Overstocking: why is it bad and how can you prevent it?

Not having enough parts in stock to fulfill a request is one of the worst nightmares for any maintenance manager. The lack of parts leads to longer repair times and more downtime, which is to be avoided at all costs. To avoid this nightmare scenario, many maintenance managers end up doubling or tripling their inventory. But is this a good policy? What are the risks of overstocking?

The importance of having the right stock

Imagine that you’re hosting a party at your house for 50 people. As the good host you are, you’ll make sure that there is enough food, drinks, cutlery, plates, and glasses for everyone. Let’s start by calculating the number of drinks you need. Some people only drink water, others juice and others prefer alcoholic drinks. Everyone will drink at least 1 drink, but the average should be around 3 glasses of 250 ml per person, mix and match.

So you need to ensure at least 750 ml per person, which is a total of 37.5 liters. The issue is that not everyone enjoys the same drinks, so you need to plan how you’re going to stock several drinks. Let’s take an educated guess and say that beer is the most popular drink — so you decide to buy 150 bottles. The problem now is… if your fridge is already full of beers, where do you store the remaining drinks? And if these bottles are not consumed, how long can you keep them at home?

These are two problems of everyday overstocking. But if among friends it’s easy to split the “leftovers” of a poorly planned party, for a business overstocking equals losses. The fridge that you manage becomes a warehouse with expensive rent, not having a certain type of drink means that a piece of equipment might not work and you can’t always use the excess stock the next month. So, what’s the solution?

Determine demand

In the scenario we’ve just described, you didn’t need to play the guessing game if you had asked your friends what they wanted to drink beforehand. The same can be said about maintenance management in the sense that you have to know your team and your customer’s needs. If you’re managing inventory with a focus on preventive and predictive maintenance, make sure you have enough inventory to carry out your plan and replace key parts at any time. When it comes to corrective maintenance, it’s important to keep the mean time between failures in mind,  since you might predict stock based on this information. Use hard data to determine this — a CMMS can help you study trends, seasonality, and mean time between failures, among other metrics.

Space management

One of the biggest risks of overstocking is not having enough space to store the parts that you really need to have. This is why you shouldn’t think of each spare part; try to focus on the whole of your inventory instead. Set the minimum number of units for each Stock Keeping Unit (SKU) and never overstock in a way that leaves no storage space for this set minimum. That is the only way to ensure that you don’t compromise one equipment over another. If you have parts that need special accommodation (for example, low temperatures), create distinctive types of storage space in your software.

Stock management in real time

There’s no better way to manage your stock than in real-time. Choose a CMMS that tells you how many pieces you have in stock at this moment and how many are currently being used. Estimates based on historical data also allow you to know how many pieces you expect to use in the next month — which, in combination with the amount of time it takes to ship the part, will help you set the minimum number of parts to stock. As for the maximum number of pieces, combine the expiration date of each piece with the speed at which you expect to use them. For example, it’s no use having a huge amount of lithium batteries in stock if the batteries with acidic pH start losing effectiveness after 24 months in storage.

2019-01-21T15:18:43+00:00 By |Maintenance, Retail|