Inventory Security & Accuracy
Simply put, if management has specific expectations of inventory security and accuracy, the procedures and actions that impact these areas should be audited on a regular basis. Employees will take their cue from management and will perceive the importance of these areas only as much as management does. If we preach the importance but do not follow-up with effective audits, communicate the results (positive & negative) and take corrective action where needed, the efforts will loose their effectiveness.
A classic example is Cycle Counting. Many companies simply cycle count a product and then make the required adjustments without ever determining the root cause of the discrepancy. Cycle Counting is an excellent tool for auditing inventory accuracy and should not be used to maintain inventory accuracy.
Auditing should be done on a regular basis, be it monthly, weekly or daily and sometimes it is good to mix it up a little. Sometimes, a simple checklist will work. The key to the audit is the follow up. All discrepancies must be corrected, and reviewed with the employees to ensure that everyone understands the importance of the programs and what is need to meet expectations. If you inspect what you expect, you will find improvements in execution, and reductions in losses.
Inventory Control Objectives
- Maintain integrity and accuracy of inventory control balances
- Maintain adequate audit trails for accountability
- Furnish activity and usage history
- Provide accurate inventory data for financial reporting
- Provide accurate inventory data to support sales & marketing efforts
- Provide proper identification, storage and physical control
- Provide the basis for the successful operation of a perpetual inventory management system
Requirements for Successful Inventory Control
- Adequate storage space
- Properly identified storage areas
- Properly identified items being stored
- Secured stock areas with limited access
- Commitment to Good Housekeeping practices and maintaining a clean work environment
- Adequate inventory record keeping system
- Controlled transaction system
- Continuous error correcting processes & transaction audits
- Effective and consistent cycle counting and reconciliation program
- Inventory accuracy focused personnel
- Documented procedures & audits
- Continuous training and review
Identify the 20% of product that represents 80% of sales. Do this by extracting YTD sales data from Full Circle into Excel and determining usage by day, week and month. Any new product release forecasts should also be included in this data. I know Full Circle is 100% ODBC compliant and has query & report writer capabilities which means generating this report should be fairly simple to do.
Based on the data generated by the 80/20 report we can determine the fastest and slowest moving inventory. Once this is done we can assign ABC codes to the products based on their activity & sales history. An ABC code is a tool for classifying inventory either by usage, value or both. A classified items are high movers or higher in $ value and should get the most attention where as a C or D classified item would be looked at less often.
Note: These ABC codes should be entered into the Full Circle item master for the A & B items to start with the C, D & E items done gradually.
Dedicated “Primary” Pick Locations should be setup for all A, B & C classified items. The A & B items should be as close to the shipping or packing stations as possible. This eliminates the picking travel time for the items shipped the most. Assigning dedicated or primary picking locations directs pickers, cycle counters or anyone else where to go to find an item. If inventory for the same item exists elsewhere in the warehouse, a remote inventory tag or label is attached to the primary location indicating the remote location.
Based on the 80/20 report we can determine or project daily usage quantities and create Min/Max levels for the primary picking locations. The MIN quantity is used to flag the need to restock a picking location with the MAX quantity when the QOH has reached this MIN level (this is where the remote inventory data is useful).
Note: This Min/Max data can also be entered into Full Circle and an inventory report can be created including the Min/Max data to be compared against current inventory levels.