Slow-moving parts percentage
What is slow-moving parts percentage and how to use itDownload your guide to using maintenance metrics
What is slow-moving parts percentage?
Slow-moving parts percentage helps pinpoint inventory items that are rarely used or are too old to be used for repairs or replacements. A slow-moving part is any piece of inventory that sits in your storeroom for an extended period with little to no usage. An obsolete part is one that can no longer be used because its age makes it deficient or unable to fit with new equipment. Measuring this metric allows you to manage inventory more effectively so you can act faster and plan better.
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How is it measured?
Slow-moving parts percentage is calculated by multiplying the total number of slow-moving parts by 100 and dividing the result by the total number of spare parts. A world-class slow-moving and obsolete parts percentage is 10%.
Slow-moving parts can be difficult to define as each facility will have a different idea of what is slow or not. Typically, slow-moving parts are parts that cost more to store and maintain between uses than if they were ordered only when needed.
How do I use slow-moving parts percentage?
You can use slow-moving parts percentage to plan and spend more efficiently. Identifying slow-moving parts means you can make better decisions on whether it is more cost-effective to spend money on ordering, storing, and maintaining these parts, or to order them on-demand. Keeping track of obsolete parts percentage allows you to see where you can order fewer parts, and also which parts can be sold as surplus.
How to identify slow-moving parts
Variables that can be analyzed to identify a slow-moving part include cost, quantity on hand, usage, and safety stock levels. A good way to track these is to implement an inventory reporting process. If you have never run a slow-moving parts report for a part before, get a benchmark by starting with the usage history since the part was first purchased.
Once you have identified historical slow-moving parts in your inventory, you can start running the report each time you perform your inventory check to identify new slow-moving parts. Getting rid of these slow-moving parts will help streamline your inventory, cut storage costs, and release tied up capital.
Benefits of removing slow-moving parts
Getting rid of slow-moving and obsolete parts inventory can generate immediate and ongoing benefits, including:
- More warehouse space – Reducing unproductive inventory frees up floor area that can be instead used to accommodate higher value activities, like putting in another production line, quality control station, etc.
- Lower carrying costs – Eliminating slow-moving inventory means reducing the risk of parts becoming outdated or obsolete, and cuts down on the amount of hoarding and mess. Reducing the value of inventory also lowers taxes and insurance premiums.
- Increased working capital – The money saved by lowering the amount of unneeded parts can be allocated towards other purchases such as equipment or software upgrades, modernization, and other investments in efficiency and productivity.
- Improved cash flow/revenue – The business can return new, unused parts to vendors for credit or realize significant cash flow by selling them to another company.
Strategies for reducing slow-moving inventory
Most organizations have a significant financial investment in spare parts maintenance, repairs, and operations storeroom inventory. Yet, only a small portion of that investment is used on an annual basis. The remaining share of the inventory consists of excess active inventory, and inactive items.
Inactive items can be further segmented into critical spares and, slow-moving and obsolete materials. Critical spares are items essential for the business to run. Stocking out would significantly impact production quality, safety, or costs.
Slow-moving inventory includes parts with long lead times, parts which might affect plant efficiency, recommended spare parts for a piece of equipment, or "emotional" inventory (i.e. Parts that are kept to satisfy risk aversion). They tend to be used only once a year or less. However, regardless of the intention, many of these parts could be ordered on demand as needed vs being in constant stock.
To determine how much spare parts inventory you need to support production equipment, there are three common strategies.
Understand the expected demand for those parts
Most decisions are made based on past inventory use. This approach works well if you are replenishing existing inventory or forecasting short-term needs. Most organizations only use 8% to 10% of their spare parts inventory on an annual basis. If you are pursuing a lean spare parts inventory program, you need to understand how many months or years of inventory you currently have and what your target goal or leading indicator is for your inventory investment.
Proactively plan and schedule maintenance
A structured work management program that proactively monitors equipment repair history and the mean time between repairs for production equipment enables repair work to be planned and scheduled ahead of time versus being in a reactive maintenance environment.
If the maintenance planner can forecast the demand for parts three to six months out, many of the stocking levels can be reduced or revised to a nonstock item.
Review stocking levels annually
Any modification of production equipment and changes in the demand for production output will have an impact on stocking levels. Some parts may be in greater need than others, depending on the factors. A structured management-of-change process will help identify changes in demand for these spare parts. This then provides information that can be used by the storeroom to adjust the minimum/maximum reorder points for preventing overstocking.