Improving Inventory Record Accuracy

Tony Wild

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136396328
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Record accuracy has become the focus of attention for many businesses because customers have higher expectations of the right item being delivered on time, and competitive pressures do not allow for extra stockholding. Businesses now have the opportunity to become much more effective given the correct information, the development of better communication and integration of systems. For inventory management, the pressure for most companies is to become more efficient and hold less inventory. The accuracy of data has gradually been emerging in importance. The systems only work if the data is correct and with the introduction of integrated data, there are wide ranging repercussions for businesses that draw conclusions and make decisions based on inaccurate records. Where there is a lot of data, there is the opportunity for many and large errors. This is often the case with inventory: many items, large varieties of different items, and fast changing inventory. Measuring how much there is becomes a challenge in many businesses such as consumer retailing and manufacturing processes where inventory changes so rapidly. With large warehouses there is also the risk of inaccurate recording so that items are not there or not in the right place. Improving Inventory Record Accuracy initially discusses how to quantify the problem, set sensible targets for improvement and how to make the case for doing something to improve accuracy. The book then discusses why inventory records do go wrong and how to rectify the major causes of error. Finally the book illustrates the techniques with which everyone can make their records very accurate. This is a practical book that solves a practical problem and shows the ways to improve record accuracy. Tony Wild has amassed many techniques over the years, has tried them out in practice and he presents them here in an accessible style for professional managers in logistics and stock control, retail/wholesale distribution. The book is also intended for use by students on Institute of Operations Management Certificate, DPIM, CPIM and DLM courses.

1

The importance of record accuracy

• Why have accurate records?
• What accuracy do we need?
• Identifying the objectives
• How to measure accuracy
• Accuracy targets
• Record pro formas

Why have accurate records?

The changes to leaner business over the last few years have necessitated major improvements in efficiency, leading to better communication and low inventories with requirement for more timely and more accurate data. Businesses are striving for better quality in all products, and processes and inaccuracies can no longer be hidden by extra stockholding. The data accuracy problem has become a major challenge. This is an area where continuous improvements must be made and standards increased.

Records accuracy is the responsibility of those who control the physical inventory, not only for their own benefit but also for that of the whole organization. Departments far from the source of the records are making decisions assuming that the data on the records is correct – they have to trust the accuracy of those records, since it is highly inefficient (and therefore costly) to have to check each time before acting.

Gradually systems have become more integrated, and the use of any piece of data is now more universal and automatic. Separate records for each inventory area have been melded together, so that in a supply chain there may be a view of many stages of supply. These could be (and often are) different companies at different locations. Each relies on data received from elsewhere to support the next stage in the supply chain. There is little room for incorrect information if demand is to be satisfied effectively.

It is not possible to run an effective organization
without accurate records.

The development of integrated logistic and manufacturing planning systems (including JIT, DRP, ERP, MRP and APS) has to rely on large numbers of records being correct. Without a high level of accuracy the whole planning process could become invalid, and a large amount of extra work ensue in reacting to problems. Improving the accuracy is a normal, continuous process, starting with the ‘worst’ records and employing a variety of techniques that have been developed by the author to give effective results.

What accuracy do we need?

What is the problem? If the records are inaccurate and it is not causing a problem, then it is not worth improving accuracy until it becomes a significant issue. Normally it is in fact an issue, but people have learned to live with it. Record inaccuracy manifests itself when:

• there is no inventory available to service the customer
• someone lights upon a large quantity of items which no-one knew were there
• there is a stocktake discrepancy which displeases the auditors.

Often the impetus for accuracy improvement results from financial discrepancies at stocktaking, rather than from operational people who are used to living with the situation.

The need for accuracy stems from one of these three causes. Initially the aim is to make the data sufficiently accurate so that they do not hamper the operations of the business. We always aim for perfection, but in the short term we will make do with ‘much improved’!

Aim for perfection in the long term but set working
targets in the short term.

A purist will argue that records need to be exact. For many items this is true: if the number of playing cards in a pack is not 52 plus jokers, then for many games the pack is useless. For some items the situation is less than clear. How much sugar do you have in your drink? The answer may well be ‘one spoonful’. The response is unlikely to be either ‘I need to know the spoon size before I can tell you’, or ‘23 704 grains of 0.15 mm diameter’. The latter answer could be essential for making a product like sandpaper, but in the context of making a beverage we are not that exact. Why? Because it is not necessary. The user has a band of acceptability (tolerance), and as long as the quantity falls within that band, then there is no problem.

The first objective is therefore to ensure that the accuracy of the records meets the current requirements for customer service, financial control of investment, and losses arising when unidentified excess stocks are discovered and written off.

Identifying the objectives

Once it has been agreed that there is a requirement to improve record accuracy, the first step is to establish the objectives of the development. Then we have to quantify how much improvement is needed where, and by when.

If accuracy is measured by value, the result is an averaging of individual discrepancies across all inventory items. This means that there can be major discrepancies on each item, which may balance out. (The accountancy balancing of stock values is discussed in Chapter 8.) The focus for proper accuracy control should therefore be to maintain correct records at item level. In practice, experienced inventory controllers will exert more effort on ensuring the accuracy of high turnover value lines because of the normal inventory policy and the effect on customer service.

In order to determine whether the records are good enough, the first step is to decide what is meant by record accuracy. The practical answer may differ from the theoretical one. It could be:

• the least number of discrepancies
• the least size of discrepancies
• the least value of discrepancies.

In reality the best measure is a combination of all three, which is achieved by classifying items into bands (big, medium and small) or into finer sections.

There is also the question of what is really meant by accurate records. Is it:

1. Having everything exactly the same in the records as in the stores?

2. A general agreement in the value of recorded and physical stocks?

3. Ensuring that major items have record agreement?

4. Allowing a margin of error but not major discrepancies?

5. Having records that enable sufficiently correct data to be used for the business?

6. Avoiding adverse comment by auditors or the need for re-checking?

7. Ensuring that customers are fulfilled on time, or on time in full?

8. Having a working environment where auditing is unnecessary?

Measure accuracy to suit the business operations –
not to suit the auditors.

The basic requirement for record accuracy is to be able to operate the activities of the company with a negligible amount of disruption from inaccurate records. If the system is poor and inventories are high, inaccurate records may be accepted – although, of course, the company may well run out of cash as a result. With better systems, professional recording of inventory is required and accuracy needs to be good for everyone to have confidence in the data. In most businesses there has been increased competitive pressure, leading to a reduction in stock levels and a greater need for...