Developing Stocking Rules – Part 2
By Jon Schreibfeder

Last month we began a discussion of determining what products you should keep in stock.  As we said in that article, when you decide to stock a product, you are making a commitment.   A commitment to maintain a reasonable amount of inventory of that item on-hand, available for immediate sale or use.  But sometimes you must stock products that are not sold or used on a regular basis.   These may be:

Critical repair parts – If these products were not immediately available, normal operations of your organization, or a customer’s organization, would be disrupted.

New inventory items – These products are introduced with the hope or expectation they will be purchased or used.

This month we will discuss critical parts.  New inventory items will be examined next month.

We can divide critical items into two categories:

Very Critical Repair Parts – Lack of the part will shut down a process, and your organization cannot afford to be without the results of the process for the length of time necessary to receive the product from a replenishment source.  An example of a critical spare part is an element that will prevent a heating system from working during winter months.

Somewhat Critical Repair Parts – Lack of the part will slow down the output of a process.  The organization can operate during the time necessary to replenish stock, but with significantly lower output.

After each repair part is classified, determine the quantity of each of these items typically used to make a single repair or to sustain a process.  For example, electrical fuses may be used three at a time.  Finally determine the multiple of the typical use quantity that should be maintained in inventory.  That is, how many repairs should you be able to complete without replenishing stock.  When determining this multiple for each item consider:

The “critical nature” of the part.  If it is a very critical item, you probably want to have enough on-hand to make multiple repairs.  Somewhat critical items might only require that a single typical repair quantity be maintained in inventory.  If the organization can tolerate lower output during the time it takes to replenish stock, these products might not have to be stocked at all.

The lead time of the item.  If you are looking at several weeks or months to receive a replenishment shipment of the item, you probably want to continually maintain several multiples of the typical repair quantity in stock.

The “population” of the equipment or process(es) that uses the repair part.  The more applications that need this repair part, the more you want to stock.

The cost of the typical quantity used of the repair part.  If the part is not that expensive, it may be worth the cost to buy some extra “insurance” against a disruption in operations.

Finally, it is best practice to maintain a “where used list” for each repair part.  This will help ensure that when a piece of equipment is retired from service, or a process is discontinued, any repair parts that are no longer needed can be identified and their stock liquidated.

Have specific questions about stocking products or any aspect of inventory management?  Please let us know.  We would love to hear from you.