Excess inventory does not only harm your company’s profits but impacts the overall economy too, as those resources can be put for better use. More you hold on to the idle industrial products, the more you lose (finally disposing as scrap or even pay to flush out scrap).
There are so many reasons for overstock inventory like
- Over Production
- Poor Warehouse Management
- Poor Market Analysis and Understanding
- Improper Product distribution
- Inaccurate projections
- Technology not leveraged properly
Most people understand the reason for excess inventory and the way to dispose it however several fail to spot it; or do not know how to address this challenge. Now the question is how to identify or calculate the overstock pile up at your warehouse? There are so many indicators that you can look at, like-
- Your product is on the shelf more than a year or two (unused)
- When you start to see your product degrade
- Rising Inventory levels
- When you don’t find space for new spares
How to measure and Manage?
In order to utilize your inventory and also to minimize the complexity of idle stocks, inventory tracking should be effective
Particularly with MRO Spare parts inventory, SKU plays major role where in a number of industrial spare parts are involved for one equipment/machine, which makes it very complex to manage.
- Calculating your inventory value at the end of every year is very vital as it shows the real cash in the business. Inventory turnover ratio to determine at what rate the inventory has been sold.
- Analyzing the sales trend of the products can help you minimize the over production.
- Calculating EOQ (Economic Order Quantity) to reduce the inventory holding level and ordering level.
Inventory Planning and Management
Traders and dealers usually maintain only finished goods but in case of manufacturers, they need warehouse for stocking the raw materials, as spare parts inventory management is big headache. So their procurement plan depends on what to order and when to order based on the following parameters-
- Seasonal demand
- Continuous demand
- Downtime and up-time of an equipment
- Supply chain, etc…
More MRO spare parts inventory is currently acting on the concept of ‘Just in Time Inventory’, where the spares can be procured only when essential, delivered at the right time. In this method, neither a bigger space is needed nor much maintenance cost is required.
Setting up limits and levels like order level, reorder level, hazard level, minimum level, maximum level, order limit etc. can also help in taking decisions regarding over stocking and under stocking.