directly ties to a
product or services.

Unfortunately, MRO supplies often are not perceived as an inventory responsibility.

Consequently, they may not be handled with the rigor and attention that they should. In
many companies, there is no direct accountability for MRO inventory- unless (or until)
there is a stock out. While MRO inventory accounts for a tremendous amount of cash
outlay, the items may sit exposed without identifier, locator, or usage history. The field
is ripe for added controls and more efficient handling methods.

For many years, companies have struggled to find the magic number for their inventory
levels. Any level for an item seems to be an unsatisfactory compromise. The classic
conflict can be represented as follows:

In this document we will describe Oracle e-Business Min-Max planning process and
auto souring rule for managing MRO items.

MRO Inventory versus other Inventory — Traditional inventory management comprises of raw
materials, component parts, work in process and finished goods. When optimized, there is neither an
excess nor a shortfall regarding current production needs and contingencies. Traditional Inventory is
counted via cycle counting using ABC analysis and tracked as moves through warehouses or work-in-
process locations. Sophisticated tools enable timely replenishment, such as enterprise resources
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planning systems, material requirements planning systems, and kanban. Bills of material are carefully
kept and maintained, detailing the amount and cost of inventory on end products.

However, these practices rarely apply to MRO inventory, and it’s infrequent that it’s measured in terms of
on-hand, turns, obsolescence, or usage. Because MRO supplies are essential for maintenance or repair,
they often are bought at the last minute, ignoring price in favor of availability. And, because immediate
buys stem from poor planning, expedited freight charges become a factor, as well. Another consideration
is the cost of unplanned downtime when an MRO item is known to exists somewhere in the facility but is
unable to located. Additionally, MRO inventory turns less than once per year and its request-to-fill rate
generally is less than 80 percent.

It’s not unheard of to encounter a manager complaining about equipment downtime while maintenance
employees sit in negotiations with vendors. There is a common perception that maintenance and facilities
professionals know exactly what is needed and can get it quickly. However, they are burdened enough
with keeping facilities and equipment running. Additionally, these workers usually are highly paid, and
requiring them to perform materials management instead of repairs and preventive maintenance is not
the best use of time and resources. The people best suited for negotiating with suppliers and materials
and purchasing personnel

Unfortunately, some individuals have been known to keep private inventory stashes to ensure they
always have the right supplies. These items might be stored in tool boxes, shelves, or closet around the
facility. This approach is associated with lot of hidden cost, including expedited freight, missing supplies,
and carrying excess inventory.

Finally, large quantities of MRO inventory often have to be thrown away simply because the equipment
for which they were originally purchased no longer exists. Or, even more commonly, no one remembers
why the items were bought in the first place. Depending upon uses and it’s uses MRO Inventory like any
other Inventory item can be classified as follows:

 Operating Inventory
 Excess Inventory
 Inactive Inventory
 Obsolete Inventory
 Scrap

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 MRO Inventory Classification

Solution for MRO Inventory — 

The solution to these issues is the same as what it takes to manage raw, Work-In-Process, and finished
inventory. The first step is to understand the cost of MRO inventory.

Here is a more common example that can illustrate these costs. Light bulbs are vital to the operation of
every business, be it manufacturing, health care, assembly, or retail. Consider the following question:
How much does each bulb cost? How many does the facility keep in stock? Are they right ones? What is
the cost to purchase individual bulbs versus in bulk? What is the effect of replacing one bulb at time
versus maintaining an inventory and scheduling regular replacements so as not to disrupt normal
operations? One you know the answers to these questions, you can recognize the total costs and begin
to more effectively manage MRO inventory.

The next step is to adopt some inventory management best practices. When considering location, for
example, one option is to consolidate all MRO supplies into one central location per facility instead
various unidentified locations. Another is to move the inventory to a supplier-controlled consignment site.
We can consider vendor-managed inventory (VMI). This enables the company to focus on its business
and let someone else worry about MRO items. It also free up maintenance personnel for actual
maintenance and repair work.

The last step is to build accurate MRO data. For this as a planner need to consider and understand
following facts:

 Demand
 Supply
 Transaction History
 Business Life cycle phase
 Operating Inventory to do our business efficiently
 Impact analysis of excess inventory
 Accuracy of inventory data

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Inventory Management and Optimization — Success of inventory management depends upon
balancing supply with demand using our transaction history/volume and life cycle of business. In order to
do this we need to answer following four questions.

