Don’t Count It
Pareto analysis applies to inventory counts -- 20% of the items counted require 80% of the counting effort. Most of the 20% are large quantities of fittings and fasteners. Since these items don’t cost much, it makes sense to not count them at all -- instead, shift them out of the warehouse and onto the shop floor. The production staff will be ecstatic, since they will no longer have to requisition these items from the warehouse. Also, the inventory counters will have far more time available to count the remaining 80% of the inventory, whose accuracy is likely to improve due to the extra attention. One downside is the increased risk of theft, which can be avoided by retaining the few high-cost fittings and fasteners in inventory. Another problem is a one-time jump in the cost of goods sold, as all the fittings and fasteners are charged to expense when they leave the warehouse. Finally, the purchasing staff needs to find an alternative way to track the newly departed inventory for re-ordering purposes, perhaps through an ongoing visual review of stock levels.
Count Larger Units
The typical warehouse contains a large number of fully-loaded pallets and a small number of broken cases. During the counting process, counters attempt to see through the shrink wrap on each pallet and guesstimate their contents, which inevitably create counting errors. Instead, consider pre-counting the contents of each pallet and posting the quantity total on the outside of each pallet. When someone eventually breaks down the pallet, just remove the quantity total from the pallet. This approach both reduces counting time and increases accuracy.
If there are any small parts still in stock that survived the move to the production floor (see first item), bag them into small, easily countable units. For example, a clear plastic bag may contain 100 units of an item. Once the seal on the bag is broken, counters know that they have to count the entire contents of the bag. If not, they can rely on the count total written on the outside of the bag.
Consider inventory counting to be similar to process engineering -- the more you analyze it, the better the results will be. This means conducting regular inventory audits -- once a week is a good interval. By doing so, the controller will have a good idea of which areas of the inventory are the most inaccurate, and require additional work during the actual physical count. This is also a good feedback approach for the warehouse staff, which will rapidly figure out that the controller is very interested in inventory accuracy, and who will therefore take steps to improve the situation.
Responsibility for Inventory Accuracy
As noted earlier, the controller is not responsible for the amount of inventory, but can (paradoxically) be held responsible for its accuracy. Since the handling of inventory is not normally under the controller’s umbrella of responsibility, the preceding recommendations will be difficult to implement unless the controller can team with the materials management supervisor to jointly address these issues. Consequently, partnering skills are vital in the quest to improve inventory accuracy.
STEVEN BRAGG is the author of 27 business books, including Inventory Best Practices and Inventory Accounting: A Comprehensive Guide, published by John Wiley & Sons.
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