The Difference Between Tasks and Management
One of the major problems with managing spare parts inventory is that many people consider it to be a ‘task oriented’ function.
That is, they assume that spare parts inventory management only requires the completion of a series of routine tasks, and just so long as these are done, then all will be OK. If only this were true!
Of course, some aspects of managing spare parts inventory are task oriented – such as receiving inwards goods, entering information into the IT system, and issuing items for use.
However, these are all transactional or administration activities, they are not spare parts inventory management activities.
The key difference is that management activities involve consideration of the spare parts inventory life cycle and making choices based on the exercise of data, judgement, and reasoning.
Tasks or transactions are about short term activities that take place here and now. They require the individual to follow specific steps, with few or no choices of any consequence. For example, the transaction for issuing an item from an inventory involves collecting the information on what was removed, how many, and to where the cost will be allocated. A simple process with the only choice being the cost allocation. This is spare parts transaction recording, not spare parts inventory management.
Spare parts inventory management involves all of those decisions where there is a choice to be made that has an impact over the spare parts inventory life cycle rather than just a transaction to be processed.
Why is This Spare Parts Inventory Life Cycle Distinction Important?
This distinction is important because companies that think of spare parts inventory only in terms of transactions, almost invariably, have short-term thinking, which results in poor inventory performance. These companies have too much inventory, low levels of accuracy, frequent stock outs, and higher operating costs.
Consider just three decisions to be made at the beginning of the life-cycle of a spare part:
- Should the item be stocked or not?
- What should the re-order point be?
- What should the re-order quantity be?
These are not transactional tasks; they are decisions about whether or not to spend the company’s money on parts that may or may not ever be used. These are genuine, ‘balance the pros and cons’, management decisions that will have an impact on the company cash flow, balance sheet, and operational performance for years to come. That is why spare parts inventory life cycle considerations are so important.
Later on, during the life cycle of the part, assessments need to be made on whether the initial decisions are still valid or whether the stock holding parameters should be varied. Towards the end of the life cycle, the inventory of the part may need to be managed down to minimize any obsolescence or write offs. The timing and decisions related to this (often called the last-time-buy) are important and complex. Processing the disposal of items is transactional, deciding when and how, is not.
At its core, managing a spare parts inventory is all about management decision-making over the spare parts life cycle, not transactions.
Spare Parts Life Cycle Management Requires Know How
Companies that fail to recognize the genuine management skills and know-how required for spare parts inventory decision-making will routinely under-estimate the requirements of their staff and often treat their storeroom as a place of low skill need.
This then results in an underinvestment in their storeroom team development. By maintaining low skill levels, the short term focus on transaction management becomes a self-fulfilling prophecy. Those team members who do want to achieve more become disillusioned and maybe even leave the organization, or at least find a way out of the storeroom.
However, once a company recognizes that many spare parts inventory related activities require genuine management insight and know-how, and they are prepared to invest in their team’s ability to make the required decisions, they can revolutionize their spare parts inventory management results.
Better decision making results in reduced excess inventory, improved inventory ‘mix’, improved storeroom accuracy, reduced delays that create additional downtime, minimized write downs, and overall lower costs.
Sometimes people worry that they will train their team members and they will leave, with spare parts inventory the bigger worry is if you don’t train your team and they stay!
Whether you want individual training or team training, visit this page for links to relevant training options.
Author: Phillip Slater