Adopting a Smart Approach to Inventory Management

Remember the old days of inventory management, when you had to walk up and down the aisles of the warehouse, carrying a clipboard and counting every single piece of inventory, comparing it to what you had on your printout?

Everyone rejoiced when software companies came out with inventory management software, and they clamored to introduce it to their operations.

Everyone but me, to hear my staff tell it.

The thing about an inventory management system is that the people around it have to have the discipline to support it. For example, most people gauge inventory accuracy by taking the plus and minuses of all the item categories, and if the net result of everything is within 2 – 3%, they deem it to be an accurate inventory.

The problem is, there can be huge swings in line items by doing it that way. You might have a 1,000-count over of a bunch of bolts and nuts, but be 700 pieces short of an important component. Anyone who looks at that will say “Ah, a net difference of 300 — that’s pretty good!” and be done with it. But the production manager won’t think so when those 700 pieces are needed for a 24-hour turnaround order.

The best way to gauge the inventory accuracy is to calculate it by line item, not by mass total. That means everyone in the organization needs the discipline to respect the inventory process.

In other words, no one should ever go up to an inventory shelf and take an item because they need it. It has to be recorded through the process so you can record the ins and outs accurately. That way, if you want to know how many pieces of a widget you have, you can count the number of widgets in there and it will match exactly what is in the inventory management system.

But if someone grabs a sample of a product and the sample doesn’t get recorded, it doesn’t show as missing in the inventory management system.

Or if an associate screws up a part and they go get another one, the reject will show up in the system, but the replacement part won’t, and now there’s a part missing from the inventory. (Two parts if the reject doesn’t get entered into the system either.)

This kind of discipline doesn’t come naturally to people, but this is where it’s important.

This is also why you measure everything by line item, not gross total. That way, if things go missing, you can work backward to find out what went wrong.

Was it a production recording problem? Was it a warehouse taking or putting something away that was not recorded? Did someone take a part that he or she screwed up?

It costs money to do an inventory. You have to shut everything down and either bring in inventory specialists or put your floor associates to work on the inventory and send others home.

When we were looking at purchasing an inventory management system at Robroy, I first required that we could do a complete and accurate inventory within 24 hours, getting it to within 5% accuracy by line item and could do that consistently for a year, then and only then did I think we had instilled the discipline necessary.

When that happened our inventory management system became a very useful tool.

The problem with not having an accurate inventory

There are a few problems with not having an accurate inventory.

The worst thing that can happen is a customer urgently needs a part within 24 hours, and your system says it’s there, but when you look for it, it doesn’t exist anymore. So you have to reorder it and expedite it, which delays the shipment to the customer, which doesn’t turn out to be a happy experience.

When we made a commitment to replace a customer’s parts within 24 hours, that meant we couldn’t wait overnight to have inventory delivered to us. We needed to be able to put our hands on it at that moment, which meant trusting that we had it in our warehouse.

Or, if you have a part that’s made of five other components, but your inventory is always off, you will always have an imbalance in the components. You’ll always have too much of one or not enough of another, and you’ll never have matching numbers of those five components — you’re always going to be running behind on something.

At one point in time, we even employed six people who did nothing else but search the warehouse for parts. So if we were missing the fifth component for the part, we had to send out a search party to find the thing. We also developed the tendency to over- or under-order parts, which often contributed to excess and obsolete inventory.

I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business, including pivoting within their industry. If you would like more information, please visit my website and connect with me on Twitter, Facebook, or LinkedIn.

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