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Rotables: stop going round and round and take control

July 18, 2010

This article is based on a presentation I did at the Mastering SAP PM conference last year.  The organisers of the conference have a rigorous process of SAP user based input to the agenda.  And guess what? Yes rotables are a perennial favourite and are back as a proposed agenda topic for this year’s conference.  Not too surprising I suppose, considering that rotables make up a large value of the spare parts in many industries.  They are also usually items critical to your operations and necessary to guarantee acceptable up-time.   But why does the topic keep popping up and why, as an industry,  are we not taking advantage of improvements in technology to better control rotables.   If you’re reading this and are struggling to define how to improve your rotables process here are some ideas on where to look to identify improvements.  Okay, to start you should look at your rotables process from  three angles: usability, functionality and visibility.   Why? Because if any one of these areas is not up to scratch the entire process will fall over.   For usability the questions you need to ask are who is actually using the system, who (and when) does a rotable get received into the workshop? What does that person have to do to make sure that sufficient information is recorded?  Go and have a look at the process – as it is actually occurring and jot down the information that needs to be recorded.  I suspect that you’ll find that it’s not very much information – it’s getting it into the system timeously and accurately that’s the difficult part.   Okay now select the easiest way for the user to enter this into the system.  Depending on the volume of transactions I’d build an Adobe Interactive form or consider using a digital pen which will record the transaction directly in SAP or other ERP system. What you don’t  want to do is to get the user (or someone else who’s been given a scrappy piece of paper) to log onto a system and work through the transaction. 

This is the form I’d convert to an interactive form or digital pen for direct entry into SAP. Taken from here

Now that we’ve made it easy to capture the item and movement what functionality do we need to deliver to support the back-end processing?  Remember building out this functionality only makes sense if we have very high process compliance and the recording of all movements.  There are 3 groups of users who take an interest in rotables and who need specific functionality to meet requirements. 

The Maintenance or Reliability Engineer, who needs to know what items to maintain the plant with, why they fail, what it costs to fix them and how the operations of the plant can be improved with this knowledge.  This information will mostly be captured on the repair work order, the work order that is created to manage the ‘change-out’ of the rotable item.  This order will link to failure codes, damage codes, MTBF, etc. and allow for analysis of reliability data.

Stores need to have visibility of all rotable items wherever they are, in stores, in operation or at sub-contractors for repairs.  This visibility is only possible if the recording of movements is enforced. Once the process is enforced, and made easy to use the location of each rotable is updated at time of movement and it becomes easy to report on.

A diagram showing the process, specifically the requirement for a repair and a refurbishment order and where ‘split’ valuation of the same item is used.

And finally the accountants need to know what the value of rotable stock is, whether or not the stock is capitalised and depreciated and what is expensed on consumption.  This is often the most contentious area and also the area where we see the most amount of debate without decisions being made.  Now read through this and make those decisions. 

Firstly, will I use moving average cost or will I use standard cost (SAP addresses both options).  Often, during workshops on this, the cost accounts are asked what the company policy is on this and that is then taken as the standard.  The decision has slightly deeper consequences – fundamentally the choice will drive who’s responsible for the cost of repair.  If the same person managing the material is responsible for ensuring that the rotables are repaired to budget then moving average cost needs to be selected as the efficiency of the repair process will be reflected in the cost of the repaired item.  If the maintenance engineer (or some other 3rd party) is responsible for the costs of repair then standard cost is to be selected.  With standard cost under- or over recoveries will be sent to a ‘price variance’ account which can then be managed by the responsible owner.  While it is probably best practice to keep to a single cost method SAP derives this from the material number so both standard and moving average can, if needed, be used across the organisations.

Secondly, with either standard or moving average methods, what should the actual dollar value be of the ‘new’, ‘repaired’ and ‘to-be-repaired’ valuation?   The ‘new’ value is pretty easy; it’s whatever you pay your supplier for the item.  To determine the ‘repaired’ value you need to look at the specification of what a repaired rotable needs to deliver – are the items repaired to good-as-new standard?  If so then the value should be close to the value of a new item. For ‘to-be-repaired’ items the decisions is slightly more difficult since the cost to repair is based on what caused the failure and hence hoe badly damaged the item is.  Generally, and for most items, I’d take the historical repair cost and average this.   Sure some repairs will be more expensive than others but, on average, they should be this  average cost and will be shown when comparing the moving average at the start of the period with the moving average at the end of the period (for standard cost no price variance).  If the moving average is changing or you have a price variance this is then cause to analyse your costs and either accept the moving average or standard variance or work on understanding why it’s costing you more than expected.  The most important point here is that you make a decision, draw a line in the sand, and start transacting against this.  This will be your best bet on the costs and if it’s not right you’ll at least be tracking all the costs and have the insight to improve. 

Thirdly and lastly the vexing issue of depreciation.  At heart is the schizophrenic nature of a rotable – it is both capital and expense item.  When received in stock we need to keep the value in the balance sheet under stock, but when it’s issued to an order the stock value must go down but the item must remain on the balance sheet as a ‘fixed’ asset and start depreciating.  Maintenance spares are usually expensed when issued to a work order.  The decision here is then on where the costs go when the rotable item is issued to a job.  In SAP these items can be settled to an asset and hence depreciated.  I’ve seen a number of solutions built for this part of the process and will be dependant on your local accounting rules, the granularity of your financial assets and the specific requirements of your accounting department.

To improve your rotable process go and find areas where you can improve usability,  value the items the best you can and use standard reports to show you where the items are.  Go, go and do it now.

Cheers,

Duncan

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