The Top 10 Reasons You Do Not Have 100% Inventory Accuracy
Optimized supply chain is impossible without knowing what you have on-hand.
“Getting your customers what they want, when they want it – and spending the least amount of money possible doing that” – that’s supply chain optimization in a nutshell.
But if you don’t have 100% accuracy of your inventory, there’s going to be a day when you send a warehouse employee to pick a SKU for a customer order and it won’t be there (or there won’t be enough).
So what are the Top 10 reasons you don’t have 100% inventory accuracy?
10. When was your last physical inventory? If it was more than 12 months ago, do one now. Go ahead, we’ll wait.
What, you’re back already? Did you count every single item, in every single warehouse location? And did you validate your counts?
9. Two months later, do it again. The whole physical inventory. Use the results of the physical inventory from two months ago as your baseline and now net out all your transactions since then (receipts, shipments, scrap, etc.) to get your perpetual inventory.
This is what your system (MRP or Excel spreadsheet or that clipboard hanging in the stockroom) is telling you that you have. Now, count it all again. And reconcile. You’re on your way to 100% accuracy.
8. How’s your cycle count program? If your answer is “We don’t have a cycle count program” or, even worse, “What’s a cycle count program” – please click on this link.
Inventory accuracy isn’t something that happens because you check on it once a year or once a quarter. You need to count some amount of your inventory everyday. That’s right. Even if it’s one part per day (ideally a different part everyday – and one that’s high in dollar value, high in volume or critical for customer supply – i.e. your “A” inventory items).
7. What do your part numbers look like? Believe it or not, inventory issues can be caused because someone thought a zero was an “O” (as in “ostrich”) or a one was an “I”. Do everything you can to prevent zero’s, one’s, I’s and O’s from being in your part number naming convention. (Two’s and Z’s are tricky, too.)
Even if you’re bar coding and scanning those bar codes – somewhere along the line a human is going to read that part number and type it. Take my word on this one.
6. Do you have a WMS? That stands for Warehouse Management System and if you weren’t aware of that fact, then you might not have one.
A WMS helps you manage your inventory (your quantity on hand, where it is, how much is allocated, how much is waiting on your receiving dock) and if you’ve got more than twenty SKU’s, you might want to look into getting one. Or using a 3PL that uses one.
5. Do you use your WMS? If you know of your WMS because it’s that icon on your desktop that no one every clicks, then you might have an inventory accuracy issue. Because that WMS is what your accounting folks should be using to value your inventory (and, ergo, your company).
Assign someone in your company to be held responsible for your inventory accuracy. Give that someone a clipboard and admin rights to your WMS. And go back to #10 on this list.
4. How do you handle “one-offs”? Let’s say a potential new customer wants a sample and you have to pull it from your inventory, but they’re not set up in your system yet. Or an existing customer wants you to rush a shipment and you know the fastest way to ship it is for you to just grab it from the warehouse and stick it in an envelope. Or a million other reasons folks will come up with to pull inventory outside your inventory control system.
If the answer to “How do you handle one-offs” is you jot yourself a note on a Post-It, then please go back to #10 and start again. 100% inventory accuracy requires that you have a process driven inventory management system. There should be no such thing as a one-off.
3. Is your inventory pilfer-able? The inventory control definition of “pilfer-able” is “is it something people want and is it easy for them to take?”.
If you’re inventory is made up of cinderblocks and anvils, you may have less of a pilferage problem then the guy selling smart phones and gold coins. Make sure your inventory security is airtight. And cycle count. Every day.
2. What UOM do you use? That’s “unit of measure” and if you weren’t aware of that, please check with your suppliers and customers. Make sure you’re not ordering in “ounces” and your supplier’s not shipping to you in “bottles” and your customer’s not buying in “cases”.
Trust me, it happens all the time. Even if you use “eaches” as your UOM, make sure your customer doesn’t count a “pallet” as an “each”.
1. How are you measuring inventory accuracy? Are you looking in your WMS and seeing that you’re supposed to have 10 of an item and then going out and looking for 10 (sheet-to-floor counting)? Or are you counting what you have and then checking your WMS to see what it says (floor-to-sheet counting)? You should be doing both.
Yes, even you can follow these steps to achieve 100% inventory accuracy!