Why you need a better parts inventory system.
Service vehicles and landscape equipment are designed for work and often get rough treatment. Professional landscaping is hardly a “dainty” trade. To remain operable, productive and safe, you must maintain and repair them frequently. To do this, you must maintain an inventory of commonly needed maintenance and repair parts. The right amount of the right parts at the right time will provide you with what you need when you need it along with reducing the stress on your operating capital and reducing make-work activity.
Conversely, downtime caused by the lack of a particular part, even an inexpensive one, such as a belt or hose, can be very costly to you in terms of lost revenue. If a key vehicle or production unit is out of service for any length of time because you lack the part to get it up and running again, you lose not only the production of that unit, but also the production of the operator.
Your parts inventory exists to improve your level of service and support your shop operations by reducing fleet downtime and increasing your company’s gross profit.
In the broadest sense, inventory management is the practice of planning, directing and controlling inventory so that it contributes to your vehicle and equipment productivity, thereby enhancing your operational efficiency and business profitability. You must implement processes to control your inventory rather than the other way around.
My 35-plus years in the vehicle/equipment management industry have convinced me that most companies can do a better job of managing their parts inventory. Too often, the process involves a lot of waste. It doesn’t have to be that way, thanks to computerization.
Before the computer, inventory was tracked and replenished manually using stock cards. Buyers kept a file containing part numbers and descriptions, stock status, little notes, hints and hunches that assisted them in formulating the correct level of parts to stock.
The march of computerization
The computer has allowed us to provide a great deal of “science” along with the “art” of buying. Even so, a computerized inventory is dependent upon your equipment/fleet manager’s knowledge of fleet mix and its average age to assure that you will have the right part at the right time.
As most of us know, most landscape companies, given their relatively small size, still manage their parts inventory manually. Some companies can do it quite efficiently that way. It should be obvious, however, that inventory computerization is almost inevitable for all companies.
This will make it easier for you to implement processes to measure what is ordered, delivered and stocked each day, along with what is put on your vehicles or equipment. It will also allow you to track what is backordered.
Measuring this process gives you vital information to control excesses, and to receive a daily efficiency check. It also allows you to compare it to out-of-service vehicles or equipment due to lack of parts. Daily knowledge is vital for taking prompt corrective action as well as analyzing and understanding procedures that need improvements and doing what is necessary to improve our productivity.
Generally, the parts you require for maintaining and repairing your vehicles and equipment fall into three categories:
- Big-ticket items (usually repair items), which constitute 10 percent of inventory but 70 percent of its cost;
- Fast moving items that are usually about 70 percent of your inventory but only 10 percent of cost; and
- In-between items (for want of a better term) that come in at 20 percent of the inventory in your shop.
Measure carefully the big-ticket items you stock. They should be used immediately to get vehicles and equipment back on the job rather than being stocked and taking up valuable space. In some cases, they may even deteriorate if they are stored too long.
You can afford to be with fast-moving items given their relatively low costs. You know you regularly need them, especially if there are items or parts, such as filters, hoses, belts, spark plugs, etc., required for regular equipment maintenance or fast repairs in the shop or on the job.
The carrying costs of inventory are about 34 percent of the total inventory value. The breakdown is as follows:
- The cost of storage space, including rent or proportionate building depreciation, building maintenance and repair, utilities and labor costs for janitorial staff and security guards, including fringe benefits, is 4 percent.
- The cost of inventory stores and materials handling equipment, including depreciation on shelves and bins, maintenance of materialshandling equipment, fuel, use of records and forms, and purchase of office equipment is 1 percent.
- Taxes, including taxes on materials handling equipment, inventory, shelves, bins, record-processing equipment, and allocated portions on land and buildings, constitute 1 percent of the total.
- Insurance, including allocated portions on buildings, plus inventory, materials handling equipment, bins, shelves, etc., adds 2 percent.
- Targeted inventory personnel costs, including salaries and fringe benefits of full-time parts employees and allocated portions of part-time clerical or supervisory employees, are 11 percent.
- Obsolescence, including damaged or nonreturnable parts, pilferage and time spent filing warranty claims and returning parts for credit, adds 5 percent.
- Money costs, or the lack of return on inventory and control investment that might otherwise produce income, adds 10 percent.
Just-in-time parts management
This brings us to topic of just-in-time (JIT) inventory given the landscapes industry’s pronounced shift to “lean” systems. JIT is a systems approach to inventory control based on the total elimination of waste that, of course, is impossible, but remains the goal nonetheless.
JIT requires that the needed part is available only in the amount required and at the time required when doing the job. It is based on inventorying only the necessary units in the necessary quantities. When applied correctly, it increases productivity and work performance while saving costs. Since a major focus of JIT is the reduction of inventory, it is apparent that planning, scheduling and control will be very important elements of JIT.
However, with inventory levels so low, it is critical that the inventory that does exist be in the right place at the right time. Also, managers require sophisticated management processes, lots of historical data and information from the selection and evaluation of suppliers to the application of computer-based scheduling and planning tools. Improved teamwork and cooperation are necessary for obtaining effective planning data.
Applying JIT to maintenance and repair functions can yield significant improvements, allowing an organization to reduce its downtime and inventory levels, improve suppliers’ performance in availability or timeliness, and, most importantly, create supplier partnerships to further improve the process.
If the user and suppliers forge a true partnership, parts suppliers will be more than willing to come to the table, but only if JIT offers a “win-win” solution.