By Jim Clifford, Director of MRO Services, PCA

Volumes have been written about how plants and other facilities are impacted by poor inventory management — and in particular, excess inventory of all types. Obsolete inventory is one of the culprits, and tackling it poses two specific challenges:

• There is no plan to keep tabs on inventory, identify when it is obsolete, and get it out of the storeroom and off the books.
• Even when there is a plan, myriad functions within the organization actively work against letting it go.

I’ll save the need for better inventory planning for a different discussion. Today, we’ll focus on the elephant in the room: obsolete inventory that is intentional – or very close. This largely self-defeating approach boils down to three major factors:

1. Better Safe than Sorry: In a typical plant, 70 percent of the items in inventory are never going to move. They are purchased with the intention of being there just in case they are needed, even though there is only a slight possibility that will happen.
   In some cases, these are true “insurance spares” — items like the main breaker for a plant’s central power supply — that could cause devastating operational outages if they should fail. In other instances, they aren’t truly critical parts, but they may have caused a delay in a significant operation at some point and were added to the list as a result.
2. It’s a Security Blanket: The second issue is an emotional attachment to parts. These are spare parts that got someone out of a jam — even if it was a decade or more ago. That person (or team) continues to retain spares for this part, even though the one-time event has never recurred.
3. We Can’t Afford to Give It Up. A third example of “purposeful retention” happens off the plant floor, in the finance department. When parts are determined to be obsolete (and therefore have lost their value), finance has to write them off the books. That means profits take a hit, which is something bosses don’t like to see. As a result, many finance team members will try to lessen that impact by writing off the parts over time. It looks better on the books, but in the long term, it isn’t good for the organization.

How Obsolete Parts Cause Trouble

Until now, we haven’t considered the efficiency angle, so let’s do that. In all three instances, once these parts become obsolete (and not just excess), they no longer serve even an emotional purpose. In addition, they can be dangerous to operational efficiency and safety.

• If the machine in which they are used has been retooled or replaced, the parts may have zero value to the organization. The longer someone hangs onto them, the less likely it is that they can sell them back to the manufacturer or another organization that will use them.
• If the part has been replaced with a newer model and it remains in inventory, it could be used by mistake.
• The cost of holding inventory is 15-25% of the item, per year, based on sales tax rates, cycle counting costs, the share of lighting and heating costs they consume, and other variables.
• As they age, obsolete parts may eventually lose up to 90% of their original value once they can’t be used for anything other than scrap.

I hope I’ve given you something to think about today. In future discussions, we’ll dig into such issues as what organizations CAN do with obsolete parts if they get stuck with them and how better inventory planning and management can prevent these problems from occurring in the first place.