March 2007 | How-To | Ten Tips

Improving Inventory Accuracy

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Inventory accuracy is vitally important; the challenge lies in achieving it. Out-of-stock items cause profit loss, but paying for inventory storage and transportation also impacts the bottom line. To guide your company in the right direction, Mike Honious, vice president of engineering, Ozburn-Hessey Logistics, shares 10 practical ways to improve inventory accuracy.

1. Pick a quality program and stick with it. Companies can choose from a variety of inventory quality programs such as ISO, lean manufacturing, Six Sigma, kaizen, and Total Quality Management. Make sure everyone in the company supports the program and uses it.

2. Know what you are up against. What is your current inventory accuracy rate? You can't improve what you don't know. Once you establish a bench mark, set an improve ment goal—aim either for a specific percentage or dollar figure. Check your results often to make sure you achieve and sustain improvements.

3. Keep your processes simple. Quality guru W. Edwards Deming once said, "If you can't describe what you're doing as a process, you don't know what you're doing." Keep your measures simple and manage them every day.

4. Examine your entire supply chain. Create and measure a "perfect order" metric from point of origin to final destination. This allows you to track inventory performance across your entire network and improve accuracy throughout the supply chain. Duplicate these successes and share improvement strategies so all areas of the organization can benefit. Also, hone your forecasting skills and help business partners, vendors, and customers do so as well.

5. Establish product traceability during the distribution life cycle. Include your entire inventory pipeline—inbound and outbound shipments as well as inventory in the DC. Never move product unless the action is authorized and recorded.

6. Select technology that fits your needs. A variety of inventory systems exist, from simple paper to advanced RFID technology. You can't go wrong with a real-time RF solution. It is affordable and accurate when used properly.

7. Implement a continuous cycle-counting program. Using cycle counting to maintain high levels of accuracy is one of the best ways to identify problem areas. An effective cycle-counting program eliminates the need for physical inventory expenses.

8. Make sure your employees are trained and informed. If workers understand the company's inventory goals, they will help accomplish them by performing processes accurately and consistently.

9. Choose supply chain partners who offer systems that interface with your inventory system. Many inventory issues stem from data and transmission failures. Working with capable supply chain partners and using compatible systems helps improve end-user delivery accuracy and customer service.

10. Make sure everyone through out the organization owns inventory accuracy.Every business unit with in the company should understand its impact on inventory accuracy. Many companies overlook the simple truth: managing inventory effectively is a key to business success.

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