10 Steps to Spare Parts Inventory Management

August 19, 2022

The management of machine spare parts inventory represents a major challenge for industries. An efficient management can result in cost savings and achieve the machine availability levels required for the operation.

What’s more, the cost of inventory can represent as much as 15 to 20 percent of sales. Certainly, these savings turn into a great competitive advantage. Below, we list 10 steps to efficient spare parts inventory management.

Measuring and Organizing

Perform a complete and accurate accounting of what exactly you have, where it is, and how many items there are in the parts stock. Without such organization, there will be a lot of wasted time, and as we all know, time is money.

Eliminate Obsolete Material

The inventory may contain items that are defective due to damage, corrosion, shelf life, lack of maintenance, or other factors that make them completely useless. There will be others that are in good shape but cannot be used, because the part has been replaced or redesigned, or the equipment on which it was used has been modified or decommissioned.

Resist the temptation to hold on to these pieces “just in case.” Keeping them in stock wastes valuable space and can also consume the time, money, and other resources needed to store and handle them. Identify and physically separate all unusable material.

Identify the critical pieces

Once you know exactly what you have in stock, it is time to identify the items that you cannot be without, no matter what. Prioritize and highlight these items in your inventory.

Typically, these critical parts will be direct replacements or equipment repair parts that can result in a significant loss in production, even when having short downtime. They are usually high cost, low volume, and long lead time items. They don’t necessarily need to be on hand, but they do need to be readily available.

Clean data

Without well-organized and accurate data it is almost impossible to properly manage your inventory. And it doesn’t matter if this information is in the maintenance management system or in an Excel spreadsheet.

This includes basic parts data, such as standardized ratings and descriptions, item numbers, and unit costs. It also includes purchase order data, minimum and maximum stock levels, and lead time, among others.

Data that is not managed proactively naturally loses its value over time. Periodically review this data to ensure that accurate information is used to make critical spare parts inventory management decisions.

Establish a cyclic inventory counting program

Cyclic inventory is the execution of inventory in defined time periods for chosen item groups, so that by the end of a certain period all stock item types are inventoried.

Counting program is not something designed to satisfy auditors at the end of the fiscal year. Nor is it just a clever way to keep employees busy during slower work days. The counting program is a way to make sure the pieces you believe you own, are there.

A robust inventory counting program also helps to assess the integrity of work processes, determine the root cause of errors, and implement corrective actions accordingly.

Cyclic counting should be done more frequently at the beginning, even more so if there are no clearly defined work processes.

With practice, the results of the counting program will improve, and then the counting frequency can be decreased. The ultimate goal is to have complete reliability in cyclic counting to the point where an annual physical count is not necessary.

Identify what is in excess in the inventory

Exceding stock is for material that is actually usable. If the material is unusable, it is considered obsolete stock. For a variety of reasons, stock can become overstocked with good quality parts. Contrary to popular belief, it is possible to have too many good parts.

Depending on the nature of the item and the expected demand, these excess stocks can be consumed normally. In other cases, however, they may need to be managed by more proactive methods, such as returning them, reselling them, or simply disposing of them.

Establish an inventory model

Evaluate the amount of investment used in critical spare parts, obsolete material, and excess inventory. Understand how usable items are distributed by ABC classification.

Don’t forget to take into account the potential impact of consignment material or vendor stock that is not in your records but may represent a future liability. An inventory profile that summarizes all of this information for a factory provides a quick and effective assessment of the overall health of your inventory.

Develeop an effective action plan

Achieving bold goals requires identifying the activities necessary to make them happen. How much obsolete inventory will be disposed of? How much surplus can be reduced? Which items can be consigned? How can the highest turnover items be managed to get the highest return on investment?

If you don’t have a plan, everything is random. Answering these and other important questions will help you avoid surprises and develop an action plan that steers you in the right direction.

Create a follow-up mechanism

Having a plan doesn’t necessarily mean getting the desired results, but at least it will provide a tool to help explain your performance. Did everything go as planned? Were there any unforeseen events?

The solution is to regularly check what has actually occurred. A monthly or quarterly review of action plans and results will help review progress, maintain momentum, and determine course corrections needed to continue toward the goals.

Evaluate the benefits

Has the work done brought results? Improving the efficiency of spare parts stock management is a task that requires planning and control from the team in charge.

However, it is also necessary to know how to measure what has been achieved with this work and whether the result is being beneficial to the company.

In addition, it is important to know that parts inventory costs increase with each day that the part remains in stock.

Depending on the percentage of this cost, it is possible to pay indirectly for the same item again over time. Therefore, the best solution is to view spare parts inventory management as a key role in industry maintenance.

Stock management through the Dynamox Solution

After performing the 10 steps in spare parts inventory management, all parts that are in stock are fit for use. They are identified, measured, and quantified. However, when is the ideal time to use them?

With the Dynamox solution it is possible to continuously monitor the condition of components or machinery. Based on this, the assessment of the ideal moment to make the change is more assertive.

Learn more about the Dynamox Solution.

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