Effective Inventory Management Adds to the Bottom Line
by Dianna Brodine
An effective management system quickly can reduce purchasing costs, alleviate inventory bloat and help to accurately assign all costs to the appropriate project.
According to a presentation from a Grainger representative at the MAPP Annual Benchmarking & Best Practices Conference in October 2014, more than $110 billion in MRO (maintenance, repair and operating) supplies were purchased in 2013, ranging from light bulbs and cleaning supplies to maintenance parts. Unfortunately for the bottom line of the companies making those purchases, inventory worth approximately $12 billion is sitting idle on shelves.
Beyond MRO consumables, additional inventory in the form of resins, colorants and machine-specific spare parts may remain unused and untracked in plastics processing facilities, representing another significant drain on profits. In many cases, this inventory sits on shelves for weeks, months and years because companies do not effectively track what they have on hand.
Why track supply inventory?
Whether keeping a few light bulbs on hand or buying extra parts for a piece of equipment that frequently breaks down, it may seem like a good idea to make inventory purchases in anticipation of future needs. However, that decision can lead to thousands of dollars sitting idle as inventory migrates into toolboxes and supply closets throughout the facility.
If the inventory isn't readily accessible and where it's supposed to be when needed, it becomes easier to replace the item rather than committing time to tracking it down. Eventually, an inventory count comes up with 15 wrenches when only five are required. In the case of the unreliable equipment, what happens to the spare parts when the machine finally is replaced? How many years will it be before someone notices those parts sitting on a shelf in the maintenance area?
Instead, creating a method of tracking the location, consumption and reorder points for the inventory needed in the facility leads to a controlled system. Some retraining may be necessary as employees are asked to take an extra step or two to log item use. However, cost reduction comes from accountability, and accountability is a natural outcome when inventory use is tracked and analyzed.
IQMS, Paso Robles, California, provides inventory management as part of its suite of software for the manufacturing industry. Offering software systems since 1989, IQMS has industry-specific experience in providing real-time ERP, manufacturing, production monitoring, quality control and supply chain solutions to those involved in the automotive, medical, packaging and consumer goods markets, among others.
On-site consumables are only a small part of the inventory tracking provided by EnterpriseIQ, IQMS' manufacturing ERP software, with modules for tracing inter-company transactions, outsourced product and vendor-managed inventory, as well as warehouse tracking for finished product. Still, the software helps to avoid an abundance of unused inventory by providing a system in which to
- track the order of inventory items;
- assign them to purchase or job orders once on-site;
- evaluate use patterns; and
- signal the purchasing department to place another order at a predetermined level.
An inventory management system improves shop floor efficiency, streamlines the accounting process and reduces costs associated with unnecessary ordering.
"Consumables can be received against a purchase order and then assigned to a location, so those on the floor know where the item is and how much of it is in each location," said Glenn Nowak, vice president, IQMS. The consumables can be split and moved to more than one location, so that the system still knows how many are available for use, whether in the supply closet, at a station in the tool room or next to a press on the molding floor. "That works for everything from shop towels and light bulbs to resins and packaging."
Consumable use can be updated via desktop computer, tablet, smartphone app or handheld scanner. "That provides flexibility during mobility," Nowak said. "If you give the maintenance person a tablet or cellphone with an app that links to the inventory system, the use of a consumable can be logged immediately. If that person is required to find a computer station, the inventory use may not be logged right away – or at all. Flexible tracking methods provide accountability right at the point of use."
In addition, the system can provide valuable information for the purchasing department. "If there's an inventory item that always needs to be on hand, such as a mold release agent, a reorder point can be created within the system," said Nowak. "That triggers the purchasing department to replenish, so when an inventory item is consumed – no matter what location that occurs at – the order happens automatically and flows through to the purchasing module."
Nowak explained the level of detail tracked through an inventory management system often relies on a cost/benefit assessment for each company. "For smaller consumable items, it comes down to whether the company wants to spend time to track it in the system," he said. Some organizations want complete control over the inventory in their facilities, while others set a financial value above which items automatically become a tracked inventory product. "It's also a compliance issue," Nowak added. "Can the company get its employees to log the use of every consumable item, or does it make sense to require it only for higher dollar-value items?"
Once consumable use is assigned to each production activity or tracked with the use of employee/job codes, reports can be generated to see consumption patterns. "I would describe it as cradle to grave," Nowak said. "An item came in the door. Then, where did it go? Who moved it? How was it used? An inventory master report will explain what is being used for each production job, and that provides important historical information and traceability."
An effective management system quickly can reduce purchasing costs, alleviate inventory bloat and help to accurately assign all costs to the appropriate project. In addition, as Nowak explained, an inventory management system also can push a company to the front when being evaluated by potential customers.
"Inventory control and inventory traceability are financial advantages and competitive advantages," he said. "If you can track the consumables at the facility, you can keep your inventory levels under control. But, if you can trace the use of that inventory, your ability to do that can win business over other companies that can't provide that level of quality management."