Inventory Accuracy Made Easy
Inventory Accuracy Made Easy
Inventory Accuracy Made Easy
Inventory accuracy is the most basic but ignored issue in logistics management area. In many organizations, maintaining inventory accuracy or making adjustment to the record falls to the hand of accounting department. Inventory adjustment task is costly, time consuming and boring then people try to make it as quick as possible without investigating the cause of inventory inaccuracy.
Despite its importance, less than perfect inventory accuracy bring unfavorable consequences, for instance,
- Sales department will find it difficult to reserve or allocate quantity to each customer.
- Customer will experience lower service level due to stock-out.
- Demand planner who uses inaccurate data in making forecast will produce high error forecast.
- Purchasing department will have to hurry making replacement order to supplier if stock is not in warehouse. Most likely, urgent order to supplier is more expensive.
- Back order has to be shipped by expensive or express freight, headache for transportation department.
- Order picker in warehouse can't locate the product then they spend longer time to completely pick the order.
- Accounting department has to pay tax for every discrepancy in records.
What most people think when it comes to inventory accuracy is cycle counting. Cycle counting is the continuous examination of inventory record against actual inventory. This is different from annual physical inventory counts when company just shuts down production unit and warehouse for a couple of days each year. Then, everyone is rounded up, stock report is distributed and everyone keeps walking, searching and counting.
Cycle counting, if implemented effectively, can bring back inventory accuracy and peace. There is a couple of variance of cycle counting as below,
Counting by location = Start counting from one end of the warehouse every day until you reach another end of warehouse.
Random cycle counting = items will be picked randomly everyday for counting.
Counting by ABC classification = items will be categorized by ranking (A/B/C) then number of items of each ranking will be allocated for counting.
Other than cycle counting method, I would recommend you to follow basic guideline for inventory accuracy as below,
- Use advanced shipping notification (ASN) then receiver can have packing list in advance. So they have more time to enter order into system and validate record against actual cargo.
- Use appropriate marking and labeling on packaging.
- Keep warehouse aisles and shelves clean and organized.
- Display storage location clearly.
- Encourage customer to buy full case instead of broken case.
- Provide designated storage area for broken case.
- Provide extra security to warehouse to avoid theft.
- Provide enough lighting to storage area.
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