No Part Left Behind: 4 Simple Rules for Efficient Inventory Management
Bryan Christiansen, Founder and CEO of Limble CMMS
Managing your inventory levels correctly can mean the difference between machinery that has broken down and is slowing down the assembly line or a smoothly running machine that is boosting productivity.
In today’s competitive industry, no company can afford downtimes and delays in production due to missing parts. With increased competition, companies depend on their supply chain to be leaner, healthier and faster than the competition.
The thing to remember about inventory control is that it’s about striking a balance between too much stock and too little. If you have too many tools and spare parts on hand, you’re wasting company funds that could be better utilized elsewhere.
The only way to compete in the market today is to have just the right stock levels to meet demand, but not much more.
4 Simple Rules for Efficient Inventory Management
RULE 1: NOTHING IS ISSUED WITHOUT A WORK ORDER
The solution is not that difficult. The inventory control program is only as good as the inventory control process that is implemented by the stock manager. If enforcement of policies is lax, it will result in a gap between the actual inventory situation on the ground and the inventory showing up in the system. If you look at an average business that requires parts, equipment and tools to be kept in stock, it likely has a computerized maintenance management system (CMMS) with an inventory module. The inventory management module usually comes standard with any CMMS, but it is often underutilized. The main reason for this isn’t the difficulty in using the system, but rather technicians trying to save time in the short term by keeping parts outside the system or not returning tools for weeks.
An effective inventory control system has to provide the location, availability and purpose of every item in stock. If the business ensures the procedures for the receipt and issuance of all tools, parts and products are entered promptly, the figures of availability will be accurate.
A major headache for inventory managers is that once a piece of equipment becomes obsolete and is removed from service, the spare parts to support that equipment remain unused in stock because no one bothers to remove them. This issue also can be resolved by ensuring entry in the CMMS is performed religiously for every issuance and return. Doing so will allow you to get rid of surplus parts that are no longer useful and free up valuable storage space.
RULE 2: HAVE ENOUGH STOCK TO SERVICE DEMAND
In today’s market, e-commerce giants like Amazon and Alibaba have raised the bar for customer service and logistics. Similarly, stores and inventory managers have internal customers who are more demanding and require faster service and support for their equipment than ever before.
Whether you’re dealing with IT equipment or heavy machinery spares, your stock levels need to be up to the mark to allow your internal customers to succeed. For business owners or inventory managers, getting the supply chain right is critical to keeping your business running smoothly. The key to getting it right is knowing exactly how much inventory you have at all times and this is only achieved by ensuring inventory management processes are followed.
Knowing how much inventory to keep requires an ongoing analysis. A good maintenance management software will automatically send notifications when part levels are below custom set thresholds. This way, you immediately know when you are low on critical parts. If you know exactly how much of each item you have, when quantity levels get low, you can reorder more with enough lead time to prevent back orders. Tracking the consumption of parts, noting seasonal trends and forecasting demand all rely on accurate data being entered into the inventory control system.
RULE 3: DON’T OVERSTOCK
Sometimes, the feedback from other departments that have faced issues with parts being out of stock leads to the inventory manager overstocking an item, causing issues related to excess stock. Excess stock means you need more warehousing space, which is expensive. It also means a pinched cash flow that makes doing business more difficult and riskier.
Overstocking can even occur from failure to predict a drop in demand for a particular part. Challenges linked to overstocking include the equipment being rendered obsolete, the threat of lost or stolen items, degradation of items over time and so on. If a part remains unused and there is no further requirement for that part, the business has a few options to get rid of the excess inventory.
One way is to return the part or equipment to the vendor. This option usually results in a refund or a credit, but not for the full amount originally paid. Other options include liquidating or auctioning off the item, selling it to a competitor or discount store, or donating it to charity after writing it off.
To steer clear of such situations, manage your inventory system effectively to identify demand, minimum and maximum order requirements, and safety stock levels for each item. The CMMS should be able to monitor lead times and prices to make restocking quick and easy. A good CMMS has settings for a stale threshold. If a part is not used within x number of days, a notification will be sent to the manager. That way, if you have a part and you don’t use it in a year, you can then decide if you want to remove it from your inventory.
RULE 4: KNOW YOUR INVENTORY
Often, the biggest issue inventory managers face is not about stock levels, but about knowing inventory levels accurately. Over time, delays in inventory reporting can add up to overstocked and out of stock issues.
Spare parts that aren’t being consumed take up valuable storage space, while high demand parts are not readily available, creating problems for the production facilities. In time, a delay of even a few hours for critical industries, like utilities or factories, can be costly and lead to huge losses.
There are several disadvantages of inaccurate inventory data. They include greater difficulty in detecting and preventing loss and theft, damage to brand and reputation due to work delays, production shutdowns and reliability issues, and ripple effects on other operations, such as sales forecasting.
Even if your inventory levels are perfect when you start out, having gaps in your inventory data will quickly lead to an overstocking or understocking situation. A good way to prevent this is by attaching quick response (QR) coders to each part in the parts warehouse. This helps in performing manual inventory, making it that much easier.
Ideally, you should have just enough inventory to meet demand, given information about trends, season, departmental requirements and availability from vendors.
…The value of the output from the CMMS is directly proportional to the quality of the data entered.
The use of a CMMS is helpful, but only if standard operating procedures (SOPs) are strictly followed. Like any computerized system, the value of the output from the CMMS is directly proportional to the quality of the data entered. The CMMS will help track stock levels, report loss or theft and identify items that urgently need to be replenished.
The best inventory control method is to enforce these four rules to reduce uncertainty and waste. A good inventory control program allows businesses to outperform the competition and excel, while also cutting down on wasted time, energy and resources.