Productivity -- Supply Chain -- Information

Guide to inventory accuracy

by Dave Piasecki

Are you 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, but none of them will eliminate all errors, and a poorly implemented system can leave you worse off than you were before.

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

The Basics
Attitude
Process definition
Procedure documentation
Employee training
Employee testing
Monitoring processes for compliance
Setting standards
Tracking accuracy
Accountability
Count, count, count
Re-evaluate

There is nothing revolutionary about the list of basics. It's simply a series of steps that define a process for achieving higher levels of inventory accuracy. Your success or failure will be determined by your implementation of these steps. This is not something that should be rushed, throwing a quick fix approach together to alleviate an immediate need may be more damaging in the long run since the success of this plan requires a cooperative effort by many people within your organization.

If your first attempt fails, you will find it more difficult to get a high level of cooperation for your next try. Take the time and do it right.

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 of you managers and execs out there 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. 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 an 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 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.

For example, if a stock clerk's responsibility is to notify the supervisor of any discrepancies, that is all it should state in the procedure for the stock clerk even though there will be additional procedures for dealing with the discrepancy.

Employee training
Handing out a written procedure does not constitute employee training. It is important to set a training schedule to go through all of the procedures with groups of employees. Take whatever time is necessary to ensure they have a thorough understanding of the procedures. Make it clear that the procedure document is the only way to perform the task.

Employee testing
I am a big advocate of formal testing on procedures. This is the only way to know if employees understand them. Be prepared; this will scare the hell out of your staff. Do not make the tests too difficult. I suggest multiple choice questions and maybe some true/false. You may also need testing that requires the employee to perform the task in the presence of the tester. Make a point to include items in the test that are known to have been issues in the past.

Monitoring processes for compliance
You must begin to monitor the processes for compliance to the procedures immediately. Any actions observed which do not comply with the written procedures must be addressed immediately with the employees involved. Allowing employees to do it their own way will make it impossible to enforce compliance on other issues and also creates problems when changes are made to processes.

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 and yet still achievable. You will have to enforce these standards, so it is critical to set them correctly. If in doubt, set them lower. You can always increase them later when more data is available.

Tracking accuracy
Whether you have set standards or not, I still suggest you track accuracy organizationally and individually. Accuracy tracking should always be measured as a percentage of total transactions. Tracking accuracy as flat numbers (number of errors) puts your more productive employees at a disadvantage and at an organizational level will be skewed by variances in business activity.

Accuracy tracking should be communicated to staff in a positive manner; it is a tool to facilitate improvement in processes and people. I have found that by just simply tracking and communicating accuracy to employees you will see immediate reductions in errors even if standards are not set.

Accountability
People must be held accountable for not 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 with appropriate disciplinary action. It's that simple.

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 to maintain high levels of accuracy.

Re-evaluate
You should be regularly re-evaluating your processes and procedures. Results of your cycle count program should point you in the direction of areas where enhancements are needed. Business conditions often change and new processes are added which will require evaluation. Try to 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.

Each of the above steps is highly dependant on the successful implementation of the previous steps. Although this process for improving inventory accuracy is not very complicated, the implementation can prove to be demanding.

Depending upon the environment you are working in, it can sometimes seem to be an insurmountable task to change the attitudes of people toward inventory accuracy. It will require a high level of effort and diligence to ensure success.