Basic rules for efficient inventory management

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A competitive company needs infrastructure, equipment, supplies and spare parts. However, also requires to organize all these critical materials in such a way that always have the right amount of them, in order to not stop its operations.

The complex and competitive modern market demands that companies and organizations operate continuously, without allowing any degree of inactivity, or even delays in their work, no matter how small it would be.

Any of these contingencies can lead to serious alterations in the supply or production chain, with the consequent damage to the profitability and general efficiency of the company. Aspects that today are essential to maintain competitiveness.

In this context, it is essential that the equipment, machinery and supplies that guarantee the correct operation of the production chain are not exposed to failures or inconveniences derived from mismanagement, poor maintenance or lack of spare parts.

To prevent these complications, experts recommend practicing, permanently, correct inventory management. Applying this strategy accurately and efficiently can make the difference between having machinery that breaks down and delays tasks; on the other, it runs smoothly, helping to maintain overall productivity.

CHARACTERISTICS AND KEYS

The central goal of inventory control is to find and have an adequate balance in order to avoid the problem of “too little” or “too much unused”. In the first case, the company will suffer intolerable delays, due to equipment failures; while, in the second, resources are wasted that could be better used in other areas or activities.

Thus, the best way to stay competitive in today’s market is to have only adequate stock levels to meet demand.

This principle guides us to respect four basic rules for all efficient inventory management:

RULE 1: WORK ORDERS ARE PRIMARY

Every average company that requires parts, machinery and tools to keep them in stock must have a Computerized Maintenance Management System (CMMS), which includes an inventory module. However, for this tool to be one hundred percent efficient, it must be used rationally and professionally.

The difficulty to operate in accordance with this principle does not lie in the technical complexity of this software, but in the bad practices of the operators who provide it with information. For example, we can cite technicians who, to save time in the short term, keep parts out of the system, or do not return them in a timely manner.

These irregular situations will be aggravated if the control policies in the use of the CMMS are lax. This finally reflects in a large gap between the actual reality of the plant, and what appears in the system.

To solve this problem, it is enough to be more rigorous. For example, an effective inventory control system must provide the location, availability, and purpose of each item in stock. Only in this way does the company guarantee that the procedures for the reception and dispatch of all tools, parts and products are entered promptly. As a result, the availability figures will be accurate, and the efficiency of the entire system will be greatly optimized.

Inventory managers must also face other “human vices,” such as a lack of rigor in updating inventory. For example, when a single piece of machinery becomes obsolete, and is taken out of service, its spare parts remain “forever” in stock, and unused, because no one bothers to dispose them.

This anomalous situation can also be resolved by ensuring that the information is entered into the CMMS diligently on each shipment and return. This will allow us to get rid of useless surplus parts and consequently free up valuable storage space.

RULE 2: GREATER DEMAND, GREATER INVENTORY

Just as the current context forced e-commerce giants, such as Amazon, eBay, and Alibaba, among others, to raise standards of external customer service, inventory managers must also respond promptly to the growing demands of their internal customers, who require faster service and support for their machinery.

This rule applies both to work with computer systems (IT) and to spare parts for heavy machinery. The important thing is that stock levels are always up to scratch, to allow for overall successful performance. This implies establishing an efficient supply chain, so that the company operates smoothly.

The key lies in knowing exactly how much inventory you have at all times, which can only be achieved by ensuring compliance with all management processes.

In turn, this requires continuous analysis, ideally through maintenance management software prepared to send automatic notifications when part levels are below established thresholds for custom settings.

In this way, you will immediately know when the inventory of critical parts drops, what is the quantity of each specific item, and when to order, well in advance, to avoid them being pending.

At this point, it is important to remember that the monitoring of the use of the parts, as well as the observation of seasonal trends, and the forecast of demand, are based on precise data, which must always be entered into the inventory control system.

RULE 3: DO NOT KEEP AN EXCESS OF STOCK

Sometimes negative feedback from other departments, who have faced out of stock at some point, causes the inventory manager to accumulate such items for no real reason. The resulting excess inventory translates into the unjustified need for more storage space for “idle” parts, which raises operating costs, narrows cash flow and, ultimately, increases the level of risk and difficulty of operations business.

This overstocking can occur even though a decline in demand for a particular part cannot be predicted. Consequently, this generates a series of possible threats, such as the possibility that the machinery becomes obsolete, that the number of lost or stolen items increases, or that there is greater degradation of items in the medium term.

Therefore, if a part is no longer used or needed, the business must have the options on hand to dispose of excess inventory in a timely manner.

One solution is to return the part or machinery to the seller. This generally results in a refund or credit, although not for the full amount originally paid. Other options include liquidating or auctioning the item, selling it to a competitor, or donating it to charity, after entering it into accounting as a derecognized asset.

To avoid these complexities, the inventory system must be managed effectively, identifying demand, as well as minimum and maximum order requirements, and safety stock levels for each item.

In these cases, a good CMMS allows to monitor delivery times, as well as the prices of the parts, so that their replacement is quick and easy. This means, for example, have settings for the obsolescence threshold. If the part is not used within a certain period, the system sent a notification to the manager, so that he can decide to remove it from inventory.

RULE 4: KNOW THE INVENTORY

Often the biggest problem inventory managers face is not in stock levels, but in knowing precisely the inventory levels. This, precisely, translates into problems of excess and / or lack of stocks.

Spare parts that are not used take up valuable storage space, while high-demand parts that are not readily available create production problems. In fact, a delay of just a few hours for critical industries (such as utilities or factories) can cause huge losses.

Likewise, this inaccuracy in the data can also cause various contingencies such as greater difficulty in detecting and preventing losses and theft; damage to the company’s brand and reputation due to delays; production closures; reliability issues; and repercussions on other operations, such as sales forecasts.

Even when inventory levels are perfect to start with, any shortfalls later will quickly translate into shortages or excesses. To avoid this, we must apply actions such as attaching quick response codes (QR) to each piece in the warehouse, which will optimize manual inventory, making the whole task much faster and easier.

Similarly, organizational techniques can be used that regulate stocks based on parameters such as meeting demand based on information on seasonal trends; requirements of internal departments; and availability of providers, among other variables.

IN SUMMARY…

A Computerized Maintenance Management System (CMMS) is a helpful tool, but only if we follow correctly Standard Operating Procedures (SOPs) to provide efficient support. This implies taking into account that, like any computerized system, its output value is directly proportional to the quality of the data entered.

Considering this usage pattern, it will help track stock levels, report losses or theft, and identify items that urgently need replacement.

However, beyond the technological choice, the best inventory control method lies in adhering to these four rules that will help reduce uncertainty and waste.

Only in this way, companies will be in a better position to outperform their competition, excel in the market and, at the same time, reduce wasted time, as well as excessive energy and resource expenditure.

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Francisco Gonzalez
Francisco Gonzalez

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