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Inventory Accuracy: Superhuman Strength Will Not Fix It By Dan Sechrist, Red Moon Solutions LLC There is nothing like waking up to the reality that you cannot use your superhuman powers to cure the inventory problems that plague your company — at least not without some organizational help. By the way, is that a negative inventory count in your accounting system? What exactly does that mean? The difficulty of tracking inventory stems from the complexity that exists in manufacturing environments. For a business to buy one item, change its form and ship it to a customer, the process is simple. But it is nearly impossible to buy 10 items at different times from different vendors, combine them in a different process, stock some items, ship others, and later find out that those items should be phased out. I am sorry, was that 10 items? I meant to say 100 items for one finished product? But 1,000 finished products were made. You get the picture because this is your day-to-day reality. If the complexity in manufacturing arises from the coordination of many tasks, items, and people to a singular end, it follows that improved organization and rigid process controls that should allow for better coordination and improved inventory accuracy. How do we make that happen? Although there are a number of ways to describe best practices for inventory management, we are going to look at them in the following method:
Business processes have to satisfy three criteria to be effective: satisfy the business requirements, be repeatable and reliable, and allow for appropriate tracking (for inventory, lot tracing, and accounting). Generally, for business processes to satisfy business requirements, the business must ensure that customers receive product in the appropriate form and on time within the appropriate tolerance levels. To be repeatable and reliable, the process must deliver the desired results as defined by the business requirements, consistently over time. Each time a transaction occurs in a business process, there is generally a corresponding need to track something. The key is that as a step in the process is executed, any attribute that is tracked in the process must be updated appropriately whether the tracking occurs on a pad of paper or a complex enterprise resource planning (ERP) system. Business-process control Strong business-process controls ensure that each step in a business process is completed in sequence before the next step is taken. For instance, assume a business process dictates the following steps beginning with the completion of manufacturing:
Inventory validation Even the most perfectly designed processes will not produce perfect results due to factors such as variation in yield, inaccurate counting, or making mistakes while entering data. As a result, it is necessary to validate inventory occasionally. In the past, this was generally done with a tedious and time-consuming physical inventory, but best practices have evolved toward cycle counting. Cycle counting offers a number of benefits over physical inventory counting:
To help achieve best-business practices, keep in mind the following requirements for managing inventory when selecting an ERP system for your business:
I am not saying that it would not be helpful to be Superman when looking for a solution to your inventory accuracy problems — it is just not practical. Using business-process design, business-process control and inventory validation can lead you to a better solution. Having a great tool set in the form of an ERP system can turn a long-term struggle into a short-term success because of the business processes, controls and validations that are embedded in such systems. To achieve best-in-class performance, inventory accuracy is paramount. |
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