10 Tips for Perfect (Nearly!) Inventory Accuracy

Even though we have made enormous advances in technology and business processes, many organizations and manufacturers still cannot perform basic warehouse operations without going into reactive mode. This is mainly due to a lack of proper or basic inventory record maintenance and accuracy.

Some organizations don’t measure inventory in an accurate manner, or they don’t even have such measurements in place. Organizations need to understand that there are multiple benefits associated with having proper inventory management processes in place—to provide not only excellent customer service, but also to help determine future purchases and what needs to be prioritized in the manufacturing plant; reduce operating costs; and provide accurate data for financial records.
Inventory accuracy is one of the major performance factors in any warehouse or distribution center. To have the appropriate amount of inventory (i.e. not carrying too much at a time) is a major success factor for an organization.

Inventory can only be maintained effectively with the right processes and with proper material handling procedures in place. Most inventory control problems arise from poor inventory control measures and lack of proper processes to report transactions happening in real time within the warehouse. If an inventory issue crops up, the warehouse acts in a reactive manner rather than trying to fix the underlying issue. The best way is to have a process in place that nips these issues in the bud before problems occur. Most warehouse management system (WMS) solution providers have specific functionality for managing inventory as well as maintaining accuracy across the warehouse or distribution center. The objective of the warehouse is to have the minimum amount of inventory on the shelves to fulfill customer demand quickly and efficiently.

Warehouses that are proficient in handling inventory and can accurately maintain inventory records outperform their competition through better order and demand management, less labor effort, on-time delivery, maximized space and equipment usage, and a reduced overall carbon footprint. To achieve these goals, it’s important that warehouse or distribution centers implement processes to handle inventory and bring inventory accuracy above 99 percent.

To achieve this objective, here are few suggestions for organizations that either have a warehouse management system or that are planning to get one.

  1. Inventory organization. Make sure your warehouse is organized in an efficient manner so you can identify and receive material inbound to the warehouse, as well as move inventory on customer orders (sales orders) without losing track of what got moved out of the warehouse. This means that the supplier shipping the product to the warehouse must label it correctly and place the information on the packaging in a manner which is easily identifiable by the warehouse associates so they can receive the inventory correctly. The details on the packaging have to be synchronized with the systems within the warehouse or distribution center. Each item in the warehouse needs to be identified and marked with details about the type of package, as well as any special needs (i.e., expiration dates, hazardous material, packaging requirements, etc.)

  2. Process setup for use of inventory. Define all the processes within the warehouse for efficient inventory movement and accurate data recording. Start with a sequential location method within the warehouse that will help the associate to quickly receive the product. Location sequencing is fundamental for efficient put away and picking of the material. Within the warehouse you need to make sure zones, fixed locations, and random locations are all setup and these processes are documented clearly in the procedures outline. This helps ensure warehouse personnel use them for their own benefit as well as making sure it maintains the overall inventory management process.

  3. Documentation of processes. Make sure each process is clearly documented as to how each procedure involved in moving inventory will relate to inventory accuracy. All process documentation should include procedures for physical interaction, material handling safety guidelines, and quality of reporting. Each task will be detailed in the documentation for clarity, so no confusion arises. Select a few individuals within warehouse operations to go over the documentation before its release to all employees, to make sure all process tasks or steps are documented and that no pieces of the puzzle are missing. Once all the reviewers agree, then the documentation can be released to all employees.

  4. Change management. Just documenting processes will not help achieve inventory accuracy. These documents need to be reviewed with employees while conducting hands-on training and in-class training. It is necessary that all employees get familiar with all the procedures to effectively perform the task. If employees want to change the process documented, try changing after few months; it’s best to try something first before you start fixing it again. Revisions to the process can occur later on to improve productivity and better handle of inventory. Nothing is carved in stone.

  5. Make sure employees understand.  The best way to make sure everyone understands the process is to test them on the job as the task is done first-hand. This way, if an employee misses a step, with the procedural guidelines you can enforce the matter right away (which brings us to the next point).

  6. Compliance with procedures. Start auditing the process, to make sure each procedure documented is followed through. If non-compliance issues arise, make sure to bring them forward right away with the corrective action in place. If anyone deviates from the documented process (perhaps because the deviation seems like the quickest way to do the task), it has to be clearly communicated that no process deviation is acceptable and that the only way to perform the task is according to the documented process.

  7. Set standards. For each task setup standard, start with a lower standard. Setting a lower standard will build up the confidence of the employees performing the task. Tasks can be grouped as picking, put away, receiving, etc., to measure if everyone can achieve the targeted standards. Keep reviewing and revising the standards to make them work toward your organization’s achievement of inventory metrics.

  8. Continuous cycle counting. Even though we have processes in place now to handle inventory much better, this does not eliminate cycle counting. To make sure we are achieving accuracy, the cycle counting process helps us validate that the processes put in place are working and identifies which areas are still in need of reevaluation.

  9. Process review. Have another look at the processes documented, and review if you think changes are for the better and can bring more efficiency into the process. Take into account any suggestions made by the employees who perform the task, as well consider anything new that is required to achieve inventory accuracy objectives. Since an organization’s business needs change over time, a periodic review of processes help ensure that nothing is missed. Never change for sake of change; rather, change should always be done to bring better, more efficient or more productive elements.

  10. Technology. Ah ha. Now the question comes: how does technology play a role in overall inventory accuracy? Regardless of which inventory system your organization has in place, the underlying factor is how it has been used to manage and monitor inventory. Business people tend to blame the system for the mistakes they have done. If the data entered into the system is garbage, then the results produced by the system will be garbage as well. The data source has to be good to achieve favorable results. To implement any new system is to map the business requirements to the functional requirement of system—this way, the organization will be able to use the system to full capacity. Each software vendor can provide an organization with millions of functions and features, but these functions and features will be no use if they cannot be used to maximum benefit. It is also crucial that the business processes dedicate the system capabilities, and not the other way around. There are other technologies like radio frequency identification (RFID) and bar codes that can automate warehouse processes, which will help in improving inventory accuracy, and eliminate data entry errors.

Nobody said achieving the goal of 99.9 percent inventory accuracy would be simple. Success is driven by the people within the organization. To achieve any objective, the top management and the individuals responsible for performing the task need to take initiative to achieve such an objective. For breaking an old habit takes time and persistence, and the same applies here: maintaining inventory accuracy needs to be more than a process—it needs to become an organization’s habit.

I would like to know from our readers if you have any inventory accuracy techniques that can help other organizations achieve the goal of being 99.9 percent accurate. Please leave your comments below!
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