Management Tips: MRO inventory
Staff -- Purchasing, 6/3/2004 2:00:00 AM
Maintaining an efficient inventory management strategy can help improve and ensure the success of plant maintenance operation. "The effort and sophistication needed for a successful inventory strategy should be balanced with the size, complexity and, most important, the cost of the inventory to be handled," says Dave Janiga, an industrial lubrication specialist with ExxonMobil Lubricants & Specialties. He's come up with five factors to consider:
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Carrying costs. Carrying costs are associated with holding or "carrying" inventories over time. Carrying costs are often estimated at 18% to 25% above the value of the inventory.
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Understanding stock. Another factor is the role of the inventory. Inventory is composed of two separate stocks: Working stock and safety stock.
Working stock supports day-to-day operations and will continuously cycle up and down as the material is consumed and replenished. Safety stock is basically an insurance policy against uncertainty. -
Replenishment quantity. The most economic replenishment quantity, commonly called the EOQ (Economic Order Quantity), represents the lowest total sum cost of total inventory and inventory acquisition costs (order placement costs, invoice processing costs, payables costs, freight, etc.). The EOQ is a function of the consumption rate, carrying cost, inventory value and inventory acquisition costs.
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Reorder point. The appropriate time to reorder inventory can be determined by how quickly the inventory is being consumed and order leadtimes.
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Cost reduction. First, and perhaps the most basic element in reducing costs, is to work with supplier(s) to shorten cycle order fulfillment times to minimize the need for excess safety stock.
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