Inventory Management:
A Cost-Saving Strategy that Works

Inventory Management

For many, the term “inventory management” conjures images of neat, orderly warehouses and storerooms. While well-organized storage is an important component of inventory management, it’s just one link in the chain. Properly structured, inventory management ensures that the right parts and/or materials are in the right place and always available at the precise time they are needed. Furthermore, inventory levels are kept at an optimal level to meet demand. Anything more wastes both space and money.

This may sound simple in concept, but it’s complex in practice. Inventory management can be applied in two ways—materials for production and/or parts and materials for equipment maintenance. Although many firms do a reasonably good job of managing resource inventory — for example, the raw materials and subassemblies used in manufacturing — their effort stops there. This is an impractical business decision.

While few would disagree that maintenance, repair and operations (MRO) are as important as production, many miss that point regarding inventory. Making matters worse, production resources rarely get lost or go missing, but that is a frequent problem with MRO resources. Commonly used tools are especially likely to be lost, left strewn around the shop floor, or otherwise taken out of play.

To maximize profit, any company that relies on equipment to achieve
its production goals must also proactively manage its MRO resources.

Ironically, many companies that have an inventory management problem don’t even know it. Worried about work stoppages when parts and tools are not readily available for maintenance and repair, production line configuration changes, and other operations, inventory managers order more inventory than they need. In a large production operation, this issue can literally cost the company millions of dollars a year.

Easy to Imagine: Hard to Achieve

At PCA, we have spent decades helping organizations achieve “lean” inventory management in MRO. Every week, we speak with plant managers and other industrial management personnel who understand the concept, but they cannot envision how they will achieve it. Often, uninformed attempts at reducing levels of parts, tools and other requisite items causes a stock out, which reinforces the notion that excess inventory is a good idea.

The hard fact is that achieving meaningful, lasting inventory management involves more than reducing stores to barebones levels. It requires developing, implementing and enforcing standard operating procedures (SOPs) for MRO inventory. It necessitates an extensive evaluation of the current environment, usually with the input of floor workers in addition to management. At its highest level, it entails a cultural shift to “collective responsibility” across the entire operation.

The Benefits Are Real
On the plus side, the benefits of inventory management aren’t restricted to cost reductions in MRO inventory. Value-added benefits include:

  • Storeroom space requirements are reduced, often enabling the firm to build a new, more efficient storeroom that pays for itself.
  • Inventory carrying costs drop.
  • Over time, firms gain an accurate view of their true inventory needs and can enter into long-term purchase contracts with confidence, negotiating better prices
  • Paperwork associated with missing and lost tools drops dramatically.
  • Workers stop hoarding parts and tools, or purchasing outside the system to get what they need.

The inventory experts at PCA have assisted with dozens of projects where organizations achieved all these goals, and more. To learn about them, give us a call at 770.717.2737. You can also explore PCA’s inventory process optimization strategies, here.