CMM Primer: MRO Inactive Inventory and Purchasing Performance Indicators

Inactive Stock Showing No Movement in the Last Twelve Months

Source: Strategic Maintenance Management Series

This indicator is used to find spare parts that are no longer needed. These items may have been purchased as spare parts for equipment that is no longer in the plant.

Occasionally, items are purchased in large quantities on a one-time basis, possibly for construction or a project, but were not used and have no further use at the plant or facility. Eliminating these items reduces inventory value and the subsequent holding cost the company must pay.

As the formula shows, this indicator measures the number of line items that are inactive, divided by the total number of line items carried in inventory. The percentage shows the opportunity for improvement by eliminating line items from the store inventory.

A second way the indicator can be used is to divide the dollar value of the inactive stock items by the total inventory valuation. This percentage gives the percentage of value that is possible to achieve through inventory reduction.

Strengths

This indicator is useful for highlighting opportunities to reduce the overall inventory valuation. In companies where equipment and processes are rapidly outdated by technology changes, this indicator is critical to monitor.

Weakness

This indicator does not differentiate between a disposable spare and one that is kept on hand due to lead time and delivery issues. Some equipment spares are kept in stock because the equipment is produced in another country and lead time to obtain a spare may be months or even a year. In these instances, keeping the spare is wise, even if it does not move for several years.

Another time this indicator is used to highlight items for possible removal from inventory, careful research should be done to ensure the part does not have a long lead time or is not difficult to obtain. Parts should never be arbitrarily removed from inventory.

This material is excerpted from the Strategic Maintenance Management Series which is also used as the Body of Knowledge for the Certified Maintenance Manager Workshop and Optional CMM Certification Exam. You can upcoming Certified Maintenance Manager Workshop and Optional CMM Certification Exam dates in the events calendar here