Importance of stock management in the supply chain
The supply chain plays a crucial role within a company, and for the proper functioning of the company, inventory management in the supply chain is a fundamental part. Many experts who discuss this topic reinforce this statement: for the Supply Chain Digital, portal, the clear adoption of actions that positively impact the process of requesting, organizing and using inventory is essential for the long-term growth of organizations.
In general terms, inventory management (or control) refers to the action of monitoring your organization’s assets and classifying them according to their weight, dimensions, quantity and location, in order to reduce costs to maintain an inventory, which helps the purchasing department know when to restock products and buy materials for their operations.
In this article, we will show examples and techniques to help you have a more efficient management of your spare parts inventory. Inventory control involves complex decision processes (what to buy, when to buy, cut excesses and meet demands), and by mastering them, waste and unnecessary expenses are eliminated.
The importance of stock management
As part of supply chains, inventory management helps organize and control supplier purchases.
Maintaining effective inventory management is important to ensure that you have enough of a certain indirect material to meet possible demands (e.g. maintaining a machine of your operation). If not done properly, your productivity will be impacted, which will compromise your competitive potential.
In addition, among the ways in which inventory management can help an organization, we can highlight:
- Avoiding dead stock: it reduces the chances that indirect materials can no longer be used (because they have become irrelevant or have been poorly stored, for example).
- Saving on storage costs: as in many cases it is a variable cost, that is, it changes according to the amount of materials stored, when you keep these materials, your costs go up.
- Helping with the cash flow: storage directly affects your sales and expenses, and consequently, how much money is in the purchasing department’s cash flow. In this way, an inventory management system helps you control these important variables.
Stock management techniques
There are different ways and techniques for stock management, which can be adapted to the reality of each company and avoid problems in the sector. We list some of them below, relevant to the storage of parts:
1. Standardize stock levels
Setting the minimum quantity of materials that must not be missing is essential. This can be done in conjunction with the areas that use these parts, considering delivery times, storage conditions and other variables that involve the acquisition and delivery of these materials.
2. First in, first out (FIFO)
The first material to enter the stock must be the first one to leave, which prevents it from expiring in the warehouse or becoming obsolete.
3. Relationship Management
A good relationship with your suppliers is essential to solve any possible problems – such as replacing something in a more agile way, returning a barely used part, negotiating order quantities – through an agile and clear negotiation.
4. Contingency plan
Problems happen, even when trying to avoid them. Therefore, one should prepare as much as possible, keeping in mind the questions: what are the possible risks we have (for example, the delay in sending an order) and how to react to them? What steps to take and how do they impact the business?
5. Regular Auditing
Even with technological systems for control, it is important to adopt the custom of physically checking which parts are stored (many organizations do this audit once a year). There are also options to perform spot checks or check cycles for each product.
6. Use strategic supply matrix
Prioritize the storage of materials according to their relevance in company operations. The following proportion of space used is suggested: 80% for the most important products (category A), 15% for less important products (category B) and 5% for obsolete products (category C).
Tip: see our Strategic Sourcing content and download our Strategic Sourcing matrix.
Even though it is a complex activity, predicting demands can help in stock control. Therefore, look for specific information (such as forecasts of spare parts demands with the maintenance area) and more general information about the company (sales in previous years, market trends, annual growth rate, among other data).
8. Last in, first out (LIFO)
It defines that the last material purchased is the first to be used. Ideal for cases of companies whose spare parts storage has a high turnover, avoiding additional expenses in storage and their devaluation.
9. Just in time
Keep the minimum reserve for the demand and replace it before the material leaves the warehouse. It demands a rigorous control and an accurate forecast, but it can be a good option for organizations with calculated launches, with a certain quantity in an exact period of the year. For purchasing materials that will be stocked, define an annual contract, which guarantees the prices quoted for one year, this will help to reduce costs and increase productivity.
10. Safety Stock
An emergency fund, i.e. an extra quantity of certain reserved material if the normal stock limit is reached. It is a good option to avoid problems such as interruption of supply from your supply chain, if your goods are damaged or other unforeseen circumstances.
11. New order point
Define the level at which the spare parts need to be replaced, considering the safety point, which corresponds to the ideal quantity of material stocked for the fulfillment of all commitments assumed by the organization, and the ideal time to receive the order, without running unforeseen risks (and always in dialogue with its suppliers).
In this article, we discussed the importance of maintaining efficient storage management in the supply chain in your organization, by helping in the adequate supply of indirect materials, which avoids shortages that can compromise operations or excesses that generate unforeseen expenses or waste.
To have this efficient management, in addition to the techniques already mentioned, it is essential to have adequate softwares and a computerized control system, combined with periodic physical counts – relevant to know what is in your inventory at any time, which allows to detect and update possible changes and define an action plan for requests.
The main tip is: in the most convenient format for your organization, keep the updated and organized data about your storage.
We also saw the importance of a good relationship with quality suppliers for an effective management. A late delivery can damage days of production, which creates unnecessary losses.
In this case, a good option is to count on a company like Soluparts, specialized in negotiating with the main suppliers in the world, and obtaining better commercial conditions in the purchase of indirect materials. Talk to one of our specialists for more information.