Inventory: Control it before it controls you continued

May 1, 2004

Management Matters


Control it before it controls you continued

By Brandon Battles

Whether you want it or not, some amount of inventory is necessary for every maintenance organization. The purpose of the first article of this two-part series on inventory (April's online feature) was to eliminate some of the irrational emotions concerning inventory by gaining a better understanding about the cause and nature of inventory. The first article answered three questions.

• Why do we have inventory?
• What factors can influence the levels of inventory?
• What are the costs associated with inventory?

But if the information stopped there, I would be leaving out another important item associated with inventory, control. More specifically, the second part of this series will explore the answers to a fourth question.

• What are some techniques for managing inventory?

Before answering this question, let's quickly summarize the highlights of the first article.

Basic information about inventory
In maintenance organizations, one of the most basic objectives is to have aircraft available when required by flight operations. To meet that objective, the maintenance organization must have parts available when needed. Therefore, due to the nature of, or imperfections in, the supply and demand chain, maintenance organizations are forced to carry inventory.

Other factors can complicate the maintenance organization's ability to meet its objective of having the right part available at the right time. Those factors could include dealing with an inefficient vendor, predicting the timing of a part's failure, having multiple operational locations, competing objectives of internal departments, preparing for the effect of bulletins and directives, and many other reasons that you probably know better than I do. All of these factors can have an effect on the level of inventory required in your organization.

Unfortunately, inventory comes with a cost. Some costs are obvious, such as the actual purchase price of an item, while others are not so obvious, such as the costs associated with carrying inventory (e.g. insurance, taxes, storage, obsolescence). Regardless of whether or not they're obvious, costs consume an organization's limited resources.

Therefore, a balance is required when it comes to inventory as the maintenance organization strives to reach its objective concerning aircraft availability. In essence, the maintenance organization needs to have the right part available at the right time, and if the responsibility for inventory falls upon the maintenance manager, a reasonable cost is added to the equation. Accomplishing that can prove difficult for the maintenance manager.

While you should not consider this an insult, various sources indicate that the average maintenance manager comes from a technical background, which is a background that focuses on maintaining aircraft, not necessarily controlling inventory. So if you are one of the lucky managers who has inventory as part of your domain, what can you do when it comes to controlling and managing this critical but potentially expensive asset within your organization?

Techniques for managing or controlling inventory
In other words, what can you do to control your inventory and its associated costs? The ideas listed below do not include everything that you may want to try, but they should give you a good start as you develop your specific plans and ideas.

Look for opportunities. As we have discussed, inventory is a necessary asset for the organization to meet the maintenance department's overall objective for aircraft availability. How much inventory with its related costs is the question that requires your attention as the manager of inventory.

A technician's responsibility is to complete the maintenance work as quickly as possible. Generally, if a part is required, the technician wants it immediately and rightfully so, as that is the technician's primary responsibility. However, the technician probably does not have the broader perspective that you have. You must temper the technician's approach with fiscal responsibility. You must add the cost part to the equation, the right part at the right time at a reasonable cost. Two examples will illustrate this point further.

How many times have you seen a part ordered with a high priority under the false pretense of Aircraft on Ground (AOG), when actually the aircraft is in for an inspection that is scheduled to last an extended period of time? Often times, the technician wants to complete the task so the item can be signed off. The inventory person fulfills the request by expediting the order for the part. At this point, your organization has potentially incurred several costs associated with the inventory activity, higher than normal shipping costs, higher administrative costs due to frequent orders, and if applicable, an extra fee by the vendor.

The second example involves a similar situation; only this time the technician requests an incorrect part which then creates an incorrect order. A rush to complete the task without the proper research or proper quality control creates additional costs and increases the risk of not meeting the primary availability objective. I have seen situations where the shipping costs, due to multiple shipments, have eventually exceeded the cost of the part.

Develop a system for your inventory. It is hard to believe that organizations would not have a system to record and track inventory, but that is certainly what I have observed at a number of locations. At the least, a system should let you know basic information about each part such as the quantity on hand, location, usage, and quantity on order. Almost as basic as creating the system is automating it. Automation should improve your ability to solicit and summarize information about the inventory. Additionally, automation should reduce the time required to record transactions, standardize certain types of information, and improve the quality of data entry by reducing the opportunity for error.

Whether it's automated or not, an inventory system is important. Knowing certain basic information about your inventory is a necessary management tool to give you a certain level of control. It is a tool that creates the potential for your inventory person to make the transition from an order taker to an inventory manager.

