Inventory Accuracy is Key to Operational Performance

I was recently at a client location and I asked them what their number one operational problem was. The director of distribution didn’t miss a beat. “Inventory accuracy,” was his reply. So I asked him to elaborate. He began to list about 8-10 operational symptoms that were a result of having poor inventory accuracy.

Although I was initially impressed by his insight into his operation, I was later astonished to learn that the company was still doing an annual “shut down” inventory count and did not have any type of cycle count program. When I questioned why, I was told that it was an “auditor’s requirement”. How sad. Although the problem was so easily identified, the solution was in someone else’s scope of responsibility.

I believe that inventory accuracy is the one area in a distribution center that can improve operational performance the most. And I am defining “inventory accuracy” as all information about inventory being accurate. This includes not only quantities, but accurate SKU numbers, barcodes, carton marking, lot codes, putaway rules, etc. Basically any information tied to an item in the distribution center.

Think about all the problems that could be eliminated if your inventory were accurate. Receiving re-handling because of bad vendor information would be eliminated; product would be put away correctly from the receiving dock; items would always be available in the right locations to fulfill orders; product would never be left in locations that are supposed to be empty; inventory wouldn’t get “lost”; and orders could be shipped complete, without delays caused by shortages. If this is the goal, then what are the steps necessary to get there?

Well, here are some tips that I have come across that help to improve inventory accuracy:

Proper Ownership

The first step in improving inventory accuracy is recognizing that it is related to operational performance (like the director in my example) and then taking ownership to make the required improvements (unlike the director in my example). Inventory accuracy is not the accounting manager’s or the inventory manager’s issue - it is the operational manager’s issue. And striving for inventory accuracy must be an integral part of the attitude of the organization. This attitude must start at the top.

Cradle to Grave Processes

All process that effect inventory need to be clearly defined throughout the organization. These should be documented and the documentation should be as clear and comprehensive as possible. Key employees need to help develop these processes. All employees need to be trained and tested on them. Once employees are considered competent, management needs to “man-up” and hold people accountable. The process procedures need to be enforced.

Good Gate-keeping

Receiving has to be the “narrow gate” where inventory accuracy starts. Product must be correctly identified and correctly received at the inbound docks. This requires both vendor and internal company participation. Employees on the receiving dock are critical positions and are the first level of inventory control. They need to be detail oriented and vigilantly look for informational discrepancies. To retain the position, a receiver should not make more than one error per quarter. If he/she does, he/she should be removed from the job. Yes, that’s how important it is.

Receiving put-away verification

Even distribution centers with good warehouse management systems and good inventory processes do put-away verification. Everything can go right at receiving, and then the product gets put-away to the wrong location. Put-away verification is easy to do and just insures that the product was located to the right place. It saves the trickle-down effect of mistakes made at put-away.

Zero Count Inventory

Most best-of-class distribution centers are cycle counting their inventory. No big new here. However, not all are doing zero counts. Basically, this requires that picking locations are random. When one goes “empty” (according to the WMS), the WMS assigns that SKU to another location. The zero count takes place by having some verify that the empty location is really empty. This validation not only uncovers quantity problems that would be buried if more inventory were just added to the original location, it also can be used to troubleshoot problems with the process or procedures.

Daily Location Auditing

Just do it. I know that it is tough and requires you to put valuable headcount to the task. But I guarantee that your inventory problems will begin to disappear. You can develop a report to do this or use your automation (RF handhelds, Pick-to-light, voice system), but the idea is to verify that the correct item is in the correct location. You don’t even have to do a count. Cycle through your warehouse in one to two weeks, auditing the inventory information (SKU, Lot number, etc.) in your locations. Then begin all over again. You will see benefits within a month.

Hire an Anal Manager

Your inventory manager should be the strongest manager on your team. She/he should also be the most obsessively detailed to ensure consistent process application. This person needs to be technically competent, understanding your WMS and ERP systems, and how they treat inventory. She/he needs to be able to generate daily reports and know how to take action based on the information they provide.

Again, inventory accuracy is really an operational issue. Poor inventory accuracy is the root cause of many operational problems and needs to be given a high priority in the distribution center. The smart manager will recognize this and take ownership. 

Author: Marvin Logan