Overstocking: Why Is It Bad and How Can You Prevent It?

How to prevent overstocking?

Not having enough parts in stock to fulfill a request is a nightmarish situation for any maintenance manager. It leads to longer repair times and periods of downtime which should both be avoided at all costs. How to most managers go about avoiding this situation? They double or triple up on the stock in their inventory. Is this smart? What are the risks associated with overstocking?

The importance of having the right stock

Lets imagine that you’re hosting a party at your house for 50 people. As the good host that you are, you’ll make sure that there is enough food, drink, cutlery and crockery for everyone. Let’s start by calculating the number of drinks you need. Some people only drink water, others prefer juice whilst the more daring of your guests may choose alcoholic drinks. Everyone will drink at least 1 drink, but the average will be a mix and match of around 3 250 ml glasses per person.

You need to ensure at least 750 ml per person, which is a total of 37.5 liters. The problem is that not everyone enjoys the same drinks and so you need to plan how you’re going to stock several drinks. Let’s take a totally random but educated guess and say that beer is the most popular drink: You decide to buy 150 bottles. You now have a pretty big problem though, don’t you?… if your fridge is already full of beers, where do you store the remaining drinks? If these bottles are not consumed, how long can you keep them at home?

These are two problems of everyday overstocking. Fortunately, among friends it’s easy to split the “leftovers” of a poorly planned party (rest assured: NO beer was harmed in the production of this article). However, in the case of a business, overstocking is far more complicated to solve and normally equates to losses. The fridge that you manage becomes a huge warehouse with expensive rent. Not having enough lemonade has been scaled up to a crucial piece of equipment that might not work. So, what’s the solution?

Determine demand

In the scenario that we just described, you could have avoided ever needing to play the guessing game had you just asked your friends what they wanted to drink. Don’t assume everyone wants beer… some people prefer wine! The same can be said about maintenance management in the sense that you have to have an idea of the needs of your team and of your customers. If you’re inventory has a focus on preventive and predictive maintenance, you need to make sure you have enough stock to cover this plan and replace key parts at any point. In the case of corrective maintenance, it’s important to keep the mean time between failures in mind as the figures may be useful for predicting stock.

You should always use hard data as a basis from which you determine your orders. A CMMS can help you study trends, seasonality and mean time between failures.

Space management

One of the biggest risks of overstocking is not having enough space to store the parts that you really depend on. This is why you shouldn’t think of each spare part; try to focus on the entirety of your inventory instead. Set the minimum number of units for each Stock Keeping Unit (SKU) and never overstock in a way that leaves no storage space for this set minimum. That is the only way to ensure that you don’t compromise one equipment over another. If you have parts that need some sort of special accommodation, for example, low temperatures, create distinctive types of storage space in your software.

Stock management in real-time

There’s no better way to manage your stock than in real-time. Choose a CMMS that tells you how many pieces you have in stock at any given moment and how many are being used. Estimates based on historical data allow you to have an idea of how many pieces you expect to use in the next month, which in combination with the amount of time it takes to ship the part, will help you set the minimum number of parts to stock. As for the maximum number of pieces, combine the expiration date of each item with the speed at which you expect to use them. For example, there’s no use in having a huge amount of lithium batteries in stock if batteries with acidic pH start losing effectiveness after 24 months in storage.