For example, a system could prevent a common occurrence in inventory. Let's assume that you use your inventory to service your fleet only. You do not sell to operations outside of your organization. How many times when you have taken the time to conduct one of those infrequent inventories have you found parts that support an aircraft that is no longer in your fleet? How long has the part sat on your shelf, in essence consuming your organization's resources, while not contributing to the overall objective of aircraft availability? If this sounds familiar, don't feel bad. You have a lot of company. A system that yields, in this case, just basic information could help you manage your organization's resources more efficiently. At the least, you could sell the part to purchase a part that is more relevant to your current fleet.

Classify your inventory. As we have already discussed, inventory is necessary due to the nature of supply and demand, but it's an asset that if not managed carefully can become costly. Should you manage each item in your inventory equally? Should each item demand the same amount of your time? If not, then which items should you manage more carefully and frequently? A technique commonly referred to as the ABC or Pareto analysis should help you. Briefly here's how it works.

First, identify the important criteria for inventory control. These criteria might include the cost of an item, the dollar volume of an item over a given period of time (e.g. annual), a reliability measure, or an item with a time life or overhaul period. You could combine criteria, such as unit cost with annual consumption, to develop a more meaningful parameter to classify your inventory. Or you could determine that more than one criterion is important and apply each to the individual items. To make my example simpler, I will use the cost of an item as the criteria to classify an item.

Next, prioritize your parts according to the unit price in descending order. Classify as 'A” items the top 20 percent of the parts in the list. Classify as 'B” items the next 40 percent. Finally, classify as 'C” items the final 40 percent. Can you guess the group on which you should focus your attention and control? Group A represents the category that poses the most risk for your organization from a financial perspective. This is the group you want to control most closely. The level of control will diminish as you move from Group A to C. Never allow an aircraft to be waiting for Group C items. They are insignificant in cost but can ground an aircraft just as quickly as any other item.

The following questions are a starting point to help you gain control. How many items does your operation consume over a period of time? Is the part reliable or does it have premature failures? If the item has poor mean-time-between removal, is it a candidate for improvement by the vendor? (You don't want to get stuck with too much quantity if an improvement is coming.) Who is the vendor that supplies the item? How long will it take them to get the item to you? (If the item has a long lead-time, you want to know this before the part needs to be replaced.) Can you exchange or repair the item? How many do you need in inventory to reduce the risk of having an aircraft unavailable for operations? (Don't use the attitude of 'just-in-case.”) Where do you operate? Is it difficult to receive parts due to geography or politics? (Customs can wreak havoc for international operations.)

The point I want to emphasize is this: Each item that falls into your Group A requires attention. Circumstances that are applicable for one item may not be for another item, but due to their placement in Group A, you have deemed them to be important and, therefore, each item deserves your attention.

Physically control your inventory. Your organization has expended resources to improve its aircraft availability. The inventory is an asset of the organization that deserves the attention, via controls, as does any other asset in the organization. Physical control implies a broad meaning for this article and would include some of the following ideas.

• Organize your inventory into one location. I realize that in aviation certain aircraft items can be quite large and heavy. Storing these items can prove challenging. However, when at all possible, locate your items together. This will reduce the risk of theft and misplacement. An inventory scattered in many locations even in one facility is difficult to control.

• Control the access to the inventory area. In smaller operations this may be more difficult as technicians can serve a dual role, working on the aircraft and pulling inventory items as required. However, when possible, inventory personnel should release items from inventory. This control should reduce the risk of theft and improve the likelihood that the proper paperwork will be completed. As with the technician when maintaining the aircraft, accurate paperwork is important for the inventory personnel. It helps them make more informed decisions (i.e. about Group A items) because they have more accurate and timely information.

• Control the receiving process. If capturing information about outgoing items is important, so is the information related to incoming parts. Inventory personnel should control the inventory receiving area and items should not become available to maintenance until they are recorded into the inventory system. Without proper control, items can be installed on aircraft without the knowledge of inventory personnel. As far as the organization knows, the vendor has not supplied the item. This is not a good situation.

• Store items properly. If an item is heavy, do not place it on less than safe shelving. Additionally, do not place it in a difficult location unless the proper lifting equipment is available. If required, use the proper temperature control. And finally, do not use an inventory item as a doorstop, especially an expensive item. (Believe it or not, I have seen that at a location. It's probably not the best use of an item in inventory.)

Unfortunately, inventory often goes unnoticed until an organization experiences a crisis. The crisis can take on different forms, such as difficult economic times or a decrease in the aircraft availability rate. It's unfortunate because the organization has placed more resources into an area than was probably necessary. It's also unfortunate because although inventory is not that difficult of an asset to control, it often falls outside of the area of comfort for the maintenance department. With a little effort and research, you can gain control of your organization's inventory. It's certainly better than the alternative of letting the inventory control you.

Brandon Battles is a partner with Conklin & de Decker. He has spent more than 15 years in aviation working with maintenance organizations in the areas of cost collection and analysis, systems review, inventory analysis, and management training.

About the Author

Brandon Battles