The use of ABC Analysis for spare parts inventory control can help you make the most of limited resources in controlling inventory. In conjunction with Cycle Counting, ABC Analysis can substantially reduce stock out situations while reducing the manpower required to manage your inventory.
We have been working with customers for over 35 years to implement CMMS / EAMS solutions worldwide. During this time we have seen many different approaches to try and integrate these systems into existing or new processes and procedures for the surrounding business environment. This series of “Success Topics” is our attempt to share some of the recurring topics that we feel provide the best return on investment of time and effort to address.
Using ABC Analysis for Spare Parts Inventory Control
ABC Analysis is a way to categorize your inventory into three or more groups, with “A” designated items requiring your staff’s primary attention and “C” items the least amount of attention. By attention, we mean active control of their stock levels.
Cycle Counting is an approach to spread yearly physical stock count processes into weekly or monthly processes that can be performed by existing staff in down time periods.
ABC Item Designation Analysis
ABC Analysis is a process used to categorize your spare part line items into three groups. “A” items represent those items with the highest value and highest turnover rates. The “A” items should be the top 10-15 % of your line items. “B” items are then either high value with limited turnover, or lower value with high turnover, and represent the next 20-30% of your line items. The remainder are considered “C” items. In GP MaTe we suggest creating an additional designation, which we will refer to as N here, to represent non-stocked or consumable line items.
How is ABC Calculated or Determined?
The easiest method to determine the ABC designation is to run a report that ranks your spare parts using a calculation of unit price x issues in the past year. Then you can take the top 10-15% of the line items and consider them “A” items. If you have 2,000 line items in stock, your “A” items would be the top 200-300 items. The next 400 to 600 would be “B” items and the remaining stocked items would be “C” items. MaTe PCS can help you generate these reports and add the ABC codes to the database after review.
Why do you want to do this?
It turns out that the “A” items will typically represent over 80% of your inventory costs, in terms of both value and activity. By focusing your control on these items you will manage to save considerable time and energy while ensuring that required spare parts are available.
Consumables and Non-stock Items
Consumables and non-stock items are inventory line items that are expensed when received, and their stocked quantities are not tracked by the issue process. An example of consumables could be light bulbs for a dormitory or general use lubricants for a machine shop. They might be purchased in bulk and used as needed, without attempting to control their usage.
For consumables, this means that monthly checks need to be made of their levels and restock purchases made manually. For non-stock, these line items are only ordered when required and should not be sitting on shelves. To manage these items, we recommend that they have an ABC designation of “N” assigned and then be eliminated from counting lists.
Cycle Counting is a routine in GP MaTe, as well as other CMMS and inventory control systems, which enable you to create inventory counting lists on some periodicity. For use with ABC Designations, we recommend count lists be generated weekly.
Some companies use this feature to set up count lists for various areas of their storeroom on a monthly basis. Others use this to generate count lists, again for various areas, but in support of an end of year count.
But with ABC designations, you can get much more sophisticated in your approach and do a better job with inventory control. For example, you can decide that your “A” items should be counted every month or 90 days; “B” items every six months and “C” items once a year.
GP MaTe can then be setup to automatically generate a weekly count list that takes these frequencies into account, so at the end of the year you can be assured that your “A” items have been tightly controlled, with solid control on the “B” items and normal control of the “C” items. If setup properly, each weekly count list will only contain 2%-4% of your line items.
When used with portable bar code reading devices, these count lists can be quickly processed. GP MaTe has a review step where a mismatch between the physical count and the system count are reported and reviewed before counts are updated in the system.
Again, MaTe PCS is happy to work with you to get this approach setup in GP MaTe.
Proper use of ABC Analysis and Cycle Counting will enable you to better control spare parts; resulting in fewer stock outs and eventually being able to reduce stocking levels due to improved confidence in availability. Together with the use of bar codes and portable devices to perform inventory counts, accuracy can also be improved.
About GP MaTe GP MaTe is a User-friendly maintenance and material management system that facilitates maintenance planning and inventory control. Our product has many optional modules that support Safety (PSM, MOC and LOTO), Budgeting, Multi-plant information sharing, and Operator Tours and Data Collection. The system is available in many languages and interfaces with most accounting and ERP systems.