The Digital Supply Chain Company

The Dangers of Obsolete and Slow-moving Inventory

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Whether you’re a manufacturing plant or a retail facility, inventory management for the spare parts, consumables, and materials needed to maintain and repair facility and plant assets is crucial. For organizations managing facility and plant assets, efficiently circulating spare parts, consumables, and materials through the warehouse, ensuring timely availability for maintenance and repairs, is crucial for maintaining optimal operations and minimizing downtime.

Learn how warehouse processes and efficient SKU management keep costs low, ensure efficient use of resources, and maximize profits.

Unfortunately for many businesses, too much of their warehouse space is occupied by slow-moving and obsolete (SLOB) inventory that gums up the works and ties up cash and storage space. Some slow-moving maintenance, repair, and operations (MRO) items are necessary in a manufacturing environment. Plants must keep critical spare machine parts on hand, and no one laments that they aren’t burning through $25,000 pumps and motors every month. But maintaining a cache of SLOB products endangers the company’s health in several ways:

  • Cashflow Crunch – The most obvious danger of SLOB inventory is that it costs money to obtain. Purchasing products or materials that you don’t need to keep revenue-generating assets running is a sunk cost. It’s money better spent on higher-demand units. Warehoused items also rack up expenses. The stores must be insured, guarded, moved out of the way, and secured, with little prospect of recouping the expenses involved.

  • Cramped Quarters – SLOB items do more than gather dust; they also occupy valuable real estate in the storeroom. With space at a premium for any business, ridding the premises of unneeded MRO supplies and FM spares clears the way for more value-added activities. The additional room could accommodate expanded production, staging, or monitoring activities.

  • Compound Disinterest – The longer SLOB inventory hangs around, the more it costs. Not only must owners pay taxes on these “assets,” but they also allow the stock to grow even more out-of-date, possibly wasting opportunities to turn them into cash through manufacturer buybacks or sales to surplus dealers.
  • Cloudy Forecasting – For maintenance organizations, inventory turn is a key indicator of business performance. SLOB inventory obscures the metrics on how efficiently a business accomplishes its procurement, purchasing, and accounting tasks. SLOB items contribute negatively to the turnover rate, forcing companies to make decisions based on incomplete and inaccurate information.

Shedding and Preventing SLOB

Too often, organizations have a hard time identifying how much SLOB inventory they are carrying, or even when SKUs qualify as slow-moving, excess, or obsolete. Clearing SLOB removes many of the obstacles to meeting the shoppers’ and internal customers’ expectations. Warehouse audits and inventory management systems can help companies identify the root causes of carrying SLOB on their books.

Often, poor demand forecasting is the culprit. For retailers, excess spare parts may result from not tracking repair and maintenance at the asset level properly, which can stem from shifting preferences, the emergence of substitute products, increased competition, or other market forces. For industrial plant maintenance teams, it may be due to overcaution in maintaining safety stock, defects caused by improper storage, or redundant SKUs. Leveraging the resources of an established inventory management partner can unlock improved forecasting by bringing transparency to ordering and warehousing processes.

Whether you do it yourself or engage a vendor offering supply chain as a service, SLOB inventory management incorporates several best practices:

  • Identification – Using turnover rate and other metrics, the first step is to discover which inventory items should be considered SLOB. This data analyzed will inform optimal quantities and reorder points.

  • Addition by Subtraction – Selling off or even scrapping SLOB items may generate a short-term loss but creates long-term opportunities for future improvements. It wipes the slate clean and allows for more efficient use of space.

  • Strategy – In some cases, vendor-managed inventory may provide a partial solution. In any case, bringing critical, costly, and variable-demand SKUs under management illuminates cost, usage, and optimization opportunities.

  • Automation and Safeguards – Enforcing work rules as to who can place orders and under what circumstances. Categorize replacement parts by which machines or assets they belong to and banish them from inventory when the equipment is replaced.

  • Scheduled Maintenance – Timing maintenance processes to correspond to expected part life not only maximizes asset uptime, but it also simplifies procurement tasks. You know just what parts and consumables you need and when, so you can take advantage of supplier discounts, contract terms, and just-in-time delivery so inventory doesn’t pile up.

Organizations can implement these steps and controls without investing in expensive infrastructure by partnering with a supply chain solutions provider. SDI, for example, manages all aspects of SLOB control as part of our vendor management, procurement, contracting, parts tracking, and warehouse optimization services. Learn more about our supply chain management services.

Contact us for help purging SLOB inventory and preventing it from creeping back into your warehouse.

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