 Inventory Planning and Control is based upon balancing supply with demand. In order to understand both
supply and demand planner needs to evaluate following four basic questions.

Planing

Identify Supply and Demand

 What to Order/Purchase.
Identify Time of Demand and Supply
 When to Order/Purchase.
Quantify both Demand and Supply
 How much to Order/Purchase.

Execution

Actual Execution and control

 When to schedule Delivery/Schedule Receive to Inventory.

As we observed, each question is having two components. One is supply and other one is demand.

Failure to understand Demand, Long Lead time and Inability to respond to customer order leads to
Supply and Demand imbalance.

Following diagram from APICS, explain Manufacturing planning and Control (MPC). Even though MRO
items are not part of end item still to manage our MRO item, we need to consider understand it’s
important to our manufacturing environment by following principle of MPC.

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Inventory management decision can be overwhelming when determining how much and which inventory
should be replenished, how much safety stock should be kept, which parts should be purchased in batch,
how inventory should be classified, and what considerations need to be made for older equipment
because replacement parts are scare or possibly discontinued. Chances are that as an MRO inventory
manager, your management team is constantly looking to you to improve financial and operational
performance year over year through:

 Reduce Inventory
 Lowered inventory cost
 Improved availability of parts
 Reduce annual spend
 Shortened time to repairs

The challenge for inventory managers is achieving the right balances of spare parts inventory.

There are many factors involved in making sound decision about MRO inventory that are based on
individual company business goal and objectives

To better manage our MRO item, we need to reduce waste, reduce lead time in procure process and
overall planning process of MRO item, engage Local supplier to reduce inventory carrying cost and
collaborate with suppliers. All inventories planning software helps to achieve our objective and Oracle
EBS R12 is not an exception. To demonstrate all above principle of Lean manufacturing for MRO item
and along with basic principle of having optimal inventory by balancing supply with demand, we will use
old school Oracle R12 e-Business Min-Max planning program for remaining part of this document.

Min-Max planning is based upon follow facts:

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  It is a visual planning system
 Do not consider lead time. Inventory Planner determines Min Quantity based upon consumption
rate. System does not consider lead time.
 Minimum and maximum levels must be maintained manually by the users.
 Max involves a few factors, primarily efficient storage and efficient buying
 Different Order Quantity, based upon current inventory level.

R12 Min-Max Planning for MRO Item - You can use min–max planning to maintain inventory
levels for all of your items or selected items. With min–max planning, you specify minimum and maximum
inventory levels for your items. When the inventory level for an item (on–hand quantities plus quantities
on order) drops below the minimum, Oracle Inventory suggests a new purchase requisition, internal
requisition, move order, or job to bring the balance back up to the maximum.

Oracle Inventory performs min–max planning for your items at either the organization level or the sub
inventory level. Sub inventory level planning cannot generate jobs and does not consider WIP jobs as
supply or WIP components as demand.

TIMING OF ORDERS

Inventory Level < Minimum Quantity

QUANTITY OF ORDERS

Order quantity = Maximum Qty – Inventory Level

Performed by running the Min-Max Planning report.

Can perform at 2 levels:

 Organization
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  Sub inventory

Sub inventory level planning cannot generate jobs and does not consider WIP jobs as supply or
WIP components as demand.

The main goal of Oracle R12 Min-Max planning process is to balance supply with demand like any other
inventory planning process. As we discussed it earlier, it is based upon four questions. Now we will briefly
discuss about these four question with respective to R12 Min-Max planning.

Planning

What is our supply? It means Source of Supply. This is controlled by following input parameters to Min-
Max planning report.

What is our demand? It means Origin of Demand. This is controlled by following input parameters to
Min-Max planning report.

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Identify Time of Supply. This is controlled by following input parameters to Min-Max planning report.

Identify Time of Demand. This is controlled by following input parameter to Min-Max planning report.

Quantify both Demand and Supply. This is done by execution of the report. It produces a report
with all detail about Supply and Demand.

But it does not give us detail about detail about Demand and Source. Use can view this report and
without executing actual plan. This is controlled by following parameter.

Execution

Actual Execution and control

 When to schedule Delivery/Schedule Receive to Inventory.

This is done by using following steps:

 Run Min-Max Planning report with Restock parameter value as Yes.

 Run Oracle Requisition Import.

