Over the coming weeks we’ll discuss four seemingly simple – but proven – strategies for smarter inventory control.
For companies that carry inventory (manufacturers, distributors, retailers and service providers) and want to better manage their inventory availability while reducing ordering and carrying costs, these strategies will be perfect for you.
It’s difficult, if not impossible, to effectively manage inventory without an accurate record of what you have.
You make promises to your customers (accept orders and quote ship dates) based on what you know is in stock. If the reality is different from the records, you may not be able to keep those promises, resulting in disappointed customers and lost business.
The accuracy of any inventory tracking system, whether manual, spreadsheet or software depends on timely and accurate transaction reporting. Any inventory movement must be reported to the tracking system promptly and accurately.
While this is a simple requirement, it is not necessarily easy. Any human-based procedure is subject to error, delays, lost transactions, incorrect calculations, and misidentification.
Timely and accurate transactions only occur when the people reporting the transactions understand their importance and are properly motivated to do a good job. There’s no magic here, it all depends on motivation and management.
For example, if an employee is moving items to put together a customer order, their primary focus is on getting the right things into the box and doing it quickly. Your challenge is to find a way to make it important to also report what was picked, from what location, identifying information (lot or serial number, if needed), or whatever else you need to track.
Some data collection can be automated, most often through barcode scans. Most inventory software will produce barcoded lists and labels, interface with scanners, and manage the data collection effort.
Not only is automated data collection more timely (data goes right into the inventory records, doesn’t have to be keyed in), but it also eliminates errors that are part of manual data collection.
Whether automated, manual or a combination of both, inventory records are error-prone. You might complete an annual physical count and 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 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 companies are shocked to learn that, by this measure, accuracy is less than 50 percent.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.
Cycle counting involves counting a certain number of items 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.
The benefit of cycle counting is that it 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 percent) even in an organisation with thousands of items and many daily transactions.
Want more on smarter inventory control? See Strategy 2 here.