Inventory Accuracy - The First Step to Successful Supply Chain Management

Why is Inventory Accuracy so Important?

It is all very well to learn about new techniques in optimising "this" or advanced planning "that" within our operations and joining global supplies chains. But without going back to basics and making sure that the inventory in our system is updated in real time and with virtually 100% accuracy, we are wasting our time. We need to accurately determine what we have, and where it is.

Inventory accuracy impacts on so many aspect of a successful manufacturing business. Typical consequences of inaccurate inventory are: -

• Lost sales and lost customers
• Missed schedules
• Late deliveries
• High freight costs
• Expediting
• Shortages
• Excesses

We usually suggest that somewhere in the order of 80% of the problems we experience on a daily basis can be traced back to the fact that our inventory records are not accurate. Solve this one problem and we can release value time for all those other improvement projects that need our attention.

A Proven Methodology to Achieve Inventory Accuracy

Over the past decade we have presented the SAPICS Basics of Stores and Stock Control course at many companies. When visiting these companies at a later date we often find that nothing has changed in the stores and all the lessons learned have never been implemented. The training has resulted in no benefit to the company, or to its employees.

After some investigation into this situation we came to the conclusion that the reason for this sorry state of affairs was twofold:

• The person managing the store within the organisation had not attended the course and therefore didn’t understand what the ‘now educated’ employees were talking about.
• The employees were not empowered to set up improvement projects for themselves in order to improve the stores operation.

So, we put together the following methodology that has certainly had more success, and a number of our clients' stores now have an accurate, real time inventory database to support successful ERP and Supply Chain Management systems in their companies.  The suggested methodology is as follows:

The stores/warehouse assessment

The first step on the road to inventory accuracy is the stores assessment. If this process is not carried it will impossible to set the base line for any implementation project and to ultimately determine if any improvements have taken place.

Beware of assessing yourself, it is easy to cheat. Find a reputable consultant and ask for an independent assessment and a detailed report.

Education for the employees

In virtually all the stores assessments that we have conducted, we find an enormous lack of knowledge on how to run an efficient and effective store operation.   Surprisingly, many companies appoint inexperienced, untrained and uneducated personnel to be in charge of their most valuable asset; their inventory. And, then they wonder why it goes missing!

Many managers admit that the stores has always been the haven for the lame, the sick and the stupid.  All this has to change; a job in the stores has to become a highly responsible function that employees aspire to in the long term after a firm grounding and education in materials management.  The SAPICS Basics of Stores and Stock Control course covers every aspect of storemanship that is covered in the Stores Assessment.

Who should attend this education course? As well as the Stores Manager, anybody who works within the store, as well as those persons such as buyers, workshop supervisors and production planners who have a close association with the store and need to understand the correct functioning of the store and how they can assist in the smooth flow of materials through the organisation.

The improvement implementation project

The next phase of the process involves analysing the assessment report to determine where improvements are required and putting together a project to address these problem areas.  The project team should include the consultant, the stores manager and representatives from the stores personnel. It is important to include as many of the stores personnel as possible as we need them to put forward suggested areas of change and improvement and for them to implement these changes.

Consensus must be obtained on what has to be done, by whom and by when. A project plan is then drawn up with a project target date, the improvements that are expected and any budgeting that may be required to achieve the objectives.

This project team needs to meet formally on a weekly basis to review the project and to insure that progress is according to plan.

The length of the proposed project will very much depend on the recommendations in the stores assessment report as well as the general state of the stores and estimated stock record accuracy. If things are really bad we suggest a year long project. If the stores are in reasonable order, this could probably be reduced to about six months. Typically, most of the projects we have been involved in have lasted about 9 months.

Cycle counting education

Once the improvement projects are under way and housekeeping, item identification and locations are identified and marked, we can begin the next phase of the project which is the cycle counting education. 

The SAPICS one day seminar in Stock Record Accuracy covers the reasons why stock record accuracy is important and why annual stock takes will never improve your stock accuracy. It goes on to suggest the correct way to set up and start a cycle counting programme. We explain that the most important aspect of cycle counting is that the process is carried out to identify and correct system and procedural faults that are the root causes of inaccurate inventory records. The seminar concludes by discussing how to analyse variances between actual counts and computer records and a ten point plan to implement the cycle counting process within an organisation.

Implementing cycle counting

After the cycle counting education, the project team then expands their project scope to include the implementation of the cycle counting process. This then become a normal part of the project activities which are reviewed on a weekly basis.

Measuring project performance

To enable us to determine if the project has ultimately been a success, we need to put performance measures in place as soon as possible after the commencement of the project.

The prime measure for the project is, of course, stock record accuracy though this measure can only be started once the cycle counting program is underway. However, there are a few other measures that can be put into place from the beginning.

Housekeeping in the store is a very basic measure. We have never found a messy store to be accurate, however, when a store is neat and tidy, we often find that accuracy becomes a by-product of this tidiness. If the company doesn’t already have a housekeeping assessment team, we start one in the stores.

Picking accuracy is another measure that can be introduced. Use the third party check of the items picked to create this measure and record the results. Identify the stores personnel that have high picking accuracy’s and reward their performance.

Post Project Assessment

Once the project has run its course, we normally perform a second assessment to measure the improvements in the stores operation as well as to identify any areas that might require more work in order to bring them in line with a world class operation.

Ken Titmuss CFPIM CSCP