The Top 9 Reasons You Do Not Have 100% Inventory Accuracy
Optimized Supply Chain is Impossible Without Knowing What's 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 an accurate account of your inventory, there will 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.
Inaccuracies in inventory can lead to lost time and money, and that can be avoided. So what are the top ten reasons your inventory records aren't accurate? Take a look at the following list.
1. Physical Inventory
You haven't done a proper physical inventory. That means counting everything in your inventory. You can do this through a floor-to-sheet count, which means counting everything and comparing that number to what's in your computer system or database. The other option is to do a sheet-to-floor count. With this method, you start from your database and take that to your warehouse to see what you actually have. When you take a physical inventory, make sure you cross-check everything. There's no sense in doing a count and realize you're still off.
If you really want to be accurate, do both. Start off with a sheet-to-floor and then do a floor-to-sheet count.
2. Develop a Regular Routine
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 is telling you that you have. Now, count it all again. And reconcile. When you do this, you’re on your way to 100% accuracy.
3. Cycle Count Program
How’s your cycle count program? If you don't have one or, worse still, don't know what that means, you may have a problem.
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, 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. Consider, for example, your “A” inventory items.
By adopting a cycle counting program, you can tally up a small amount of inventory a little at at time instead of going through the entire stock in a warehouse.
This method is less disruptive to the day-to-day operations since it doesn't require as much time and work.
4. Check Your Naming Conventions
What do your part numbers look like? Believe it or not, inventory issues can be caused because someone thought a zero was the letter “O” or a one was the letter “I”.
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. So do everything you can to prevent zeros, ones, Is and Os from being in your part number naming convention.
5. Warehouse Management System
Do you have a Warehouse Management System (WMS)?
A WMS is a software system that helps you manage and organize your inventory— your quantity on hand, where it is, how much is allocated, and how much is waiting on your receiving dock. If you have more than 20 SKU’s, you may consider getting one.
There are many different kinds available. Which one you choose depends on the size of your business. They can range from simple spreadsheets to more complex software. If you're really savvy, you can try to design your own WMS.
Implementing a WMS not only helps increase the accuracy of your inventory, but it can also help cut down on costs and errors, and improve customer service and response times.
6. Assign a WMS Leader
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. That WMS is what your accounting folks should be using to value your inventory—and, ergo, your company.
Assign an employee to be responsible for your inventory accuracy. Give that someone a clipboard and admin rights to your WMS.
7. Develop a Process-Driven System
Keeping your inventory 100% accurate means having a process-driven inventory management system. This means there should be no such thing as a one-off. That's when 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, when 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.
These situations can lead to pulling inventory off the shelves outside of the normal systems you may (or should) have in place, leading to inaccuracies in your counts.
8. Keep Your Inventory Secure
Do you have inventory that's easy to miss if it's gone? Is there a threat of it being stolen? If so, make sure your inventory security is airtight.
If your inventory is made up of cinderblocks and anvils, you may have less of a pilferage problem than the guy selling smartphones and gold coins.
Your best bet is to stick to a cycle count as many times as you feel necessary.
9. Stay Consistent with Your Unit of Measure
Make sure you know what unit of measure (UOM) you're using, and that your supplier and your customer are on the same wavelength.
To do so, confirm that you aren't ordering your supplies in ounces when your supplier is shipping you bottles. And make sure your customer isn't buying cases. You'll need to be certain that all three of you have the same UOM.
The Bottom Line
If your business is plagued with inaccuracies in its inventory, you may want to step back and re-evaluate how you keep your records. The steps outlined above may take some patience and time. But by following them, you can be on your way to 100% accuracy. You may also find some other positives as well—including a savings of time and money.