Those of us in the business of supporting maintenance with spare parts have an obligation to maintain accurate inventory balances in our storerooms. We do this because an accurate inventory is helps reduce inventory investment without sacrificing service (part availability). If inventory balances are accurate, there is confidence that material will be available when needed and that "just in case" inventory is not needed. However, within our work groups there is often a lack of consensus on what constitutes accurate inventory. It is not unusual for finance to believe accuracy is better than ninety-nine percent while the maintenance department believes that same inventory has an accuracy of fifty percent, but both groups are correct. The purpose of this tip is to help your organization achieve consensus on what constitutes accurate maintenance spare parts inventory.
Oliver Wight1 told us forty years ago that our inventory balances should be as accurate as "a bank clerk's cash drawer." The question is: How do you define accuracy? Is it the total balance of all cash in the drawer or is it the exact number of quarters, dimes and nickels? To support maintenance it is important that the exact number of nickels and dimes be accurately stated.
The first step to improved accuracy is consensus on the definition of what constitutes an accurate inventory. We believe the best measure is based on a part item count. If a part item in inventory indicates one hundred pieces in stock and we count ninety-nine this is an error. The next table is an illustration that shows how this should work when more than one part item is considered.
In our example, the asset value of the storeroom inventory for shareholder reporting is over ninety-nine percent. However, this same data suggests the accuracy is only ten percent for supporting users in the field.
We believe accuracy levels of ninety-nine percent based on Item Count are a realistic expectation for most companies.3 Where do you stack up?
So as with any metric it is important to understand the intent and the behavior it drives. In the end you have to take the time to define what it is and how it is calculated for your company and concentrate on driving improvement for your site.
1Oliver Wight was a noted expert and author in the field of Production and Inventory Control
2Most inventory accuracy measures require that parts be in the correct location in addition to having an accurate quantity. For purposes of simplicity in the example we have omitted this measure.
3Some storeroom items will have a plus or minus accuracy margin for individual part numbers. These usually include weigh count parts, wire, rope, etc.
Tip provided by: Shon Isenhour, Business Consultant
Tel: +1 843-810-4446