Inventory
August 16, 2023
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Any business has to maintain stocks of supplies, spare parts, or other items to ensure their operations can continue without interruptions.
For example, a manufacturing company needs to stock tools and components so that the production lines can keep running.
Retailers need office supplies, electronic components, cleaning materials, etc. all such materials are collectively referred to as MRO inventory, where MRO stands for maintenance, repair, and operations.
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It basically means all the activities required to ensure that the production processes and facilities continue to run smoothly.
One may not think so, but MRO inventory can take up a good part of your overall procurement expense; some experts opine it can go up to over 4% of revenue in certain industries.
It is therefore important to manage your MRO inventory efficiently and minimize cost while making sure that there is sufficient inventory to meet operational requirements.
Keeping the cost of this inventory down can improve your bottom line significantly.
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It is made up of materials, supplies, and equipment consumed for maintenance, repair, and operational activities.
They are NOT part of the finished goods of a manufacturing company, even if they are used in the production process.
An example could be lubricant used for the machinery engaged in manufacturing non-stick utensils.
The grease is part of the manufacturing process, but not used as an ingredient in the making of the product.
Similarly, all tools, spare parts, safety goggles, hard hats, gloves, masks, etc. used by factory workers are part of the MRO inventory.
As it impacts the productivity of all departments, effective MRO inventory management is a critical function every business needs to carry out.
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It is just like inventory management, only, here you have to manage your MRO inventory and not your manufacturing inventory.
MRO inventory management involves the purchase, storage, use, and replenishment of app your MRO inventory items.
You must aim to conduct all of these activities in a cost-effective and efficient manner so that your company has the right MRO inventory in place, at the appropriate cost, and when you need it.
It is a cumbersome and time-consuming task as businesses often need to purchase and store hundreds of such items.
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MRO items are crucial to keep a business operational; if there is component failure of critical machinery in the course of production, the whole process may be stopped because of it; this may even mean having to discard the work-in-progress depending on its nature.
In case the required spare part is unavailable, this can have a cascading effect with loss of hours or even days, waiting for the part to be delivered.
Stoppage of production means delayed shipping, which could in turn lead to unhappy customers, and loss of business and revenue.
Customer relationships take a hit when delivery deadlines are overshot.
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Sometimes businesses resort to shortcuts to keep production going, and this may cause even bigger problems like loss of quality in the product or further damage to the machinery.
Conversely, loading up on MRO inventory to avoid getting stocked out can leave you with less money to be invested in more productive purposes that could spur business growth, and you may even end up with obsolete products because you simply don’t consume that many.
Panic purchases of components also happen because they were not properly stored, and you couldn’t find them when needed.
In any case, this inventory eats up space in your warehouse and is unproductive to boot.
Everyday operations can also be impacted by poor MRO inventory management, as technicians spend a lot of time trying to find parts they need.
The small amount of downtime that occurs every time can add up to a lot eventually.
Not finding the required part in time can also be irritating for the workers, and hamper their productivity.
Without accurate counts of such inventory, your business runs the risk of overstocking, stoppage of production, duplicate orders, and other similar problems.
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There are several core components of MRO inventory management; however, there can be a wide disparity in the way they are implemented.
Listing every component and supply item the business needs to stock along with their details and the quantity on hand at present.
Certain items may be commonly used across the organization while others could be used only for specific processes or departments; therefore, recording details of MRO items can help different groups check if the item they need is available.
The ability to identify which item is available quickly is vital when production issues occur.
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Determine how MRO inventory should be organized so that organizational needs are met.
Businesses often choose to centralize storage; however, sometimes it is more prudent to store items used specifically by certain departments, near them.
It is crucial that you have a system to organize MRO items within each location, enabling workers to locate them quickly.
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Just as for manufacturing inventory, having a proper process in place for MRO item procurement can help your business to purchase the appropriate quantity of MRO products economically, to guarantee that you always have what you need.
The process also involves the identification of the required items, choosing suppliers, creating requisition requests and approvals, and order tracking.
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This element of MRO inventory management includes tracking inventory levels, demand forecasting, and replenishing items in time.
We have already seen that MRO inventory management comprises the purchase, storing, distribution, and replenishment of MRO items efficiently and economically; the goal being, maintaining sufficient stock taking into consideration storage space and budget.
There are four main steps involved in efficient management of MRO items.
An organization should always have an adequate supply of the MRO items which are required to support critical processes – the things a business needs to operate on a daily basis.
For example – maintenance supplies for the most critical processes, and employee safety equipment.
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This will help you decide whether all the MRO items that you require are in stock and whether there is inventory in stock that is not really required.
By regularly counting the physical inventory, you can confirm that the inventory counts in the system are accurate, plus you get visibility into the stock on hand.
This is a very important element of managing your MRO inventory efficiently.
You can simplify purchasing by having a few strategic distributors with whom you place orders, and also decrease admin expenses.
Of course, you will need to consider several factors like the quality of products, reliability of the vendor, and the speed and cost of shipping.
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Study seasonal patterns in the use of MRO inventory, and make necessary adjustments to your purchases; this will help you ensure that you have an adequate quantity to fulfil demand, avoid obsolete inventory, and keep carrying costs low.
Key performance indicators for MRI inventory allow companies to see how efficient their MRO inventory management is, and also recognize what all needs to improve.
Acquisition costs, ability to fulfil demand and efficiency are the focus of the most popular MRO inventory KPIs.
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The lower this figure, the better – assuming of course, that the company has sufficient inventory to fulfil its requirements.
The percentage of total expenditure that is part of MRO inventory differs by industry.
Product-intensive industries like manufacturing, retail, FMCG, packaged goods, etc. are likely to have a lot more MRO inventory than other industries.
This refers to what percentage of overall MRO spending goes to the strategic suppliers selected by the company.
The general rule is that 15% of suppliers should get about 80% of your overall spend.
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This shows how many days specific inventory remains with your business, and ideally, anything under 30 days is good, regardless of the industry.
Idle inventory costs businesses significantly.
Emergency orders tend to be expensive and should be at the bare minimum – an exception, not the norm.
if this figure is high, it could indicate that your inventory management process is not efficient; an example could be improper forecasting of demand.
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This is an indication that you are not maintaining adequate MRO inventory to ensure that you have what you need.
When comparing the number of stockouts to the total picked items, if the answer is anything above 1%, you have a problem.
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You can ensure that the expenditure on MRO inventory is within budget and that you have sufficient inventory to meet your requirements by employing the following best practices:
All your employees must understand the procurement process for MRO items, and the method to find the items they require.
Facilitate meetings between procurement staff and various department heads so that you can eliminate or minimize indiscriminate spending, and cut expenses.
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This makes it easy to track inventory and avoid duplicate purchases of MRO items.
You can ask for your MRO item vendors to manage your inventory on the site by tracking inventory levels and replenishing them automatically when the item levels go low.
This frees your employees from this time-consuming task, enabling them to focus on more productive tasks, and it also streamlines your MRO inventory procurement.
Automation streamlines and quickens the entire process, forecasts demand more accurately, eliminates the possibility of fraud, and simplifies inventory tracking, among other things.
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MRO inventory management is probably one of the functions accorded the least importance by organizations, and it is indeed unfortunate.
As we have seen, indiscriminate spending or improper purchase can all impact your bottom line negatively.
A reliable ERP like Tranquil can take away the guesswork from this function and increase efficiency and productivity with its robust inventory management features. Do schedule a demo to understand how our software can help your business.
