How to revolutionize your spare parts management
One of the major problems with managing spare parts inventory is that many people consider it to be a task-oriented function. That is, they assume that spare parts inventory management only requires the completion of a series of routine tasks. So long as these are done, then all will be OK. If only this were true.
Of course, some aspects of spare parts inventory management are task-oriented — such as receiving inwards goods, entering information into the IT system, and issuing items for use. However, these are all transactional or administration activities, not spare parts inventory management activities.
The key difference is that management activities involve choice and the exercise of judgment or reasoning. Transactions require the individual to follow specific steps, with few or no choices of any consequence. For example, the transaction for issuing an item from an inventory involves collecting the information on what was removed, how many and where the cost will be allocated. It’s a simple process with the only choice being the cost allocation. This is spare parts transaction recording, not spare parts inventory management.
Spare parts inventory management involves all of those decisions where there is a choice to be made rather than just a transaction to be processed.
Why is this distinction important?
This is important because company leaders who think of spare parts inventory only in terms of transactions almost invariably have poor inventory performance. These companies have too much inventory, low levels of accuracy, frequent stock outs and higher operating costs.
Consider just three decisions to be made at the beginning of the lifecycle of a spare part:
- Should the item be stocked?
- What should the re-order point be?
- What should the re-order quantity be?
These are not transactional tasks; they are decisions about whether to spend the company’s money on parts that may or may not ever be used. These are management decisions that will have an impact on the company cash flow, balance sheet and operational performance for years to come.
At its core, managing a spare parts inventory is all about management decision-making, not transactions.
Leaders who fail to recognize the genuine management skills required for spare parts inventory decision-making will routinely underestimate the requirements of their staff and often treat their storeroom as a place of low-skill need. This then results in an underinvestment in their storeroom team development. By maintaining low skill levels, the focus on transaction management becomes a self-fulfilling prophecy. Those team members who do want to do more become disillusioned and maybe leave the organization, or at least find a way out of the storeroom.
But once a company’s leaders recognize many spare parts inventory related activities require genuine management insight and know-how, and they are prepared to invest in their team’s ability to make the required decisions, they can revolutionize their spare parts inventory management results. Better decision-making results in reduced excess inventory, improved inventory mix, improved storeroom accuracy, reduced delays that create additional downtime, minimized write downs and lower costs.
Sometimes leaders worry they will train their team members and they will leave. With spare parts the bigger worry is if you don’t train your team and they stay. NP