Why Inventory is always off?

It has always been a problem on why inventory always has a variance, be it a positive variance or a negative variance. No matter how often you do your cycle count, your inventory system ends up messy after some time. This creates a big problem in your whole MRP system and it screws up your ordering patterns and end up having excess or shortage materials, which later results to customers complaining because you were not able to deliver their requirement on time. Having a bad inventory status can be too painful as it becomes cost to your company as well as more unsatisfied customers. So why is inventory always off?

NO CONTROL.. if there is no CONTROL in the way you manage your inventory, it will never be corrected. Bad inventory are caused by a lot of factors, let me share with you some key issues that affects inventory accuracy.

1. WMS vs. Business Process alignment – If your information flow is not aligned with material flow, it will create a gap in your system transactions. Your processes must have controls in addressing discrepancies found prior to or during the transaction of your inventory in the system. If discrepancies are not resolved immediately, it will pile up and for all you know it you lose control in managing your inventory in the system.

2. Process Discipline breakdown - if your staff is not following the procedure, then you are in trouble. A failure in transacting an inventory be it input or output, will mess up your inventory system. It is always important to analyze problems that occur in the process and come up with an effective action to prevent it from recurring. Training and communication with members of the team is key in order to understand the impact of any process deviation.

3. Fixed Location – sometimes people think that a material is missing, but in most cases it is found somewhere else.. This happens because materials have no fixed location in the warehouse. Key is 5S, “a place for everything, and everything in its place.." One cause of wrong count is that materials are not accounted properly due to multiple locations. This must be addressed. How can you believe that a material is missing? It can't be!

If inventory is always off, there is a need to go back to the drawing board, streamline your process, and clean up your inventory system. Establish a strong inventory control system. Cycle counting is not mere counting, you must establish a process on how to perform and manage any variances.

Supply Chain Fundamentals

In operations, most managers are sometimes put in a situation where they had to be assigned to a new role in the organization. This is one of the major strategies in People Development, where some managers are trained to handle new roles that are aligned to their Career Objective. One of which is managing the Supply Chain. Common questions asked are; How do I manage the Supply Chain? What do I need to consider? What would be my focus?

Below are basic fundamentals of managing the Supply Chain that would help you get started in managing your new role in Supply Chain. As SC is complex, you may want to consider focusing on the following areas.

Purchasing / Procurement - get the right sourcing from a qualified supplier, manage per commodity, monitor price changes, and strengthen supplier management. As Suppliers are key to your business, it is also important that you develop a good working relationship by finding the best solution that will benefit both your company and the supplier.

Inventory - Identify your inventory stock level, manage inventory accuracy, review ordering parameters such as safety stock, ordering lead time, frequency of delivery, replenishment status. Inventory Control is key in the operations, a wrong assumption in the ordering parameters will definitely lead to shortage and excess materials, which are both costly to the company.

Warehouse and Material Handling - establish a reliable receiving and picking process, any deviation in the management of stocks that comes in and out of the warehouse will greatly affect your inventory. Best to consider setting up your cycle count process to manage it properly. Need to set up your material flow, consider (kanban, kitting, sequential, lot delivery). Also look into packaging improvement to get rid of double handling aside from improving the cubic efficiency. Fixed locations must be reviewed and designed to follow a layout that efficiently route your materials.

Transportation – manage your inbound and outbound logistics. As transportation cost is a large portion of the supply chain cost, it is important to rationalize the best option in your imports and dispatch. Possible issues to control are frequency of delivery, consolidation, optimize cubic utilization, and develop the best route for your goods.

Planning – need to structure Ordering Process Cycle by considering the service levels among suppliers. Need to work closely with sales and demand planning regarding forecast. Sales and Operations Planning process must be established as well.

It is imperative that all business processes are in place and controls are set. Of course setting up the Key Performance Indicators in each area is a must, as measuring your performance is Key in controlling your operation. The way we manage our supply chain will directly impact on the Organization’s profitability.