Inventory Accuracy
By Bob Boyles, Principal

Inventory accuracy is one area where wholesalers have always struggled. One of the reasons is that in order to solve the problem you need to ask the right questions to uncover the solution.

I routinely receive phone calls from wholesalers that are interested in improving the accuracy of their inventory. Inevitably these phone calls tend to focus on a single aspect of their inventory management, such as:

"I cycle count but my accuracy still isn't above 93%. Why?"

"We manually check all of the outbound shipments so I don't understand why we still have shortages?"

"We're thinking about buying some bar-code equipment. Will that help improve the inventory accuracy?"

All of these questions are valid but they are all focusing on the general symptom and linking it directly to a specific process. To uncover the source of the problem you need to start by asking general questions about the processes and not focus on just the symptom. I'm reminded of the doctor in the emergency room….

A man comes into the Emergency Room and yells, "My wife’s going to have her baby in the cab!" The doctor grabs his stuff, rushes out to the cab, lifted the lady’s dress, and begins to take off her underwear. Suddenly he notices that there are several cabs lined up, and he is in the wrong one.

We want to fix the problem but we need to make sure we're working on the correct problem before we dive in. Over the years wholesalers have tried cycle-counting, physical inventories, bar-coding and invested huge sums of money in nice computer systems to solve this problem and it's still the number one problem that the majority of wholesalers face. Why?

Possible Causes

The answer to our inventory problem is often like a lot of things in life, it's not just one thing it's a combination of things that creates the problem. The components that go into properly managing your inventory are numerous and core to your very operations. Surprisingly many of them have little to do with your computer system. At Smarter Distribution we categorize the non-computer problems into four major groups and review each to see how things stack up:

Does your company have an inventory attitude?

Those companies that I've worked with that are successful in achieving a 99% or better inventory accuracy have one thing in common, and that is an attitude of the importance of inventory accuracy. As with everything important, the attitude starts at the top and is picked up on by every employee. No one will treat your inventory like a valuable asset unless top management does. Those companies that have poor accuracy levels seem to share the attitude that the warehouse is a dark wasteland of dusty shelves. If inventory accuracy is important to your company then it shows up in a well lighted and clean warehouse.

That there any obvious problems that are not so obvious?

Problems like theft are never as obvious as you would think and even more hard to prove. Still you need to take measures to prevent against being perceived as an easy target. This involves everything from how you light your warehouse to how the shelves are arranged to enable clear lines of sight to keeping the doors locked even on a hot day in July.

Things like proper shelve arrangements and correct labeling will aid in reducing inventory accuracy problems. Often times at physical inventory time the count teams will uncover a product put away that is very similar in part number and description but put into the wrong bin. During the year this was found and recorded as an accuracy problem but it was created during put-away when the receiver hastily put the on the shelf with the other products that looked similar and had shelf labels that were not directing him to the proper spot.

Do you have motivated personnel?

When speaking about personnel and their role in inventory accuracy the most obvious suggestion that consults have been admonishing their readers to do is not put the new guy in receiving. I've heard this same advice from a number of consultants over the past 20 years and I'm getting kind of tired of hearing it. If you’re a wholesaler and you still have your new hires working in the receiving department and putting material away on the shelf then you're just not getting it.

It is my belief that the single most important key to achieving inventory accuracy is developing an attitude among your employees so that they care about the warehouse and take pride in it's efficient operation. How do you do that?

Dale Carnegie wrote these words when describing another subject but they apply here: "There is only one way under high heaven to get anybody to do anything. Did you ever stop to think of that? Yes, just one way. That is by making the other person want to do it. Remember, there is no other way."

The logic applies to your warehouse staff. They must want to achieve inventory accuracy and then it will be part of their daily routine. By linking their compensation to the efficient operation of the warehouse is the quickest method for you to reach your goal.

Are there any procedure or paperwork problems?

What is inventory accuracy? It's the matching of the count in the physical warehouse with the count in the computer. Sounds simple but there are a lot of areas where the two can become out of sync.

First, you must treat your paperwork like it is made from gold thread. Don't leave tickets laying around at the end of the day for tomorrow's crew to pickup. Every day you need to account for every ticket that sent to the warehouse to be pulled and every shipment that showed up on the dock and receiver that needs to be entered into the system. Getting the days work done before you go home allows you to complete the task and account for every piece paper and make sure that it's entered into the system.

One of the areas where I see company's constantly having problems is coordinating receiving, put away and picking. Get them out of order, and that is what usually happens when trying to complete a rush order, and it's easy to get the computer and physical counts mismatched.

Conclusion:

There are no easy answers when it comes to solving the inventory accuracy problem. But starting the process by looking at the general level before drilling down to specific function or process will often help in uncovering the real culprit.

About Bob Boyles and Smarter Distribution:

Bob Boyles started his strategic consulting business in 2001 and has focused on the change that technology is forcing in the supply chain and how independent distributors can not only respond to that change but also maximize the return they are seeing on their investment. Bob has spent a significant amount of time as an Installation Consultant for several of the big name software companies in the distribution market. Working with hundreds of distributors across the country on installing, upgrading and utilizing their software. Bob also worked as Corporate Systems Manager for one of the largest electrical wholesalers in the country. Bob is a graduate of Appalachian State University (BS - 1981) and University of North Carolina at Greensboro Graduate School of Business (MBA - 1985).

You may reach Bob Boyles at 972-304-1180 or through the website at www.smarterdistribution.com.

© Copyright 2003, Robert S Boyles Jr. All rights reserved. This article cannot be reprinted or reproduced in whole or in part, without the express written permission of Robert S. Boyles, Jr.