 Create Purchase Order using Oracle standard process.
 Receiving Item

As we discussed earlier, execution of Min-Max planning for MRO item in Oracle R12 is done by multiple
and manual intensive steps. As per lean manufacturing all these manual processes can be termed as
waste. Oracle sourcing will help us reduce some of these wastes by streamlining our procure-to-pay

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cycle. But still overall planning and execution phase for min-max planning takes lot of time. Following
diagram illustrate over all MRO planning and execution using Oracle standard Min-Max planning process.

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With evolve of lean manufacturing planner is having additional challenge to manage MRO item to
meet company objective.

Challenge for R12 Min-Max Planning for MRO Item due to Lean Manufacturing Environment

 Reduction of Waste
 Excess Capacity
 Lead Time
 Engaging Local Supplier
 Collaboration with Supplier

As part of this challenge we are using Oracle R12 e-Business suite sourcing in procurement and Oracle
standard min-max planning process to meet above requirement of modern Lean Manufacturing
Environment.

Oracle Purchasing provides a mechanism to automatically source your requisitions and purchase orders
to appropriate agreements, which exist with different suppliers.

The business needs of Sourcing are

 Automatically default supplier and pricing information onto requisition lines

- Sourcing Rules
- Approved Supplier list
- Automatic Document Sourcing
 Source the item from negotiated purchase agreements
 Reduce manual intervention
As you see in following diagram, Oracle Procure to Pay, consists of three distinct segments (as shown in
diagram with three distinct color)

 Collaboration/Engaging Local Supplier - is represented by Green color.

 Reducing time and Lead time by eliminating manual process and document - is represented by
Yellow color.
 Measuring relationship with supplier and taking corrective action by using transaction and oracle
reports to establish long term relationship is represented by blue color.

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For more information please refer following.
1) How To Diagnose Issues With Approved Supplier List And Sourcing Rules In Purchasing (Doc ID 557825.1).

2) ASL Sourcing to Requisitions Setup and Usage Guide (Doc ID 175935.1).

3) Oracle Purchasing Integration with Oracle Advanced Pricing – Release 11.5.10 - An Oracle White Paper (Doc ID
394490.1).

4) ASL-Sourcing in Procurement - An Oracle White Paper (Doc ID 285470.1).

5) FAQ: Using Advanced Pricing in Purchase Orders and Requisitions (Doc ID 357657.1)

6) Oracle Advanced Pricing User‟s Guide Release 11i Part No. A90830-04

Business Challenge to use Oracle Min-Max Planning for MRO Item –

Business Problem 1

We use Min Max planning for Inventory Replenishment. Some of my parts have long lead times
varying from 4 weeks to 8 weeks, while others have short lead times varying from 1 to 2 weeks. I
find that I’m sometimes out of stock on the parts with high lead time, while I’m carrying too much
inventory of the parts with low lead time. How do I optimize my replenishment?

For more information please refer following (1370683.1):

ADVISOR WEBCAST RECORDING Optimizing Inventory Replenishment for MRO Items November 1, 2011

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Business Solution using Oracle Standard Process

As part of this need we can create different category for different lead time and run Oracle Min-Max
planning report.

• Min Max Parameters

 Demand Cut Off Date
 Item
 Category
 Planner
 Buyer
• Use ‘Category’ to represent items with different lead times
 High > 6 weeks
 Medium – 2 to 6 weeks
 Low < 2 weeks
• Run Min-Max with different demand cut off dates for different categories

Business Challenge – It is still involves lot of manual judgments (Waste).

More Business Challenges

This is a sample of Oracle standard Min-Max planning output. But above output by Oracle standard
Min-Max planning process does not address following business Challenges.

• How do we find source of demand and Supply for min-Max item?

• How do we find past historical demand of the item?
• How do we provide manufacturer information to Buyer?
• How do we get supplier pricing information for min-max item?
• How do we change min-max order quantity?
• Can we submit a small set of item instead of all items suggested by Min-Max planning?
• What will take to get 360 view of min-max item?
o Pricing
o Supplier
o Byer
o Planner
o Location
o Inventory/PO category
o And many more
In order to address above business challenges, we do navigate to multiple Oracle standard user
interfaces and multiple reports. After doing all our analysis, we do execute our plan using Min-Max
planning report with Restock parameter as “Yes”. All these manual processes are not part of our

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manufacturing/buying lead time. So as per Lean manufacturing, this can be termed as waste.
Following diagram illustrate the overall Min-Max planning for MRO item.

Min-Max Planning Customer Perspective (Technical) – Oracle Standard Min-Max Report

populates inv_min_max_temp table with all data to produce report and create Requisition interface for
further processing. Using this information we developed a User Interface to provide 360 view of data and
do all Min-Max planning/execution related tasks from one place instead of navigating to multiple Oracle
User Interface (user screen in multiple responsibilities) and executing different reports under multiple
applications/responsibilities.

