Maintenance Storeroom Inventory Turns

 Maintenance Storeroom Inventory Turns

 

Written by Dan DeWald, a friend and true professional.  One question that is always asked concerning a maintenance storeroom is “What kind of turns does a typical storeroom get?”  SMRP Definition: Storeroom Inventory Turns - The metric is a measure of how quickly inventory is flowing through the storeroom inventory system.  SMRP Metric Objective- This metric is used to measure the appropriateness of storeroom inventory levels.  SMRP Formula - Stores Inventory Turns = Value of stock purchased ÷ Value of stock on hand

First, there is no typical storeroom. Some may be industry specific, plant specific, or, department specific; but all storerooms have one common theme: to store parts and material that supports both production and maintenance. When parts are not available, downtime occurs which results in decreased throughput, lost wages, and less than expected output.  The average storeroom turns is 2 to 3 turns per year. Turns are defined as the cost of goods sold divided by the average inventory valuation. Or, in other words: 

Storerooms have the potential to improve inventory turns by:

• Establishing and maintaining inventory controls 
• Buying “smart” (only what you need and when you need it) 
• Establishing physical security 
• Implementing a “closed” storeroom with limited access 
• Min/Max utilization 
• Detailed job planning by maintenance planners 
• Kitting, staging, and delivering parts for maintenance activities 
• Consolidating vendors and rating them on performance and price 
• Vendor Managed Inventory 
• Consignment 
• Solid materials management skills 
• Establishing work processes and auditing to identify opportunities that reduce waste and streamline the value stream
• Team-building

Although there is no typical storeroom, following these recommendations will improve inventory turns. For those storerooms that expense their inventory, the benefits of having inventory “on the books” cannot be achieved.  Why focus on reducing inventory turns? A goal of inventory reduction is necessary before a program to reduce inventory turns can occur. 

Each item above must be established separately, then utilized together for the desired results. Each in itself will not guarantee a reduced inventory level or an increase in turnover rates, but when applied together, the results are a successful increase in turnover and a decrease in inventory levels. 

Short-term inventory turns are based on three-months of average inventory and a one-year cost of goods sold or used. This gives a trend line of inventory where decisions can be made in a shorter time frame than with a long-term inventory turn. The long term inventory turn is based on a year of cost of goods sold divided by the yearly average of inventory value.

The measurement of inventory turns is a Key Performance Indicator (KPI) for the storeroom manager to routinely review and monitor. Graphs should display a trend line of turnover, and a monthly analysis should be conducted. Reduction in inventory turns is a necessary materials management tool that needs to applied and utilized.

Please post your comments. Questions email Dan DeWald at [email protected]

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The Author: Ricky Smith CMRP, CMRT, CRL

 

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