Efficient inventory management is crucial to your success. Depending on your industry, inventory can represent the bulk of your working capital, and that means even small inefficiencies eat away at your bottom line. So, what are the best ways to improve inventory management and avoid wasting time and money?
Before we can get better at it, it’s important to know exactly what inventory management is.
What is inventory management?
Inventory management is having the right stock, in the right place, at the right time, and at the right cost. The goal is to minimize costs by helping facilities know when to purchase more inventory based on normal usage rates. A properly set up inventory process is like Goldilocks: never too much or too little. Everything is just right.
“Inventory management is having the right stock, in the right place, at the right time, and at the right cost.”
Cost of poor inventory management
Poor inventory management can lead to higher costs for parts and storage, erratic maintenance scheduling, and increases in stock-outs and obsolete inventory.
The effects of poor inventory management include:
Too much stock
The more money you have tied up in inventory, the less you'll have to cover essential daily expenses. And inventory costs you money from the moment you buy it right up until you use it. In fact, the typical cost of storing extra parts is between 12% and 20% of their purchase cost. That means if you’re spending $200,000 every year on inventory, you can go ahead and add another $24,000 to $40,000 to your budget for storage and administration.
Too little stock
If your facility carries too little inventory, there is a risk of running out of stock and falling behind on your maintenance schedule. Imagine a critical piece of production equipment goes down and you don’t have the parts or materials to repair it. Downtime on that machine just went from a couple of hours to a couple of days or weeks, with the cost of that breakdown skyrocketing.
No inventory at all
This issue is all too common for manufacturers. Of all annual, unscheduled downtime, 50% can be linked to a lack of spare parts, according to a report by the Aberdeen Group. A proper inventory management software ensures critical parts are on-hand, helping to wipe out unplanned downtime, boost production, and save you from losing money.
5 tips to manage inventory efficiently
Now that you’ve seen what poor inventory management can cost you, let’s take a look at how you can avoid it.
Track your inventory with software
Searching for parts can be a huge waste of time and money. If an hour of unplanned downtime costs $2,000 and your technician spends 15 minutes looking for a part, that’s an extra $250 down the drain. Inventory management software allows you to keep tabs on stock levels and locations, enabling technicians to see if a part is available without having to physically check the storeroom. Accurate inventory tracking also prevents duplicate ordering, which helps you avoid costly overstocking.
Automate the data entry with barcode scanners
Entering data manually, with a SKU code or just recording location details, is time consuming and prone to error. Barcode scanners reduce data entry time and errors enormously. By using barcode scanners you can save your company time and money and make your employees happier. It's easy to get up and running, as scanners and tags are increasingly inexpensive. In fact, with basic paper tags, it often makes sense to print them yourself, and most modern smartphones and tablets work as readers using the built-in cameras. In demanding environments, though, you’ll want to go with more robust plastic or metal tags.
Monitor your inventory levels
Having the right amount of inventory is the key to efficient inventory management. Using the right inventory management software, you can track key information on spare parts used to maintain and repair equipment, and alert maintenance managers when stock levels are low. Automating the stock level by considering the historical pattern of consumption or with a defined formula helps you maintain optimum stock levels. A CMMS Software keeps track of both current inventory levels and your reorder point, so that when an item gets close to the reorder point, it sends you an alert.
Use centralized, real-time data
Efficient inventory management in today’s fast-paced business environment demands a centralized database that is accessible to multiple users in multiple locations and updates in real-time. Having the ability to track parts and supplies in various storage locations at numerous facilities gives your technicians a huge advantage. If you need inventory fast, it’s usually quicker to ship the part from another site than a supplier. Having access to resources from multiple sites can save you in this type of emergency, but it relies on good communication and up-to-date data.
Build a reporting framework
Building a solid reporting framework for inventory management provides you with the data big picture to spot trends and make smarter decisions. Maintenance managers can improve fund allocation, get better at scheduling maintenance, and move toward automating their purchasing.
It’s time to take control of your inventory management and stop losing money. By paying close attention to the tips mentioned above, you can build an efficient inventory management system that saves time and money. Start by finding and implementing the right inventory management software for your business. Reach out to providers, tell them your inventory goals, and ask them how they can help you reach them.
How do you manage inventory at your business? Please feel free to share your tips in the comments section below.