Inventory management is the unsung hero of your maintenance operation — there usually isn’t a lot of praise for those who toil with spare parts. But when done right, it can elevate your asset management to the next level while saving your company a huge chunk of change. Today, we’re uncovering all the ways to improve inventory management so you can lower costs and avoid wasting time and money.
Table of contents
What is inventory management?
Inventory management is an attempt to have the right stock, in the right place, at the right time, and at the right cost. The goal is to minimize cost by helping facilities know when to purchase more inventory based on normal usage rates.
The way you define inventory depends on your industry. For a retail store, inventory is the products the store is trying to sell customers, like suits or dresses. When it comes to maintenance, inventory is the parts used to make assets function properly, like motors, bearings, fans or filters. The aim for maintenance teams is to have the right inventory on hand in the right amounts to repair or improve assets, while also considering the space available in their budgets and storerooms.
The cost of poor inventory management
There are many steps involved in managing inventory. Any mistake along the way can mean hefty financial losses. Poor inventory management can lead to higher costs for parts and storage, imbalanced maintenance scheduling, and an increase in stockouts and obsolete inventory.
Inventory management is an attempt to have the right stock, in the right place, at the right time, and at the right cost.
The three main problems of poor inventory management are having too much stock, too little stock, and stock you can’t find. All can cause chaos and damage the bottom line.
It can be all too easy to mismanage and overspend when it comes to purchasing inventory. The typical cost of storing extra parts is between 12% and 20% of the purchase cost. That means if you’re spending $100,000 every year to purchase stock, you can go ahead and add another $12,000 to $20,000 to your budget for storage space and administration. Buying too much inventory makes this problem even worse.
Having too little stock presents a more immediate problem. Imagine a critical piece of production equipment goes down and you don’t have the part needed to repair it. Downtime on that machine just went from a couple of hours to a couple of days or weeks, and the cost of that breakdown skyrocketed. That’s not to mention the extremely high cost of rush shipping or risky stopgap measures technicians often feel they need to employ to keep production on schedule.
This issue is all too common for manufacturers. Of all annual, unscheduled downtime, 50% can be linked to a lack of spare parts, according to a report by the Aberdeen Group. A proper inventory management system ensures critical parts are on-hand, helping to wipe out unplanned downtime, boost production and save you from losing thousands or millions of dollars.
You may have just the right number of parts in your storeroom, but it doesn’t matter if you can’t find them. If you have this problem, you’re not alone. It’s estimated that between 10% and 25% of a technician’s time is spent obtaining parts because they are difficult to find. The inability to track the location of parts reduces wrench time and could increase downtime by an extra few minutes every time there’s a breakdown. This may not seem like a lot, but every minute of downtime costs hundreds or thousands of dollars. If you struggle to find parts two or three times a month, that could mean spending hundreds of thousands of dollars a year on something that could be easily avoided.
7 ways to improve inventory management
Now that you’ve seen what poor inventory management can cost you, let’s take a look at how you can avoid these nightmare scenarios. Each step of the inventory management process can be optimized to reduce waste, redundancies, and inefficiency. Employing even a handful of these strategies can go a long way to improving your inventory management process and saving the maintenance team a lot of headaches and money.
1. Parts tracking
As we outlined above, searching for parts can be a huge waste of time and money. If an hour of unplanned downtime costs $1,000 in lost labour and a technician spends 15 minutes looking for a part in a disorganized storeroom, that’s an extra $250 down the drain. Having an inventory tracking system allows you to keep tabs on stock levels and location. This enables technicians and engineers to see if a part is available without having to physically check the storeroom and exactly where to go to pick it up. Accurate inventory tracking also prevents duplicate ordering, which helps you stay away from costly overstocking.
2. Stock levels
Having the right amount of stock is key. Goldilocks is your role model for this strategy — you should never have too much or too little inventory in your storeroom. Start by determining minimum stock levels. You can do this by identifying necessary parts for production-critical equipment and calculating the average usage of these parts. You can also fine-tune minimum levels and reorder quantities based on supplier lead-time. If done effectively, these strategies can help you employ just-in-time delivery at your facility.
Imagine a critical piece of production equipment goes down and you don’t have the part needed to repair it. . .the cost of that breakdown just skyrocketed.
Once you have established minimum stock levels, you need a way to know when parts fall below those levels and communicate that to logistics personnel. This takes the guesswork out of reordering and reduces the chances of over and understocking. You should also track all purchase orders for inventory. This will help you measure all maintenance-related activities and their financial impact at the end of the year. Having this data will also give you a great baseline to make future decisions on inventory.
4. Managing inventory at multiple locations
Standardized inventory management systems and processes are crucial if your organization has multiple sites. Having the ability to track parts and supplies in various storage locations at numerous facilities gives your technicians a huge advantage. If a supplier is understocked, requires large minimum order quantities, or has slow lead-times, it could mean a big delay in getting critical parts. If you need inventory fast, or if a part is obsolete, it’s usually quicker to ship the part from another site. Having access to resources from multiple sites can save you in this type of emergency, but it relies on good communication and up-to-date data.
5. Eliminate obsolete parts
Obsolete parts can languish in your storeroom for months, taking up space on your shelves and your balance sheet. But this isn’t even the worst of it. If you need a part for a repair and find only obsolete stock, it increases downtime. Tracking the lifecycle of spare parts cuts down on obsolete inventory. Knowing when you purchased parts, how long you’ve had them, and when they become obsolete can minimize the amount of capital tied up in underused materials and avoid costly downtime.
6. Inventory reporting
Building a solid reporting framework for inventory management provides you with all the data to spot trends and make smarter decisions. With this data, you can improve fund allocation, get better at scheduling maintenance, and move toward automating your purchasing. Some useful metrics you can track include the basics, like inventory levels and purchase order history, as well as more advanced numbers, like the value of stock on hand and outstanding purchase orders.
7. A single, integrated system
Having one, complete system to manage your maintenance, including inventory management, has a few key benefits. The first is data accessibility, consistency and quality. With everything in one place, you can track, report, and transfer knowledge with efficiency and accuracy. The second is training. Instead of training separate departments on separate systems, you only need to train the whole organization on one system. Lastly, having one system saves you the cost of buying multiple systems and connecting them. If you manage inventory and preventive maintenance with CMMS software, you don’t need to invest in an expensive ERP system as well.
The bottom line: Inventory management and the bigger picture
Good inventory management often leads to good maintenance. When the right part is in the right location, it enables a technician to do a task as fast and completely as possible. But getting it right takes time, and requires investing in solid processes for everything from purchasing to parts tracking. This takes times, but once you find the right formula, you can keep costs low while ensuring your facility runs smoothly.