The challenges of inventory control

Managing inventory can be challenging, costly and time consuming but support is available.

Every organisation needs certain products for maintenance, repair and operations (MRO), from light bulbs to transformers. These items are often small and relatively inexpensive but without them, the operations of a business will be impacted.

Controlling your inventory so these vital products are available when needed is therefore critical. “You have different elements that affect the length of downtime,” points out Richard Jeffers, Solutions and Technical Director at RS. “How long it takes to investigate a failure, how long it takes to execute the repair and how long you stand around waiting for the spare part you need.”

The latter is a significant challenge. According to the latest research from RS and the Chartered Institute of Procurement and Supply (CIPS), 19% of respondents cited lead time to get a product as the biggest driver of downtime – and more than 10% of survey respondents also reported that lack of replacement parts on site contributes to downtime. “If the goods aren’t in stock and you can’t get hold of them, then staff can’t do the work,” observes Helen Alder, Head of Knowledge and Learning Development at the Chartered Institute of Procurement and Supply (CIPS).

Here we explore how to navigate the many pitfalls surrounding inventory control.

Excess inventory is a problem, not a solution

The current business climate is making it more difficult to control inventory. The same RS and CIPS research found that indirect procurement professionals are facing pressure to reduce operational budgets (30%) and inventory costs (28%) as well as drive more sustainable and ethical procurement (32%).

In this context, maximising working capital by reducing excess inventory becomes essential. As global consultancy PWC states in its Working Capital Study 2023/24, “The impact of further rises in inflation and interest rates have reinforced the importance of cash and working capital optimisation.

“Days inventory outstanding (DIO) has seen a marginal fall of 2.7%, down 1.6 days, as global supply chains continue to become more predictable,” notes the study. “While some industry-specific supply chain issues remain, by-and-large companies are now better able to forecast and manage supply and demand factors, having equipped themselves to handle the volatile environment of the past few years.”

Beyond initial outlay, there are additional expenses related to having inventory in stock including carrying costs such as floor space, energy and insurance. Spoilage can also be an issue that leads to extra costs. “Take something like an electric motor,” says Jeffers. “They should be rotated by hand every three to four months when in stores to avoid getting flats. How many people do that? This means storage-induced failure.”

The risks associated with internet-enabled devices are even greater. “Buy a PLC today, stick it on a shelf for any length of time and you won’t know if you’ve got the right security patches on it,” he adds. “You’ve created an attack vector that someone can use to penetrate your site.”

Highly challenging, highly complex
Those responsible for controlling inventory need to balance the pressures to reduce stockholdings with ensuring product availability and minimal downtime. This makes understanding product demand within your organisation crucial. How frequently do you need different SKUs and in what quantities? Decisions will vary from business to business and choice will be influenced by factors such as purchase price and the product’s criticality.

This negotiation between the pressure to reduce stockholdings and the pressure to ensuring availability is made even more difficult by the day-to-day challenges that have longed shaped approaches to inventory management. These include delivering annualised cost savings (29%), maintaining ageing assets (28%), ensuring contract compliance (30%), managing stakeholders (27%) and lack of spend visibility (18%).

The complex nature of MRO procurement, and the purchase-to-pay systems that organisations have in place to handle it, exacerbate these challenges by driving up process complexity – and costs.

“You have a fragmented supply base and multiple categories for indirect materials,” says Jeffers. “Plus, you have so many stakeholders. We see customers with more than 10 touch points between identifying the need for an MRO component and placing of an order for it. There is therefore a huge opportunity to reduce complexity, and thus costs, in the procurement process. You need the right strategy and a simple purchase-to-pay process that will route users through the appropriate channel.”

How to improve efficiency
Finding ways to improve efficiency is key to addressing the myriad challenges in managing MRO inventory. Alder recommends regular reviews of stock levels and minimum stock requirements as well as making plans for capital equipment. “How long do you want it to be in life for? Are you going to renew this piece of equipment?” she asks. “Re-evaluate what you are doing on a regular basis and consider whether you need to do it in house or outsource it.”

One option is to use a vendor-managed inventory (VMI) platform. These bring benefits that directly counter the challenges and pressure shaping inventory management today, for example, by improving visibility of stock and spend and reducing the amount of time spent raising orders. VMI solutions also simplify the purchasing process. This brings its own advantages, says Jeffers. “Consolidating spend into one supplier is going to reduce complexity,” he explains. “You know the counting and issuing is all happening. You don’t have the cost of handling goods received.”

Vendor-managed inventory in action
One industrial manufacturer in the West Midlands previously bought up to 10,000 components per year from almost 600 manufacturers. Many were low-value repeat purchases and the whole process, from sourcing to ordering to invoice reconciliation, was inefficient. However, after introducing RS ScanStock^®, a VMI solution, both order processing times and operational downtime fell dramatically. Now ordering is as simple as scanning a barcode, with the RS ScanStock^® team visiting site twice weekly to replenish around 800 SKUs on lineside kanban cribs.

“RS ScanStock^® reduces cost, labour and complexity from those low-value items where you’re not typically worried about wastage,” states Jeffers. “For those higher value items where you are worried about wastage and you want a more controlled solution, that’s where industrial vending comes in. You have all the same benefits but with an audit trail because users have to swipe in.”

As well as consolidated spend, VMI solutions mean consolidated deliveries, which can contribute towards environmental, social and corporate governance goals. Among respondents to the RS and CIPS survey whose organisation had a carbon reduction strategy in place, 43% mentioned consolidating or combining orders to reduce transport emissions.

Focus on what matters
Crucially, VMI solutions resolve the tension between availability and excess by ensuring you have the right level of stock on hand when and where needed without surplus. In the past, the stores at a manufacturer of mass spectrometers dealt with 30 people per day but with RS ScanStock^®, these fast-moving, low-value supplies could be kept closer to the staff who needed them – reducing the walk-and-wait time by 40% and equating to more than £36,000.

RS ScanStock^® streamlined working practices at this business, saving the firm time and money. It also allowed staff to spend more time on core activities, and the same is true for other organisations that adopt VMI services. “They get time back to focus on value-adding tasks,” observes Jeffers. “This makes them more productive and their business more efficient.”

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