by R.T. "Chris" Christensen

The economy is in an adjustment mode after an unequaled period of growth. How does the shakedown affect those managing a manufacturing plant’s maintenance inventory? Well, your company’s finance unit is looking for ways to convert fixed and slow-moving assets into cash to man the business. Your maintenance inventory is one of those slow-moving assets. 

Liquidating inventory will help the company meet its financial goals, but this doesn’t help you.

The economy is ripe for a rebound, especially in the traditional manufacturing sector. If inventory is liquidated, your plant can’t meet growing demands for machine use and repairs requirements. 

You need to reduce inventory in order to generate cash flow and at the same time have a higher rate of parts availability. Those are conflicting goals, but tools to accomplish both are available in a down economy.

You can and must use these tools to gain a competitive advantage. Here are some ideas.

Get creative with suppliers
To stabilize their sales picture, your suppliers are more willing to work with you on a long-term contract. From your point of view, it’s a great time to establish a vendor-stocking program. 

This gives the supplier the desired long-term relationship it needs. And, the supplier is more willing to negotiate price on the contract. This places you in a buyer’s market.

Suppliers that don’t have a vendor-stocking relationship with you are now more willing to move to a consignment program if they face losing your business. You can negotiate with them in this economy. 

At the same time, be careful with vendors that don’t have a consignment relationship with you. They need all the sales they can get. With business more competitive, they may seek increased sales by filling your stockroom bins with additional materials. That generates the extra sales they need. 

Doing more with less
To improve your inventory position, try doing more with less. The premise is not to reduce your ability to complete repairs by reducing the amount of inventory, or by doing without. The goal is to reduce the amount of dollars you invest in maintenance inventory. Dollars is the key word since it’s the resource your operation needs to finance the company. 

The following tips are nothing new to regular readers of this column, but the emphasis in the downturn to recapture idle cash to a more productive role is an important point to consider.

1) The quickest means of recovering cash from your inventory is to transfer inventory to a consignment role. 

Have a vendor-managed provider take control of your lower-level inventory. With the tight economy, more suppliers are willing to enter a long-term consignment relationship. This takes money from your fixed goods in your lower-level strata and converts it to cash.

2) Suppliers are now more willing to stock your expensive critical and major parts inventory. 

To get your business and become a valued supplier, these companies stock (at their cost) your critical inventory and relieve the investment you have in your critical spare inventory. The supplier makes its money by working with several manufacturers who need the same critical parts. You save money. The supplier generates revenue. It’s a win-win situation.

3) Re-evaluate the amount of high-volume maintenance items you have on hand. 

With more suppliers willing to work with you, reduce the amount of parts you have in inventory. You can do it and still be certain you can get the parts you need when you need them. That’s because suppliers are more willing to work with you to get your business.

Think of it as an opportunity
It’s a new business economy out there. Take advantage of it by thinking outside the box. If you are creative and an opportunist, you will surprise yourself with the amount of money you can remove from inventory while still maintaining the parts availability you need.

"Chris" Christensen directs the University of Wisconsin School of Business' operations management program. He can be reached at cchristensen@execed.bus.wisc.edu.

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