Hitting the Target
Inventory accuracy is vital to your operation’s success.
By Lisa Anderson
Inventory accuracy is a cornerstone of a business’ success. Although this topic isn’t seen as exciting as implementing leading edge lean, robotics and warehouse automation strategies, it has proven to be a predecessor to sustainable success. Similar to the foundation of a house, inventory accuracy is the foundation required for high service levels, profit levels and accelerated cash flow. In a house, fancy windows and high-end doors provide little benefit if the foundation is shaky and collapses. Similarly, in distribution, the best technologies will be useless if your foundation – inventory accuracy – isn’t in place.
A high inventory accuracy level is one of the most consistent qualities of a successful business. Just as solid blocking and tackling provides the base for running sophisticated plays to win a football game, inventory accuracy provides the base for achieving profitable growth in distribution.
In today’s Amazon-impacted world, immediate delivery, easy returns, round-the-clock accessibility and elevated service levels are a must. Thus, we are more dependent than ever before on inventory accuracy. If we cannot find the item to ship when we need to ship it, customers will be negatively impacted. In many cases, customers will make a beeline for your competitor if you cannot supply what they need, where they need it, when they need it. Worse yet, in today’s connected and digital world, news of your poor service can spread like wildfire.
In addition to customer service, costs will increase. For example, expedite charges might be incurred with suppliers to replace inventory. Expedite costs might be incurred with the supplier and the customer. Overtime costs might be needed to search for inventory, ship the inventory, reschedule trucks, etc. If that wasn’t bad enough, for every dollar of inventory lost, a dollar comes off the bottom line. A 20 percent cost impact is not uncommon.
Given the importance of inventory accuracy, what are the keys to success? Start by communicating the value and importance of inventory accuracy and related transactions, and live by these guidelines for success. For example, one of my clients touted the importance of inventory accuracy and related transactions; however, when it came time to live by these rules, they found them inconvenient and threw them out the window.
As with almost every client, they ran with lean resources. One of the responsibilities of the supervisors was to enter production for the kit packing process. However, if there were too many items to pick, shipments to load and the like, the supervisor prioritized these responsibilities and would have to incur overtime to complete the required system transactions. Since the manager didn’t value the transactions enough to incur overtime, he put them off until the next day. Thus, employees saw that management didn’t value inventory accuracy. Soon, inventory issues plagued them.
Next, implement process and transaction disciplines. Design the processes, develop the documentation and provide training. Make sure to avoid the common pitfalls to success:
1. Transaction timing issues – Even if system transactions are completed, they are not completed in a timely basis. Soon, you must unscramble a mess.
2. Transaction quantity issues – Double check for keying errors. Typing 1000 instead of 100 can happen to anyone; however, if it isn’t found and corrected in a timely basis, it can create havoc.
3. Transactions performed out of sequence – Systems require transactions to be completed in a specific sequence; otherwise, transactions can get stuck or unintended results can occur.
4. Transaction training – Don’t skim this topic; make sure the procedures are understood including those that undo transaction errors.
5. Unclear processes to handle returns, damage and items on hold – These are a significant challenge for every client and can be solved with a cross-functional, collaborative process design and structured implementation.
Last but not least, inventory accuracy must be measured on a consistent and frequent basis to maintain accuracy. Cycle counting provides the best method to measure results and identify root causes of inventory inaccuracy. My most successful clients view cycle counting as an opportunity to identify people, process and systems challenges so that solutions can be implemented. If you focus on your “A” items and address root causes, you’ll focus efforts on those items that will have the greatest impact on success. Once solutions are implemented for these, “B” and “C” item accuracy will improve by default.
Inventory accuracy is cornerstone to manufacturers, distributors, and retailers’ success. In today’s new normal business environment, we must be faster, better and more efficient than the competition to succeed. Inventory accuracy is at the core of these requirements.
Lisa Anderson is president of LMA Consulting Group Inc. and is a senior supply chain and operations executive and management consultant. She can be reached at 909-630-3943 or email@example.com.