TRENDS

5 Strategies to Optimize Inventory Management

by ManagerPlus on September 1, 2020
SUCCESS STORY
Resort Solves Inventory Challenges
 

Asset leaders know inventory management is a critical part of a comprehensive maintenance strategy. But striking just the right balance between keeping stock on-hand and moving ahead with the next purchase orders can be a challenge. 

When inventory is managed well, your business can operate with minimum waste and maximum efficiency. Today’s asset leaders ensure their teams have the parts they need when they need them by using the a modern enterprise asset management (EAM) system.

The right inventory management tool always has your back. It takes the guesswork out of tracking and ordering parts and ensures you always have what you need for preventive maintenance tasks and work orders.

When you have timely insight into which parts are running low, you can order them before they’re needed. And with automation tools, your inventory management platform can automatically generate purchase orders, saving you time.

Capabilities of inventory management systems

An intelligent inventory management system does a lot for you, including:

  • Provides a complete list of inventory on-hand and on-order
  • Customizes storage levels tracking
  • Prevents overstock of outdated parts by avoiding unnecessary purchases
  • Calculates how much capital you have invested in your inventory
  • Attaches required parts and materials—including personal protective equipment—to maintenance work orders

Strategies in inventory management

Achieving best-practice inventory management requires smart strategies—including transparency, overstocking management, inventory waste management, barcode technology, and systems integration.

1. Transparency: see what’s in stock

Fundamental to inventory management is being able to identify which parts you have in stock, which are out of stock, and what’s on order. With this essential view, you can plan your maintenance tasks logically, with efficiency in mind.

Are the serpentine belts for your light duty trucks on back order this week? Knowing that, you can adjust your preventive maintenance schedule and put routine belt replacement tasks on hold until the order is filled. The result? No time wasted taking your fleet of the road unnecessarily.

Smart inventory management software helps you stay on schedule by integrating with your work orders, which reduces manual data entry. When a part is subtracted from your inventory, the action shows up in your system right away, giving you a real-time snapshot of your inventory levels.

2. Overstock Management: master the balancing act

Parts inventory management requires a careful balancing act. When you don’t have a part that’s needed, maintenance and repairs are delayed and business slows down. The result is lost revenue.

But having too much inventory in stock can also create a financial disadvantage. Namely, extra parts require capital expenditures, meanwhile, your inventory space allocation grows with no real benefit. Additionally, all those extras can quickly turn into money wasted on outdated parts and materials that are never used.

Consider these calculations:

  • Calculate your inventory lead time. This is the amount of time that passes from the day you place a part order to the day it arrives and is entered into your EAM platform. The goal is to place orders so that your next shipment arrives before you need it, but supply chain delays, budgets, market prices, and other factors can affect the lead time.
  • Calculate your average use rate. This is calculated by generating custom reports in your EAM to see how often maintenance tasks are completed and with which associated inventory. Do you replace the cutting blades on your three packing machines every week? That will give you a good indication of how many blades you need on-hand per month or per quarter.
  • Find your minimum level. While just-in-time delivery may be the ideal, it can be a risky long-term strategy. The better bet is to use your EAM to track total inventory and share parts and materials among locations as needed. For example, your business might only need two spare motors across your six locations, instead of a motor in stock at each one.
  • Find your maximum level. This reflects the outermost level of inventory you can reasonably store at any one time. It can be a matter of space, budget, and logistics.
  • Aim between your minimum and maximum. Your normal inventory levels often fall between your high and low estimates, but there are always exceptions to the rule. Create a strategy, test it, then refine.

3. Inventory Waste: calculate your efficiency

Inventory waste is an ongoing problem for many organizations. One challenge is having inventory go unused, wasting money and space. Similarly, when parts come off the shelves too quickly, it’s difficult to keep up with the pace of demand. This can leave operations short-handed when equipment breaks down, which causes prolonged downtime, runaway costs, and damage to customer relationships.

These best practices can help reduce inventory waste:

  • Analyze your inventory data. Deploy a best-in-class EAM system that arms you with critical data. Using it, you can hone in on the sources of waste and automate aspects of the acquisition process to ensure that you’re never left short-handed.
  • Calculate your inventory-turn ratio. To get this number, divide the dollar value of the inventory you’ve used over the past 12 months by the dollar value of the inventory you have on hand today. Your ratio could be a number less than one or even as high as three. Generally speaking, a low number indicates a slow rate of inventory turn, which is a sign that a lot of parts are sitting on the shelf unused. A high number typically means that shortages are a concern. Generally speaking, an ideal target to aim for is 1.
  • Determine part criticality. To determine the true cost of holding a given part in your inventory, you should first take a look at your maintenance history. Some parts are difficult to source, ship, and install, which means a longer downtime. A part may be costly to hold in stock, and it may stay there for a long time, but having it on-hand may dramatically reduce overall downtime in the event of a breakdown. This tradeoff is the core of critical analysis.

4. Barcoding. scan inventory for timely tracking

Barcodes are nearly ubiquitous for a reason: Parts inventory is much easier to track when each individual item can be scanned from a device or your smartphone. This speed and convenience helps dramatically reduce administrative costs, data entry errors, and operational turnaround times.

Additionally, your technicians have the reassurance that they’re using the right part for the job. All too often, a technician in a hurry will grab the wrong part off the shelf because so many items look alike. That can cause delays in completing work orders or even damage to your equipment or fleet. With a barcode scan, the part is verified in an instant.

Barcoding can also provide more details about every item stored in your warehouse. Your entire team is able to instantly capture the parts they need. This directly improves operational efficiency and cost management.

The key to maximizing the potential of barcoding is to choose the right system for your organization. Among the variables to consider are:

  • Barcode language. Barcoding systems come in a variety of “symbologies,” or sets of rules and conventions that govern the numeric or alphanumeric codes that are read by the scanner. The codes are then used to query a database and retrieve specific information pertaining to that code.
  • Fixed or portable scanners. Scanners are categorized by how they interface with computers and terminals. Fixed scanners stay connected at all times, transferring data instantly. A portable batch scanner typically comes with an LCD screen and basic keypad, and stores data until it’s uploaded in batches through a dock connected to a computer. Other wireless scanners transmit data the instant it’s scanned, providing real-time information.

5. Integration Systems: make it work together

An inventory management system contained within your EAM is most effective when it’s connected to your accounting or purchasing software. If your inventory system is not integrated with your back-office systems, it cannot effectively optimize your inventory, or ensure the asset value on your financial reports matches what is physically in stock without manual intervention and reconciliation.

With an EAM, integration gives you the ability to plan effectively, execute predictably with customers, and minimize labor costs and human error. Your EAM connects your assets to your business outcomes.

Inventory and back-office system integration must be real-time, flexible, and transparent to users. Real-time access provides the best visibility to your customers and supply chain partners, and ensures your financial reports are always current and accurate.

The three key cost-saving benefits of integrating your EAM’s inventory management capabilities with your enterprise systems are:

  • Optimize inventory to meet your business goals. Working capital shouldn’t be tied up in inventory. You need data to back every decision that has an effect on the profitability of your business.
  • Provide inventory visibility to plan for future expansion. By seeing your company’s fluctuating inventory levels, you can better predict your future needs as new assets come online.
  • List inventory accurately in financial reports. The only effective way to ensure financial integrity in your reporting is to integrate the transactions in your inventory system with your back-office chart of accounts.

When you use an EAM platform to manage inventory, you gain several significant benefits in time and money saved.

If you would like to improve your inventory management practices with an integrated EAM software platform, let ManagerPlus help you take control. Schedule a personalized demo today.SCHEDULE DEMO