What is Inventory Management?

Inventory management systems let you reliably know the spare parts you have and where they are, assess their sales performance, and determine their purchase frequency.

Every part should have a set maximum stock, minimum stock, and a ‘trigger’ quantity for purchasing stock (based on previous delivery times). This parts management ensures you always have the spare parts inventory to fulfil your jobs.

Cycle counts are essential inventory management techniques. They are frequent quantity-checks of just a few parts at a time. Inventory management systems should determine each part’s cycle count frequency based on sales revenue and frequency.

The system should assess and analyse sales performance. You need to know if the capital you’re holding on shelves reliably generates revenue.

A computerised maintenance management system (CMMS) tracks company equipment maintenance and its required spare parts inventory. A CMMS can log your equipment operation, as well as synchronise with your equipment condition monitoring system, and plan its maintenance downtime. This lets you avoid the unplanned downtime of breakdowns.

Using maintenance planning along with inventory management you can synchronise and store the spare parts equipment needs for its planned maintenance. All this maximises asset uptime and minimises maintenance costs.

A CMMS also lets you register staff members certified to operate this equipment and log who performed what work for which jobs. It collects data on how often assets operate and how long they sit idle, letting you assess how your equipment investments are paying off.

Your spare parts management system must involve a clear, unambiguous labelling system. This can include a grading system for judging stock levels. Two common methods are the ABC and XYZ systems.

The ABC system grades parts by financial value. ‘A’ parts cost the most while ‘C’ parts cost the least. This system also assumes that of all the different parts you stock, ‘A’ parts will generate the most revenue. This means your shelf space will hold mostly low-cost ‘C’ parts with just a few expensive, but crucial, ‘A’ parts. ‘A’ parts need more frequent cycle counts, though.

The XYZ system is similar, but grades based on demand. ‘X’ parts are sold the most, etc. With this setup, you’ll have many ‘Z’ parts at low stocks since they sell infrequently, and larger stocks of just a few ‘X’ parts that get continually replenished due to sales.

An ideal inventory management system will use both of these to optimise stocks of spare parts based on how much revenue they’re expected to generate and how often.

The ABC and XYZ systems are both methods of balancing spare parts inventory: finding the ideal spare parts quantities to meet reasonably expected demand without tying up excessive capital in unsold inventory. Use ABC and XYZ to determine stock levels, and continuously assess if spare parts have the right designations based on their actual sales.

If you determine parts generate negligible revenue and rarely sell, then be open to removing them from your inventory entirely. Your storage space is too valuable to waste on dead stock. If spare parts sales fluctuate seasonally, then have methods for adjusting stocks and exchanging shelf space accordingly. 

Use these same inventory management techniques on a macro level to ensure each of your sites only carries what it needs—and establish protocols for exchanging products between sites if necessary.

An inventory management system is a team effort. It can only work if you train all staff involved to understand its importance and commit to making it succeed continuously. Explain what their roles are in these systems and how inventory errors make the company suffer.

Make sure anyone who adjusts inventory maxes and mins and when to place orders understands the strategy and concepts underlying it. They need to be able to analyse data trends to do parts management effectively.

Prepare clear, measurable business goals for these systems so staff understand the objectives. Make your inventory management system part of the company culture so everyone commits to the business’s success.