The reality is that the classic inventory management theory does not provide realistic answers for determining the Reorder Point (ROP) and Reorder Quantity (ROQ) for spare parts inventory.
To effectively manage spare parts inventory, it is important to understand why the classic inventory management theory doesn’t work. This will stop you from the temptation of doing ‘what everyone else does’.
What people need, instead, is a sure-fire, logical, and practical approach that does.
In place of the classic theory try thinking of spare parts inventory management as a type of process control. The goal is to manage the inventory within two predefined limits. Usually, the max and min.
This approach enables you to think logically about the actual goal and not get tied up in data and calculations. In fact, it significantly simplifies the entire process.
What many people don’t consider is that, when working out the reorder point, all you need to consider is the lead time for restocking and how many units might be used during that lead time.
All risk management is addressed through assigning safety stock.
ROQ is even easier because there are real world constraints such as supplier MOQ’s that limit the minimum number of items you can reorder.
By learning about and applying this logical approach, not only will you simplify the decision-making process, but my experience is that you will make better, more transparent decisions and reduce your overall inventory holdings without any increase in risk.
And who doesn’t want that?
If you found this valuable and you want to dive deeper into this topic, our Foundations Playbook is now open.
The goal of this playbook is to teach you the absolute ‘must know’ information, tools, and techniques required for effective spare parts management.
These are simple, effective, step-by-step strategies and tools to help you make better decisions and generate improvements in spare parts management.
This course provides the fundamental know-how for people who are engaged in spare parts inventory management on a day-to-day basis.
You can read more HERE.
Posted by Phillip Slater