The difference between operational excellence and constant firefighting often comes down to one critical factor: knowing exactly what parts you have and where they are.
Improved parts and inventory management ranks as the second most effective strategy for cutting unplanned downtime costs, according to our State of Industrial Maintenance Report. When critical components aren't available when you need them, even the best maintenance plans fall apart.
Let's explore the fundamentals, benefits, and modern approaches that are transforming how industrial organizations and maintenance professionals manage their inventory.
Key takeaways
- Inventory management is the systematic process of tracking, controlling, and optimizing your parts and materials to ensure availability while minimizing costs.
- Combine different inventory management methods (like JIT, ABC Analysis, and EOQ) based on part criticality, usage patterns, and lead times.
- Implement a mobile-first inventory system that lets technicians access and update parts data in real time from anywhere in your facility.
- Use data analytics to track usage patterns, optimize stocking levels, and make proactive purchasing decisions instead of reactive emergency orders.
What is inventory management?
Inventory management for maintenance teams is a systematic process that ensures you have the right parts, in the right quantities, at the right locations, exactly when you need them. Unlike warehouse inventory, which focuses on finished goods or raw materials for sales or production, maintenance inventory directly impacts equipment reliability and uptime. It's about strategically ordering, storing, tracking, and controlling the critical components that prevent downtime and keep your operations running smoothly.
Effective inventory management addresses these core questions:
- What items do you have in stock?
- Where are they located?
- How many do you have?
- When should you reorder?
- Which assets require which parts?
One of the key components of maintenance inventory management is balancing the cost of carrying rarely-used but critical parts against the risk of expensive downtime when those parts aren't available during equipment failures.
Why is investing in inventory management important?
A well-run inventory management program saves you money. We recently surveyed our customers and found that applying a systemic approach to inventory management reduced parts inventory costs by an average of 34%.
These savings come from eliminating duplicate purchases, reducing emergency shipping fees, minimizing carrying costs, and maintaining optimal stock levels.
But cost savings are not the only advantage. Effective inventory management will also:
Promote operational excellence
Inventory reliability creates a foundation for operational excellence throughout your facility. When critical components are always in stock and technicians know exactly where to find them, work orders get completed easier and faster.
A well-managed inventory system transforms reactive scrambling into proactive efficiency.
Get more out of your employees
Your skilled technicians waste valuable time searching for parts, waiting for emergency deliveries, or improvising workarounds when components aren't readily available.
By implementing effective inventory management, you redirect this lost time toward productive maintenance work.
Technicians can focus on repairs and preventive tasks instead of hunting for parts, immediately boosting your team's productivity without adding headcount.
Transform forecasting
Modern inventory management systems collect and analyze data about your parts usage over time, giving you insights that were previously impossible to obtain.
This data-driven approach transforms your ability to plan ahead. Instead of relying on gut feelings or emergency reorders, you can make decisions based on actual usage patterns to:
- Set accurate minimum stock levels for each part
- Predict which components you'll need before equipment fails
- Time your orders to avoid both stockouts and excess inventory
- Share inventory data across facilities to enable part transfers when needed
Prevent million-dollar mistakes
The true cost of poor inventory management goes far beyond the price of parts. A single missing $50 component can trigger thousands in production losses through equipment downtime.
By ensuring critical parts are always available, you prevent these cascading failures that impact your entire operation.
Proper inventory management serves as an insurance policy against the most expensive maintenance emergencies and production interruptions.
Core methods and approaches to inventory management
The right inventory management strategy often involves combining several complementary methods based on your specific maintenance needs.
Here are some of the most effective inventory management methods that you can mix and match for your maintenance operation:
Just-in-time (JIT)
Just-in-time inventory management takes a lean approach to parts management, contrasting with the more conservative Just-in-case (JIC) method, where higher stock levels are maintained. Most maintenance operations use elements of both strategies, applying them to different types of parts based on criticality and predictability.
JIT aims to receive parts precisely when they're needed for maintenance work rather than storing large quantities.
For example, instead of keeping 50 air filters in stock, you might maintain just five and set up an automated reorder system that triggers two weeks before you'll need more, based on your usage patterns.
This approach reduces carrying costs and storage space requirements while freeing up capital that would otherwise be tied up in rarely-used inventory. JIT works particularly well for:
- Components with predictable failure rates and short lead times
- Facilities with limited storage space
- Maintenance tasks that follow regular, predictable schedules
The key to successful JIT implementation is establishing reliable supplier relationships and maintaining accurate usage data. You'll also need to set appropriate safety margins to account for situations like unexpected equipment failures, supply chain delays, or sudden increases in production demands.
