Although there are times when carrying extra stock makes good business sense, in most cases more inventory doesn’t improve asset availability. If fact, it often does the opposite – it increases the risk that those parts won’t be fit for purpose when they’re needed.
But how do you strike the right balance with your MRO inventory, especially in the current climate of uncertain supply chains and shifting demands? Andrew Jordan, Xtivity managing director, shared his thoughts on the topic in a recent episode of the Rooted in Reliability asset management podcast. Here are a few of his insights into some of the most challenging questions asset-intensive companies are struggling with these days.
When does more stock boost availability?
Some assets are just too important to your business to risk not having them available when needed. Jordan says in those situations it’s a wise strategy to have an extra supply of them on hand.
Here’s one common scenario where overstocking makes sense. Let’s say you have a critical asset that has been on the market for a while. There’s a real possibility that late-stage parts might not be available at some point as suppliers manage engineering change. Rather than risk not being able to get it in the future, it makes sense to order up. “That’s stocking up for the right reasons,” he says.
But even in this situation, he says, overstocking can be mitigated by reviewing consumption patterns and, where possible, finding ways to minimize the use of those parts.
When does more stock reduce availability?
More isn’t always better. Even with a warehouse full of replacement parts, there still may be times when the right part isn’t available when required. There are a few reasons for that.
One common cause is that you many have too much of the wrong thing. “If you’re stocking the wrong parts, you’re increasing costs but not increasing reliability,” he explains.
Another reason is that the part may no longer be up to the task. “Having it doesn’t necessarily mean that it’s fit for purpose or ready to operate.” He says that’s often because the part hasn’t been adequately maintained or properly stored, so its quality has degraded.
“There’s only one thing that’s worse than not having a part and that’s thinking you do. The more we have in stock, the longer we’re stocking it, and the more opportunity there is for those parts to degrade.”
A much better strategy, he suggests, is to carry fewer items and make sure they are regularly maintained and kept ready for service.
How much inventory is enough?
No matter which industry they’re in, all asset-heavy businesses face the same dilemma: how to ensure the right parts are available at the right place at the right time without carrying excess inventory.
While there’s no simple answer, Jordan says, there are a few steps all companies can take to ensure they strike the right balance. First, consider what overstocking is costing you. It takes a lot of time, effort and money to store, track and maintain a large parts inventory, and it’s often an unnecessary drain of a company’s resources.
Next, consider the entire asset management lifecycle, including how the parts are stored and the maintenance plan you have in place to support that. He says companies also need to factor in lead times on ordering parts and how that fits with their operational schedules.
“Just because you have an item in the catalogue and you know that you use it against planned maintenance, it doesn’t necessarily mean that you need to stock it,” he says.
“If you can push that out and increase that planning window, you have the ability, in many instances, to not stock it at all, and that’s your ideal situation.”
Data is the best place to start
For companies looking to right size their inventory, Jordan’s best advice is to “take a step back and do a root-cause analysis.” He says inventory is the end result of other decisions being made in the company, so it’s important to look at how your policies, procedures and business objectives are affecting the amount of stock you’re carrying.
This is where technology can help by providing data analysis and robust analytics. He says once a picture starts to emerge about where your priorities are, it’s easier to figure out what tangible steps you can take that will generate the most benefit.