The goal of inventory management is to have the right parts, right when you need them, at the right prices. Many maintenance professionals struggle with the opposite, where they have too many or not enough, and it’s costing them a lot of time, money, and frustration.
But by looking at the various causes, you can implement the right combination of changes to consistently avoid inventory waste.
What is inventory waste?
Although the name suggests it’s just the inventory that’s going to waste, there is a lot more involved.
A good way to understand inventory waste is to remember an unavoidable universal truth: almost nothing is worse than accidentally drinking spoiled milk. Just smelling it is awful.
So, imagine you buy a bottle of milk but never drink it. Eventually, it spoils, and you have to throw it out. Besides the milk, what else have you lost?
First, you lost the space in the fridge it took up while it was sitting there doing nothing. If it hadn’t been there, you could have had something useful in its place. You also lost the money it took to keep it cool. Refrigerators run on constant electricity and occasional maintenance and repairs, all of which cost money. But that’s not the only money involved. Because you had capital tied up in that milk, you couldn’t invest it anywhere else. That rotten bottle of milk is a perfect example of opportunity cost.
Waste within LEAN manufacturing
For companies working within the LEAN framework, inventory waste represents missed opportunities specifically. The LEAN thinking is that because the organization is not immediately using it, the inventory is tying up both physical space and capital that managers could be using to create value.
Sources of inventory waste can include:
- Unreliable supply chains
- Misaligned production areas
- Poor tracking and controls
- Unequal production capacities
Of the eight types of waste in LEAN, defects, overproduction, waiting, non-utilization, transport waste, inventory, motion, and excess processing, inventory waste tends to be directly connected to motion and transport waste.
How much is inventory waste costing you?
Although some of the costs are apparent, there are many that are hidden. Part of the reason is that you’re paying many ways without accurately accounting for them.
When you order too much inventory, you might be getting a good deal upfront by ordering in bulk, but the carrying costs eat up all those early savings. Remember, carrying costs can be between 12% to 20% of the original price. That $100 spare part is actually costing you $120.
When you don’t order enough inventory, the costs of increased unscheduled downtime quickly surpass anything you might have saved in carrying costs. According to one report, 50% of annual downtime is directly related to a lack of spare parts. When an asset fails and you have the parts to fix it onsite, you could be looking at a few hours of downtime. But without those parts, when the maintenance techs are forced to wait for a rush, overnight delivery, that same downtime can stretch into a full day.
How can you reduce inventory waste?
Because of the multiple ways you pay for bad inventory management, consistent efforts to reduce waste can have a strong return on investment over time. But just like the problem has multiple facets, so should your solution.
Set par levels
One of the first steps to reducing waste is using historical usage data to determine par levels. Once you know what the maintenance team is using and how often, you can establish min and max levels that put you right inside the sweet spot, where you never have to worry about being caught unprepared but without tying up valuable space and capital unnecessarily. It’s the definition of efficiency: having enough to get the job done, but only just enough.
Decide between FIFO and LIFO
Just like the bottle of milk in the earlier example, many types of inventory spoil if you don’t use them soon enough. Even with inventory where we traditionally think of usage being more important than age, time on the shelf does matter. Take for example tires, where the current recommendation is that even unused tires are only 100% safe up to the first five years.
To ensure you’re not letting inventory spoil or degrade on the shelf, for each type of inventory, implement either first in, first out (FIFO) or last in, first out (LIFO) rotations.
Track MRO inventory
Par levels are an important part of reducing waste, but unless you have a process in place for keeping counts current, your min and max levels are of little value. Knowing how much is too little and too much is important, but there’s no practical way to leverage that knowledge unless you also know your current counts. Min and max levels are important, but only valuable to you when you can compare then to an accurate current count so you know if you’re below or above.
It’s the same as being in a car and knowing the speed limit but not your current speed. Should you speed up or slow down?
How can inventory tracking software help reduce waste?
The common element that connects all the ways you can reduce inventory waste is the need for good data. Data that is both up to date and accessible.
To set the right par levels, you need reliable data on past use. Tracking MRO properly depends on capturing data in real time.
Modern inventory control software helps you capture data, keep it up to date, and make it accessible. Behind the scenes, the software uses a central, cloud-based database. Instead of having bits of data spread out across paper records, clipboards, and Excel workbooks, you get all your data in one place, where everyone is looking at the same single source of truth.
Set up a call with one of our experts to discuss how Lightning can help you transition to a new, more efficient way of working.
Inventory control delivers the right part at the right time for the right price. Traditionally, it’s been a tough balancing act, with many maintenance departments often finding themselves with too much, leading to inventory waste. Because the effects are extensive, the costs are high. When you have waste, you lose the initial price of the part plus the associated carrying costs. Because you had capital tied up in the inventory, there are also opportunity costs. There are multiple causes for waste, so you need a multi-pronged solution. Using modern inventory tracking software, you can leverage historical usage rates to establish min and max levels and track inventory to ensure your counts are accurate in real time. The time and resources you invest in inventory management can deliver save both time and money.