Economic order quantity (EOQ)
Economic order quantity is a calculation-based approach that determines the optimal amount of inventory to order by finding the perfect balance between ordering costs and storage costs.
The formula takes into account your annual usage rate, cost per order, annual holding cost per unit, and purchase cost per unit. The basic EOQ formula is:
EOQ = √[(2 × Annual demand × Order cost) ÷ Annual holding cost]
For example, if you use 500 air filters annually, it costs $10 to place an order, and it costs $2 per year to store each filter, your calculation would be:
EOQ = √[(2 × 500 × $10) ÷ $2] = √5,000 = 70.7
This tells you that ordering approximately 71 filters at a time minimizes your total inventory costs.
The main benefit of EOQ is that it brings mathematical precision to what's often a guessing game. For maintenance teams, EOQ is particularly valuable for regularly used parts like filters, bearings, and lubricants.
ABC analysis
ABC analysis recognizes that a small percentage of your parts inventory often accounts for the majority of your inventory value and operational impact.
Similar to the Pareto principle, this method helps you determine where to invest your limited resources based on where they'll have the greatest impact. The approach categorizes your inventory into three tiers:
- A items (critical) represent about 20% of your inventory items but account for around 70-80% of your inventory value. These might be expensive motors, specialized electronic components, or custom-machined parts that have high costs and a significant impact on operations.
- B items (important) make up roughly 30% of your inventory items and about 15-25% of inventory value. These are moderately expensive parts that are important but not critical; items like standard pumps, smaller motors, or common electrical components.
- C items (routine) account for about 50% of inventory items but only 5-10% of value. These might be nuts, bolts, washers, basic electrical supplies, or standard consumables.
For your critical A items, implement tight controls with regular cycle counts and detailed tracking. For your B and C items, you can use progressively simpler approaches, scaling your inventory management efforts proportionally to each category's impact on your operation.
Safety stock and reorder points
Safety stock and reorder points work together as a system to prevent stockouts while minimizing excess inventory. Think of it as an early warning system combined with an insurance policy for your parts inventory.
Reorder point is the inventory level that triggers a new order. It's calculated based on lead time (how long it takes to receive an order) and average usage rate.
For example, if you typically use two air filters per week and it takes three weeks to receive a new shipment, your reorder point might be set at six filters (2 filters × 3 weeks) to ensure you don't run out while waiting for the new order.
Safety stock is the buffer inventory kept on hand to protect against uncertainties, such as:
- Unexpected spikes in equipment failures
- Supplier delivery delays
- Quality issues with received parts
- Sudden increases in production demands
The amount of safety stock depends on several factors:
- How critical the part is to operations
- How variable your usage patterns are
- How reliable your suppliers are
- How accurate your forecasts tend to be
For example, you might set a higher safety stock level for a critical pump component that would shut down production if unavailable, and a lower stock level for a routine maintenance item with numerous alternatives.
Perpetual vs. periodic systems
These two approaches represent fundamentally different methods of tracking inventory levels:
Perpetual inventory systems continuously monitor inventory levels in real time, updating records with each transaction. Every time a part is used in a work order or received from a supplier, the inventory count is immediately adjusted.
These systems typically use technologies like:
- Barcode scanning
- RFID tags
- Integration with work order systems
- Mobile apps for technicians to report usage
The main advantages include accurate real-time data, improved accountability, better theft prevention, and automatic triggering of reorders when levels hit predetermined thresholds. However, perpetual systems require more technology infrastructure and consistent discipline from all users.
Periodic inventory systems update inventory records at scheduled intervals (weekly, monthly, etc.) rather than in real time. Between these physical counts, you operate based on your records from the last count, not the exact current quantities.
For example, if your last monthly count showed you had 50 filters, and your records indicate your team used 30, you assume you have 20 left, even though the actual number might differ due to unrecorded usage or misplaced parts.
While periodic systems require less technology and daily discipline, they create windows where actual inventory levels may differ from what's recorded in your system, leading to unexpected stockouts, emergency orders, or inefficient purchasing decisions.
How to pick an inventory management system that works for you
While core inventory management methods are still crucial, today's technology can turn complex inventory theory into streamlined operational processes. Here are key factors to consider when evaluating solutions:
Mobile accessibility and user-friendly design
Inventory management happens in the warehouse, on the shop floor, and everywhere your technicians work. Look for a system with a mobile-first approach that puts critical information at your team's fingertips wherever they are.
