Tips For Reducing Your Inventory Headache
Jennifer Ohl, MBA, Midwest Software Specialists, Inc.
Intelligent inventory management plays a key role in a successful maintenance program. A smart inventory solution can significantly reduce costs and equipment downtime, prevent overstocking, cut the time spent searching for parts and improve inventory data.
Though each industry and company’s needs and requirements vary, there are some general strategies that can help optimize your inventory investment. Spare parts typically make up 30% to 40% of the typical maintenance budget. The average inventory holding cost, (i.e., the cost to keep parts in the storeroom) ranges from 10% to 20% of the parts value [Ref. 1]. Included in the holding cost are insurance (typically 4%-6% of the parts value) and taxes (5% to 8% of the parts value). (For a small storeroom with $1M in inventory, those figures translate to $40,000 to $60,000 for taxes and $50,000 to $80,000 for insurance.) And these calculations don’t even begin to take into consideration the costs of equipment downtime, should it occur!
Keys to keeping inventory expenses in line are management of part checkouts and prevention of over-ordering. . .
The first step is to review inventory procedures. Checking out parts correctly is the place to start. Spare parts must be checked out in the computerized maintenance management system (CMMS) every time they’re used—and checked out according to company procedures. It’s best to link the checked-out part to a work order, which allows the part used for a specific job, along with associated labor charges, to be charged to the specific equipment listed on the work order.
If a work order isn’t required, it’s best to check out parts directly to the equipment it is used on. Either way, a record of the person who most recently checked the part out is accessible. If a part shortage arises, that person could be contacted.
Checking out parts properly will ensure that the equipment has the correct labor and material charges. This data is available for assessment of overall equipment maintenance cost and whether a replacement of the equipment is justified. Inventory quantities on hand will be more accurate, reducing the need for constant cycle counts.
The second recommended step is to review how stock items with pre-determined re-order point and re-order quantity are handled. A reorder point is the inventory level when additional parts need to be ordered, and reorder quantity is the amount of parts to reorder. A reorder point and quantity should be set for stock items. Lead times should be taken into account when determining re-order point and re-order quantity. If the re-order data has been agreed upon by maintenance, purchasing and stores staff, there is no need to get a written or electronic approval each time stock parts need to be re-ordered. The stores staff can run a re-order query for the stock items and have the system approve it automatically. If possible, purchase orders should be created automatically (from the re-order query) for these stock items needing replenishment. Requiring managers to approve these stock items is unnecessary and can result in delays in ordering, and potentially even equipment downtime. If a manager does not approve the re-order list promptly, typically none of the parts on the list will be ordered until all the signatures are obtained.
Once procedures for checking out and re-ordering stock parts have been solidified, the third step of standardizing part names and cleansing part data can be started. Storerooms often have duplicate parts (the same part with different part numbers and descriptions). This can cause over-ordering, time lost, and frustration due to searching for a part that appears to have zero quantity, only to be found elsewhere, with a different part number and available for use. Data cleansing could be outsourced, but there are some disadvantages. The stores staff will have to spend significant time anyway providing or agreeing to part nomenclature, and once the contracted cleaning company has provided the “clean” data, the stores staff will be tasked with maintaining it. For storerooms with more than 7000 inventory items, this task may seem overwhelming. In this case, an outside company can help streamline the process (i.e., re-naming parts based on new naming conventions).
There are different ways to name parts. One preferred method is to begin with the commodity group or type (for example: belt, bearing, valve, fitting, etc.), followed by information describing the part and a company-created number (not the vendor number). Using the vendor’s part number can be a problem if you switch vendors, and most CMMS systems have fields in which you can enter your primary and secondary vendor part numbers. Placing the maximum amount of data in the part description field (such as descriptive information about the part, manufacturer and primary vendor) will enable the maintenance staff to search only in one data field (this will be possible only if the part description field holds at least 40 characters). As shown in the screenshot above, data should also be entered in the field intended for it (i.e. manufacturer data should be listed in the manufacturer field).
The process of standardizing inventory will help eliminate the duplicates that currently exist in the database, and prevent duplicates from occurring in the future. Only one or two people should be assigned the task of entering new parts/modifying existing ones so that there aren’t several different methods of naming parts implemented at the same time. An inventory-standards dictionary should be created—and strictly adhered to.
Once duplicates have been eliminated and part numbers have been standardized, the maintenance and stores staff still may have difficulty on occasion to find a needed part. Taking a digital photo of the part, and including the part identification number/name in the photo, and then attaching the photo to the part record can help identify the part. Often, maintenance personnel know what an item looks like, but not the exact part number. Maintaining photos of parts that also bear the numbers/names of such items is an effective way to help staff locate what they need.
When new parts are added to the database, it’s beneficial to make the following key fields required: description, type, primary vendor, unit of measure and price. Typically the part number must be entered before any corresponding fields can be entered, so the part-number field will be required by design. Making these key fields required when the new part is entered prevents the stores staff from putting it off until “later” (which often can mean “never”). If the data is required when a new part is created—and the part can’t be checked out or received until that data is entered—the accuracy of your database will increase.
Sometimes, stock-outs (parts not available upon request) may occur regardless of carefully following procedures. Keeping track of stock-outs, the part requested and the quantity short would help modify the inventory re-order points and quantities to a more optimal value. While newer CMMS programs include stock-out tracking functionality, older programs may not. Stock-outs can be tracked in Microsoft Excel (as shown above) or another database program. Ideally, this type of function should be a feature of your CMMS. Keep in mind that blaming your stores staff when a stock-out occurs isn’t constructive. Doing so will result in the hiding of a problem instead of encouraging the stores staff to fix it. MT
 Slater, P., Smart Inventory Solutions, 2007, Industrial Press
Jennifer Ohl is President of Midwest Software Specialists, Inc., an international maintenance and reliability consulting firm, based in Miami, FL. Telephone: (773) 844- 4831; email: firstname.lastname@example.org.
VSD Software For Pumping Systems
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