Guide to Inventory Accuracy - Management
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Guide to Inventory Accuracy

By Dave Piasecki

Article Date: 01-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

Consider implementing this list of actionable steps that contribute to a better parts inventory system.

Having problems with inventory accuracy? Implementing technologies such as bar coding systems, RFID, and pick-to-light are often assumed to be the solutions to inaccurate inventories. If properly implemented, these technologies can help reduce errors; however, none of them will eliminate all errors, and a poorly implemented system can leave you worse off than you were before.

Whether or not you are planning on implementing additional systems, you should consider taking care of the basics first.

  • Attitude. Maintaining inventory accuracy must be an integral part of the attitude of the organization. Like quality, customer service, and plant safety, accuracy must be promoted throughout the organization as everyone's responsibility. This attitude must start at the top levels. All managers and executives want an accurate inventory, but are you doing your part through your decisions and business practices to promote it? Processes are often shortcut in the name of "Customer Service" (this also applies to processes for Quality, Inventory Management, and Production Plans) that reduce or eliminate the effectiveness of the plan, which, in the long run, will reduce your ability to service your customers. Remember that these plans are designed to meet the needs of the customer - don't compromise them.
  • Process Definition. You'll struggle to make any progress if you have not clearly defined the processes throughout the organization that affect inventory. While defining the processes, you should be looking for opportunities for errors and implementing changes to eliminate or reduce them. Even the most accurate employee will make errors; I suggest placing formal checks in place for critical operations. Get as many people involved in this step to ensure you have a complete and accurate understanding of the processes. Anything missed in this step will require new procedures and additional employee training later, so take the time and do it right.
  • Procedure Documentation. This is the part where you use the previously defined processes to document the procedures the employees will follow to maintain inventory integrity. The procedures documented here should not be limited to inventory issues; they should be the complete procedure including quality, physical aspects, and safety. This documentation should be as clear and comprehensive as possible. It should be written for a specific task within a specific job responsibility, and it should include everything the employee needs to know to complete the task and nothing else.
Once you are completed with the documentation, I suggest you first distribute the procedures to a few key employees, then take a couple of weeks in which to monitor existing operations to see if anything was missed or if anything is incorrect. Once this is done, the procedures should be officially put into effect and distributed to all employees.

  • Employee Training. Handing out a written procedure does not constitute employee training. It is important to set a training schedule to go through all the procedures with groups of employees. Take whatever time is necessary to ensure they have a thorough understanding of the procedures.
  • Employee Testing. I am a big advocate of formal testing of employees on procedures. This is the only way to know if they understand them (or have even read them.) Do not make the tests too difficult - I suggest multiple choice questions and maybe some true/false.
  • Monitoring Processes for Compliance. You must begin to monitor the processes for compliance to the procedures immediately. Any actions observed that do not comply with the written procedures must be addressed immediately with the employees involved. Allowing employees to "do it their own way" (even if their way is a better way) will make it impossible to enforce compliance on other issues and will create problems when changes are made to processes. If they have a better way, consider it for the next revision, at which point it would then become "the only way."
  • Setting Standards. I am also a big advocate of setting minimum accuracy and production standards wherever feasible. Do your research to ensure the standards set are high enough yet still achievable. Setting standards requires tracking of the accuracy and productivity of the tasks being performed which makes it more viable when you have several people performing the same tasks.
  • Tracking Accuracy. Whether you have set standards or not, I still suggest you track accuracy organizationally and individually. I have found that by simply tracking and communicating accuracy to employees you will see immediate reductions in errors, even if standards are not set. The fact is, we all want to be accurate; the problem is we all think that we are accurate and it's always the other guy who is making all the mistakes.
  • Accountability. People must be held accountable for following documented procedures. You have spent the time to document the procedures, provide the training, and the testing. If someone is not following the procedures they must be dealt with, using appropriate disciplinary action. It's that simple. You may be amazed as to how much just one individual who is not following procedures can screw up your inventory.
  • Count, Count, Count. We would like to believe that since we have taken the above steps we should now assume our inventory is accurate. Not necessarily. You will have to count it to determine the accuracy, as well as determining areas needing additional evaluation. Year-end physical inventories are tools used by accountants and do very little for inventory accuracy. You should count your inventory on a continuous basis (cycle counting) to maintain high levels of accuracy. This is one of the best ways of identifying problem areas on a timely basis and providing an environment conducive to continuous improvement. The way you count and the frequency of your counts should be designed for your specific type of operation.
  • Re-evaluate. You should be regularly re-evaluating your processes and procedures. Results of your cycle count program should show you where enhancements are needed. Business conditions often change and new processes are added that will require evaluation. Refrain from frequent revisions to procedures (the memo of the day); it is more effective to plan a revision date and group multiple revisions into a revised release of the procedures; then implement them with the same type of training and testing done in the initial implementation.

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