Inventory Management: What’s in Your Storeroom?
Strategic oversight of parts and equipment reduces costs, boosts productivity and efficiency
Ample spare parts, rapid purchase-order processing, critical spare-part determination, standardization of suppliers, high-quality parts, consignment of high-use items, and rapid check out of parts. These are among the most common demands maintenance and engineering managers make on their departments.
They know that to help create a high-performance maintenance organization or world-class maintenance team, technicians must have the parts and supplies to carry out tasks. But throughout their careers, most managers have been unable to dedicate the time and energy needed to maximize the operation of supply rooms and stores.
Few departments have had the opportunity to fully stock all repair parts and stores needed for their operations. Many dream of having this responsibility, but few have had the opportunity to manage and maximize parts and supply storerooms.
Even in organizations that give managers this responsibility, quite often they have been unable to put the required effort and energy into understanding the way the process should function, then to developing management tools and techniques to maximize performance.
Obviously, having such authority lets managers adjust programs faster and more easily. But in either case, maximizing a department’s performance means taking the time to properly manage parts and supplies by measuring supply-room performance and adjusting for continuous improvement.
To get started down the right path, managers need to return to the fundamentals learned through training or experience. If planning and scheduling is critical to the success of a world-class maintenance organization, and if having the proper parts and supplies is critical to carrying out the maintenance plan and schedule, then having a world-class maintenance organization requires a well-managed inventory and procurement program.
What happens if an inventory management system operates poorly?
The first consequence is increased equipment downtime. When the proper parts and supplies are not available from the supply room if technicians need them — or when the emergency purchase of parts and supplies is slow and cumbersome — downtime increases.
The ultimate goal is to have commonly used parts in house most of the time. But when an emergency order is required, the order must be processed easily and quickly. In some cases, the wrong part is stocked. This situation arises from not having proper asset information or from a purchase-order system that does not properly order and receive the part into inventory.
The second consequence of a poorly operated inventory and procurement program is lower maintenance efficiency. One primary function of managing a maintenance organization is improving technician efficiency. A critical step in achieving this goal is having the right parts or supplies available for technicians who must make unplanned trips to the supply room.
This point is especially important as the maintenance planner plans and schedules maintenance work. When planners are preparing work orders for technicians’ work schedules, their job will be faster, simpler and more complete if they can rely on parts availability from the supply room, rather than having to work with the purchase order or procurement side of the business.
The third consequence is poor component quality. When systems are not in place to ensure the right parts are ordered and stocked, problems occur because technicians check out parts for repairs for which the parts are not intended. This situation will cause additional lost time while technicians attempt to adjust or modify. It also will lead to a shorter-than-optimal life for the part, which in time might fail and cause more downtime, increased parts use, and higher labor costs.
The fourth problem that becomes apparent with a poorly operated supply and inventory system is the increase in parts that are obsolete, identified incorrectly, poorly designed and built, incorrectly labeled, or stocked in multiple locations without cross-referencing. All of these situations drive up the total cost of the parts used because technicians give up searching and, instead, buy a new part. This action ties up valuable capital and increases operating costs.
The last major concern involves changes in employee attitudes. Technicians soon will develop the mindset that the supply room isn’t useful and that traveling there for parts is a waste of time. This outlook leads to unneeded emergency orders, higher overnight shipping costs, lower efficiency, and increased downtime.
Steps to Success
Reversing the actions that created these consequences will produce a program that contributes to the overall success of the maintenance organization. The process will take patience and vision.
Having established the value of a well-operated and -managed inventory system, the question becomes, “Where do we start to make changes and modifications to our existing program so we can turn it into a valuable part of the maintenance program?”
Managers must accomplish many tasks to achieve this goal.
One critical foundation of a well-operated maintenance program is its computerized maintenance management system (CMMS), so the first task involves ensuring the organization’s CMMS can assist with this effort. It is paramount to have a well-installed system that is completely populated with asset and component data and that is managed and maintained with discipline.
Most CMMS offer an inventory-management module. Having an integrated CMMS with work-order management and inventory and procurement components provides a considerable advantage to the management team, primarily the maintenance planner. Having repair parts and supply information available to management and the planner from in-house stores, as well as from outside purchase orders, will streamline the process and add considerable value.
Next, managers need to identify the critical equipment operations, utilities and processes to determine which repair parts to stock. Managers should thoroughly review each piece of equipment and process to determine if the needed critical repair parts should be included in inventory.
Managers also need to consider the lead time for parts arriving from a manufacturer or supply house, the cost of downtime while waiting for the parts, and the cost to keep the part in inventory.
The next task is to review each item in inventory and answer the following questions:
Is the piece of equipment for which it was purchased still in use?
Is it the proper part for that piece of equipment?
Is it critical to the operation of that piece of equipment?
Is the right quantity in stock?
Can technicians use or cross-refer- ence this part for any other piece of equipment?
Once managers have answered these questions, they can logically decide whether to purge and scrap the part or modify the quantities in stock.
The process of identifying critical spares and reviewing each stock item for usefulness is ongoing. Managers must continue to revisit it regularly to prevent the spare-parts inventory from becoming obsolete.
Compared to other components of high-performance maintenance organizations — planning, scheduling, root-cause analysis, vibration analysis, infrared measurements, and lube-oil analysis — inventory management and purchasing often has little appeal to maintenance technicians and managers.
But in truth, none of those more advanced maintenance functions will succeed without the parts and supplies to repair and maintain equipment.
Mike Cowley is president of CE Maintenance Solutions, which provides consulting services to maintenance organizations. He also provides coaching and guidance for clients seeking to outsource facility services. He also serves as vice president of professional development for the Association for Facilities Engineering.
Keeping Score on Inventory
One major item to tackle in improving inventory and purchasing management is setting up a system of measurements and scorecards that enable managers to monitor day-to-day performance. Most computerized maintenance management systems (CMMS) have inventory and purchasing components, and Integrating these functions in one software package also can aid managers in developing matrices and scorecards that effectvely manage the total maintenance operation.
Managers can use numerous measurements for monitoring inventory and purchasing efficiency. Here are a few of the more common measurements:
- Turnover — how often a part is used per year
- Stock out — how often a part is requested but out of stock
- Service level — percent measurement of all parts available when requested
- Slow-moving parts — parts that have not been checked out in 30 days, 60 days, 90 days, etc.
- Obsolete parts — parts no longer needed in facility
- Cost of inventory — total cost of items stocked.
- Back orders — items ordered but unavailable to ship
- Emergency orders — number of such orders placed per week or month
- Shipping costs — cost of normal shipping versus emergency shipping
- Underage and overage — items shipped in incorrect quantities
- Cycle counts — rolling inventory of stocked items.
— Mike Cowley