Different take on inventory management

Brazilian energy company Petrobras has recently signed a service contract with Metso covering the supply of spare parts and maintenance services for Metso’s valves, actuators and positioners for 11 refineries in Brazil. The contract also includes ’intelligent’ tools for preventive and predictive maintenance planning.

The deal, claims Metso, reflects growing worldwide interest in its inventory management approach, called Valve Management Solution (VMS). Under this, the Finnish supplier takes over the ownership and management of valve systems inventory on behalf of plant operators in industries such as energy, metals and pulp & paper.

Since starting the service about 13 years ago, Metso has secured about 100 VMS clients, all of which are still continuing, even though there are no lock-in clauses in the inventory management contract.

Under the VMS approach, Metso stores the valves, actuators and positioners as components rather than as fixed units, as customers normally do. The approach, it claims, typically reduces inventory by around 50% within a year and delivers a range of significant maintenance benefits.

Customers pay a monthly service fee and a capital fee based on a pre-defined level of inventory under the system. The capital fee can be linked, for example, to a central bank or the company’s own internal interest rate.

When a customer calls in a product, that’s the only time they pay for that. They don’t pay for products that are sitting in inventory, except for the interest on holding that capital

“The customer pays a capital fee based on the size of the inventory,” said Mikko Keto, Metso vice president, services. “They have this capital fee anyway as it is not free for them to hold the stock.

“Whenever a customer calls in a product that’s the only time they pay for that. They don’t pay for products that are sitting in inventory, except for the interest on holding that capital.”

Metso, as owner, holds the components at its production or regional service facilities, and can mix and match components and make the assemblies based on the client’s requirements. These are delivered on demand at pre-agreed prices and response times.

Critical applications

The VMS agreement includes different response times, tailored to the criticality of the application. The classifications range, for example, from: Class A, same-day or express delivery of around four hours, for the most critical items; class B, next-day; class C, four to five working days; and class D, factory delivery.

“We work closely with the customer’s processes, changing how they deal with their inventory and valve repairs. This requires commitment on both sides,” explained Ulla Partanen, director of flow control service solutions within Metso’s automation business

Metso builds up VMS based on the customer’s original situation, which often requires a criticality analysis down to field device level to help set the response times,” she added. “It is a big exercise to carry out a field survey: looking at each valve in the plant, taking the information, etc.”

Partanen went on to cite how one client’s inventory had fallen from Euro450,000 to Euro230,000 within a year of starting the service. The project, she said, started with an analysis of the client’s valve assemblies to establish if there were enough components in the inventory for every valve requirement at the plant. Metso was, thereby, able to build up the assets for each particular requirement, including carrying out some slight modifications for specific applications.

The customer also decided to do a criticality analysis, noted Partanen: “Even though this means more work, it helps tremendously when making preventative and predictive maintenance plans.

“We know exactly the tags we need to target: the most critical valves require predictive maintenance and calendar-based maintenance with more regular checks, visual checks, etc based on the application.”

What surprised both the customer and Metso was that even though they had a large inventory at the start of the project, the coverage for the installed based was only 40%. This meant that they were not able to cover the needs of the installed base, especially if unexpected events happened.

“After the installed-base audit, we had to put new valves, worth Euro20,000, into the Metso-owned stock to reach the 90% target the customer wanted to set,” said Partanen. “The increased coverage cost the customer just Euro200 a month.”

Other manufacturers

At the site, Metso valves represented 30-40% of the installed base, with many generations of valves in the inventory.

“Now we are harmonising the inventory so that we will only have the latest models,” said Partanen. “When we talk about valve replacement, we, of course, quote Metso whenever we can, but it is not in the agreement that they should change to using Metso they can choose other manufacturers.

After about a year, Partanen said that parts holding was down by about 70% of the original inventory. Metso, she noted, was now operating from both old spares and assemblies from the Metso-owned inventory.

The client was able to reduce the maintenance frequency from four to eight months through knowing, exactly, what was installed and what was in the inventory, plus the ability to get critical valves within hours

“The customer also saved on material costs, though that doesn’t go on forever,” the Metso manager continued. “Sooner or later the inventory is used up, but in the first year the company saved Euro200,000 by not having to buy new valves as they were using what they already had, some of them with slight modifications.”

The customer was also able to change the maintenance frequency from four to eight months, through knowing, exactly, what was installed and what was in the inventory, plus the ability to get the critical valves within hours. There were also safety benefits as the valves were in hazardous and difficult-to-access locations.

Moreover, Partanen added that, as prices had been fixed, there was “no need for purchasing transactions, making enquiries, quotations and so on. The customer can just operate with a tag number and that all they need use to order.”