1. Used Oracle standard method/process to build inv_min_max_temp table using oracle standard
input.
2. Derive 360 views (both inventory and purchasing) of Item in inv_min_max_temp table.
3. Build a user interface (UI) using OAF (Oracle Application Frame Work) to present 360 view of
Item.
4. Allow user to submit Requisition Import from work bench to reduce execution time and simplified
process by integrating both Oracle standard Min-Max and Requisition Import in one place.
5. Allow users to change/modify/ delete/Select all or part of Min-Max item in work bench without
compromising oracle standard functionality.
6. Allow user to use one Work Bench result for execution of multiple plan and hence reduce overall
planning and processing time.
7. Allow user to see both purchasing (ASL/Sourcing etc.) and inventory related setup data in one
place.
8. Provide information useful to Buyer and Planner in one work bench to effectively do planning and
buying activities and hence improve collaboration, consolidation and reducing duplicate tasks
perform by both buyer and planner.
9. Developed user interface using oracle R12 e-Business supported tools and platform and hence
took advantage of all personalization and extension.

Min-Max Planning Customer Perspective (Functional) –

1. 360 View of Min-Max Item data in one place with hyper-link to get more detail about summary
data.

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 2. Allow user to select all or any item based upon their need. They do not have to execute
multiple Min-Max planning report.
3. Allow user to change requested quantity after submitting their plan request before creating
requisition from this work bench. User does not need to change Min-Max setup to achieve
this result.
4. Provide information about ASL and sourcing about Min-Max item.
5. Indicate cost of this item – Help user to analyze data for more expensive and least use item
properly.
6. Allow user to see detail about supply and demand with in requested time frame.
7. User can use this data for about a week and it is based upon their preference. Any change in
supply and demand data will be shown in this screen at the time of use.
8. User can see all related information in one place.

9. User can see or down load historical uses along with all data in this screen into excel spread
sheet for further analysis. After their analysis, they can come back to their work bench for
further action instead of running this Min-Max planning report more than one time to get
same result.
10. User can select Manufacture/ Manufacture part number and any note to buyer. This will
appear in requisition.
11. User can select requester in this work bench and will appear in requisition. Hence it allows
Buyer and planner to have same view of data before creating requisition.

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 12. Allow user to provide manufacturer and its part number for non-SLA item as default supplier
information in requisition. For item with SLA, this additional information will appear as note to
buyer.
13. Detail about supply and demand is available from this work bench and can be downloaded to
excel spread sheet along with all other 360 view of item.
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 14. Requisition import and all oracle standard grouping will be done from this work bench. We do
not need to run Requisition Import concurrent job.

15. Any change in data due to change in supply and demand will be real time and any change
will mark these result as stale data and prevent user to do any further change. It helps us to
maintain data integrity and accuracy.

16. Detail about supply and demand will be visible from this work bench.
17. The screen was developed using OAF and hence can be personalized and extended using
Oracle R12 standard process.
18. It helps user to reduce complexity in Oracle standard Min-Max process by eliminating
manual processes, increase flexibility by providing (360 view) detail about Min-Max item,
reduce buying time by integrating ASL and sourcing data associated with Min-Max item and
provide reliable real time supply and demand information for Min-Max item for better
planning and execution by both planner and buyer. It helps planner to planning of Inventory
rather than focusing on how to build the result. It helps buyer to focus on negotiation and
building long term relationship with supplier instead of finding out from planner regarding
need of this item and hence reduce communication, conflict and increase efficiency and
reliability. Both buyer and planner can work on this workbench and help each other to meet
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 company goal to have optimal inventory and reduce the cost. The following diagram
represent more simplified, robust, reliable and effective Min-Max planning process integrated
with oracle ASL/sourcing.

Conclusion —  When performed well, an MRO management initiative can reduce maintenance spending
by as much as 25 percent.

Incredible, MRO inventory control can realize a saving of 25 percent without reducing personnel levels.
Add to that the benefits of higher maintenance productivity; lower indirect spend from sourcing,
negotiation and producing inventory; less overall and unplanned downtime from shortage; not purchasing
items that are already on-site; and the improved housekeeping and safety that comes from proper
storage, identification and tracking.

Getting a handle on MRO inventory not only meets the goal of productivity, capacity, safety and quality.

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