February 04, 2019
Secrets to Inventory Accuracy
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For many manufacturers and distributors, one of the perpetual challenges is managing inventory accuracy. I think we can all agree that the need for accurate inventory is paramount to realizing exceptional customer service and controlling overall costs within a manufacturing or distribution organization, so why do so many organizations struggle to maintain accurate numbers? In my experience, there are a few key processes and strategies that are not always in place within the enterprise and these failures tend to contribute heavily to inaccurate inventory.
I believe there are six principles that need to be in place to ensure lasting inventory accuracy. The first two form the foundation and the remainder act as the critical supports to achieve consistent accuracy of inventory. While these don’t represent a magic button in and of themselves, they do represent a significant foundation for inventory accuracy success. These can be summarized as follows:
Ensuring that inventory policies are defined and are a part of the overall strategic fabric of the organization is one of the important foundations for achieving accurate inventories. Examples of these strategies will include how inventory will be managed to meet customer needs. This may include maintaining inventories at an unfinished level and completing the final finishing operations to meet the specific customer request. These strategies may include establishing inventory levels for certain items to comply with a negotiated service level agreement for some customers. There may be considerations for how certain items will be stored to meet critical customer needs. All of these are simply examples of how customer needs and business strategy need to be translated into inventory action plans.
The most difficult aspect to instill is establishing a culture that embraces making inventory accurate. When the leadership of an organization consistently demonstrates the focus and importance of accurate inventory in both words and actions this will plant the seeds of a culture that concentrates on ensuring accurate inventory. When any issue related to improper use or transaction of inventory is noticed it is important that the manager immediately corrects the action and uses the incident as a teachable moment. When an individual continuously makes the same errors, it is imperative that corrective actions be made and understood by all within the organization.
Building on the core foundation of Strategy and Culture, the first pillar toward success is found in the appropriate use of LEAN principles for inventory management. The most applicable of these principles or techniques is found in establishing 5S (Sort-Seiri, Straighten – Seiton, Shine – Seiso, Standardize – Seiketsu, Sustain – Shitsuke) programs that are focused on the warehouse. These will include tasks such as keeping the warehouse aisles clean, keeping inventory straightened on the shelves or racks, keeping both inventory and location labels clean and readable and structuring locations in a way that minimizes the effort required to pick orders. Eliminating wasted motion and errors is at the heart of both sound LEAN programs and accurate inventory.
The second pillar should focus on providing clear, unambiguous documentation and messaging to the entire organization for matters related to inventory accuracy. These communications will come in the form of published policies and procedures and in the “as required” memos and employee meetings. The other side of this communication is ensuring that accuracy of inventory is measured, and the results are regularly posted. As the adage goes, “You should inspect what you expect”, this means that there should be specific goals for inventory accuracy and rewards when these are achieved.
The third pillar is the broadest in that there are so many subtle areas that need to be addressed. While the policy and procedure statements should serve as a guide, the execution of the processes on a consistent basis is the enabler of realizing accurate inventory. Some of the key processes include cycle counting, labeling, transactions and so forth. The important part of executing these processes is making sure they are executed to completion. An example of this would be where a company puts in place a cycle counting program, but the process doesn’t demand finding, and correcting the root cause of an inventory error. This is one of the key reasons for cycle counting in the first place! There is little value in simply adjusting the inventory counts but not understanding what has created a discrepancy and resolving the source of the discrepancy.
The final pillar of technology is all too often viewed as the initial solution for realizing inventory accuracy. While technology is important when there are large volumes of data, the insertion of technology by itself only allows the organization to make mistakes faster if the previously mentioned controls are not in place. When technology is deployed it is vital to ensure the technology provides the ability to report the transactions as close to the physical point of receipt or usage as possible. While there are often physical or safety barriers that exist that demand a significant separation of the technology from the point of inventory change, it is important to minimize these scenarios as much as possible.
Much of the secret to inventory accuracy is really no secret at all. This objective, like so many things, requires that dreaded four letter word …. WORK! Focusing on making inventory accuracy an integral part of your organization’s DNA is really the most crucial aspect of working with inventory accuracy numbers that ensure what your system says is there is in fact there, in the correct location and in the correct state for use.
As stated at the beginning of this article, many organizations seek to realize inventory accuracy, but some really don’t know why this is important to the bottom line. Understanding inventory levels and requirements is a significant contributor to what the organization must spend on brick and mortar to store inventory. Carrying higher levels of inventory will increase the number of human resources and equipment resources needed to move the inventory to where it is needed. All of these represent a significant potential cost to the organization. Other costs for lack of inventory accuracy manifest themselves in potentially lost sales and even lost customers. These are but a few of the more obvious costs of not having accurate inventory but they also represent some of the significant benefits when accuracy is there. When inventory accuracy is proven then there are opportunities to leverage this with new customer acquisition or more or other growth strategies.
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