The best computerized maintenance management systems (CMMS) manage work orders and maintenance activities allow technicians to scan barcodes, check parts availability, reserve components for upcoming jobs, and update quantities used, all from their mobile devices.
The interface should also be intuitive enough that even team members with minimal technical skills can learn it quickly. Prioritize solutions with clean, simple designs that require minimal training and make everyday tasks like finding, requesting, and tracking parts straightforward.
Integration capabilities
Your inventory system should connect with your procurement software to automatically generate purchase orders when parts reach reorder points. It should also connect with your enterprise asset management (EAM) system and enterprise resource planning (ERP) system, if you use them, to provide financial visibility and help with budgeting decisions.
For advanced operations, consider compatibility with Internet of Things (IoT) sensors that can trigger parts replacement based on equipment condition rather than fixed schedules.
These integrations eliminate double-entry, reduce errors, and create a seamless flow of information across your maintenance operation.
Reporting and analytics
A quality inventory management system provides actionable insights that help you make data-driven strategic decisions. Look for reporting features that include:
- Usage pattern analysis tools that identify which parts you use most frequently
- Multi-site inventory reporting that show inventory levels across all your locations
- Parts cost tracking dashboards that help you identify where your inventory budget is going and find opportunities to reduce costs
- Downtime correlation analytics that connect parts availability with equipment uptime
- Automated reordering systems that notify you when parts reach minimum thresholds before you experience stockouts
Teams that have real-time data at their fingertips can make better decisions about what to stock, when to order, and how to distribute parts across facilities.
Start investing in your inventory management
Whether you're managing a single facility or coordinating parts across multiple locations, modern inventory management solutions can help you gain control over your inventory and transform your maintenance operations.
"We're able to reduce downtime due to long lead times on spare parts orders because we can catch those things a lot sooner," explains Julie Lisea, Operations Administrator at Maas Energy Works. "I run a parts report weekly on MaintainX. I can reconcile parts across four states in 20 minutes."
Explore MaintainX's parts inventory management capabilities to discover how our solution can help your team reduce costs, prevent downtime, and maximize your maintenance efficiency.
FAQs
How much inventory should a startup carry versus an established firm?
Startups should focus on maintaining minimal inventory to improve cash flow while ensuring they can meet customer demand. Prioritize inventory management tools that help you track customer orders and forecast future demand.
Established firms can afford more comprehensive inventory management systems with greater inventory visibility across the supply chain.
While startups might rely more on just-in-time approaches to minimize storage costs, established companies can tap into more sophisticated inventory management processes that optimize inventory levels based on historical sales data and customer satisfaction metrics.
What hidden costs arise from poor inventory management, and how can I quantify them?
Poor inventory management creates several hidden costs beyond basic inventory holding costs:
- Shrinkage (unaccounted inventory losses)
- Excess inventory that becomes outdated or unusable
- Rush freight and expedited shipping costs
- Production process interruptions
- Reduced customer satisfaction from fulfillment process delays
- Supply chain disruptions that ripple throughout operations
Quantify these costs by tracking inventory accuracy rates, measuring order fulfillment process performance, and analyzing supply chain efficiency metrics. The most successful inventory management strategies minimize these hidden costs while maintaining optimal stock levels.
What's the typical implementation timeline for barcode/RFID inventory tracking, and how should we train staff for adoption?
Implementing barcode or RFID inventory tracking systems typically takes 2-4 months. The process includes inventory data cleanup, system configuration, tagging implementation, and staff training.
To ensure successful inventory management efforts, focus training on how the new system improves point of sale operations, simplifies inventory counts, and enhances overall supply chain management.
The best inventory management techniques involve all stakeholders from the beginning, with proper inventory management training that emphasizes how the system will benefit their daily work by reducing manual inventory system tasks.
What are the best practices for inventory management during hyper-growth periods?
During rapid growth, focus on inventory management strategies that support scaling without compromising customer expectations:
- Implement demand forecasting tools to predict future demand based on current growth trends
- Develop vendor-managed inventory relationships with key suppliers
- Optimize your supply chain management to support increased volume
- Establish clear inventory management methods for new products or locations
- Balance production process needs with inventory holding costs
- Use inventory management software that provides real-time inventory visibility
- Consider periodic inventory system audits to maintain inventory accuracy during rapid change
- Create inventory management FAQs and training materials to quickly onboard new staff
The MaintainX team is made up of maintenance and manufacturing experts. They’re here to share industry knowledge, explain product features, and help workers get more done with MaintainX!
