In this second article of this series titled, “Four Strategies for Inventory Control” we will discuss the first key strategy for inventory control – Maintain accurate inventory records. This is seemingly a very intuitive and basic strategy for inventory control, but you will be surprised how many companies falter at this basic component of inventory control.
Maintain accurate inventory records
It is very difficult to effectively manage inventory without an accurate record of what you have. Similarly, it is also very difficult to fulfill the promises you make with your customers if the reality of your stock is different from what you know is in stock. Not fulfilling these promises not only cause disappointed customers but also lost business.
The accuracy of any inventory tracking system, whether manual, spreadsheet or software depends on timely and accurate transaction reporting. It is also necessary that any inventory movement must be reported to the tracking system promptly and accurately.
This simple requirement is not necessarily easy. Any human-based procedure is subject to error, delays, lost transactions, bad math, and misidentification. But it is not an impossible task, timely and accurate transactions occur when the people reporting the transactions understand the importance and are properly motivated to do a good job. It all depends on motivation and management.
A simple example is given here, if your employees are moving items to put together a customer order, their primary focus is on getting the right things into the box and doing it quickly. What you need to do is to find a way to make it easy and important to also report what was picked, from what location, identifying information (lot or serial number, if needed), or whatever else you want to track.
Bar-code scans can be used to automate data collection. Many inventory software will produce bar-coded lists and labels, interface with scanners, and manage the data collection effort. Not only is automated data collection more timely but it also eliminates a lot of the sources of error that are part of manual data collection.
Inventory records are always prone to error, even if you are using a system that is automated, manual, or a combination of both.
It is also possible that after completing an annual physical count, you may learn that your records are only a few percent off, but that is a false measurement. It is likely that as many as half of your inventory balances are inaccurate but the physical count only looks at the total value and the plusses and minuses balance each other out to give you a misleading total difference.
A much more telling measure of accuracy is to count 100 items and see how many are correct and how many are not. Most of the time companies are shocked to learn that, by this measure, accuracy is less than 50%. The solution is to implement the cycle counting process to improve accuracy by eliminating the cause of errors, which are part of the transaction reporting process.
In the Cycle counting process, a certain number of items are counted on every day or week such that groups of items ‘cycle’ through the counting scheme so that they are all counted according to their importance–more important items are counted more frequently. Specifics for setting up and running cycle counting are available from your inventory software support staff, from a web search, or from operations-focused organizations like APICS. Cycle counting allows you to identify how errors occur and fix the faulty procedures so errors are eliminated. Accuracy improves and can be maintained at a high level (>98%) with this process even in an organization with thousands of items and many daily transactions.
In the next part of this article, we will discuss the second key inventory control strategy – proactive planning.
