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Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Achieving Inventory Accuracy
G.L. (Jerry) Kilty, CFPIM, CIRM, CSCP727 [email protected]
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Two Messages Today
Data must be accurateBest way to audit records
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Is your company taking a periodic inventory?
Yes No
0%0%
a. Yesb. No
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Is your company doing cycle counts?
Yes No
May
be
0% 0%0%
a. Yesb. Noc. Maybe
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Data Integrity
Customer data basesSuppliers data basesBills of materialsInventory records
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Data Integrity
Lead time dataCapacity dataInformation flows
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Inventory Accuracy Calculations
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Part Shelf Inventory No. Count Record
1 95 1002 99 1003 101 100
Total 295 300
Inventory Accuracy Calculations
Accuracy = 295/300Or 98.3 %
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Part Shelf Inventory Accuracy No. Count Record Calculation
1 95 100 95 % 2 99 100 99 % 3 101 100 99 %
Total 295 300
Inventory Accuracy Calculations
Accuracy = Avg. of the threeOr 97.7 %
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Inventory Accuracy Calculations
1. Financial ($$$$)2. Planning (Units with tolerances)3. Production (Units w/o tolerances)
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Part Unit Shelf Inventory AdjustmentNo. Cost Count Record Unit $$$$1 $ 10 95 100 - 5 - 502 $ 30 99 100 - 1 - 303 $ 80 101 100 + 1 + 80
Total 295 300 0
Financial ($$$)
No FinancialAdjustment100 % Accurate
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Part Toler- Shelf Inventory Within OutsideNo. ance Count Record Tolerance Tolerance
1 7 % 95 100 X2 3 % 99 100 X 3 0 % 101 100 X
Total 295 300
Planning (Units w. Tolerances)
Accuracy = 2/3Or 67 %
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Part Shelf Inventory No. Count Record
1 95 1002 99 1003 101 100
Total 295 300
Production (Units)
Accuracy = 0/3Or 0 %
WrongWrong
WrongWrongWrongWrong
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Sigma Levels
Level654321
Defects per Million3.42336,21066,807308,537690,000
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Which method of measurement does your company use?
Fina
ncial
Plan
ning
Pro
ducti
on A
ll of a
bove
Don
’t kno
w
0% 0% 0%0%0%
a. Financialb. Planningc. Productiond. All of abovee. Don’t know
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Auditing the Records
The annual physical will adjust the recordsCycle counting will correct the problems!
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Why take a Physical Inventory?
FINANCIAL!
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Physical Inventory
ExpensiveTime consumingExhaustingCreates more inaccuracies
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Cycle Counting
The Solution!
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Cycle Counting
Sample countsEvery dayInvestigate as to causeTrained personnelCorrective action implemented
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Cycle Counting Methods
1. Count and adjust2. Quick fix3. Long lasting accuracy
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
1. Count and Adjust
Popular, but not effectiveDoes not correct the recordDoes not identify problemsDoes not replace the need for a physical inventory
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
2. Quick Fix
Report honestlyDon’t use random generatorsSelect with a bias for improvementCycle Counting Done Right
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Cycle Counting Done Right!
A specific approach to fix serious accuracy problemsA 5 - step method
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Select Control Sample
Count Sample
Measure and Record Accuracy
Investigate Causes
FIX the PROBLEM
1
2
3
4
5
Select based on degree of problems; No Tolerances
Count each weekUntil perfect
Be Brutally Honest
Root Cause Analysis
Sustain the Improvement
The 5 Step Quick Fix Process
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Quick Fix Method Summary
If record accuracy is below 95%Control sampleCount on a periodic and frequent basisMeasure & investigate as to causePerformed by trained personnelCorrective action implementedDoes not replace physical inventories
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
3. Long Lasting Accurate Inventory Records
Accuracy maintenanceCount frequency determined– “A” = 12– “B” = 4– “C” = 2
Does replace the annual physical inventory!
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
ABC Classification
20% of the items = 80% of the value30% of the items = 15% of the value50% of the items = 5% of the value
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Cycle Counting Frequency
“A” = 12 4“B” = 4 2“C” = 2 1
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
Cycle Counting vs. Physical Inventory
Cycle CountingInvestigates the causes and fixes themRequires continuous effortRequires trained personnel
Physical InventoryDoes not do a cause analysisIs exhaustive when done, but over a short timeEverybody is involved
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
What’s your Company’s Inventory Accuracy?
99 –
100%
97 –
98%
95 –
96%
Low –
95%
Don
’t kno
w
0% 0% 0%0%0%
a. 99 – 100%b. 97 – 98%c. 95 – 96%d. Low – 95%e. Don’t know
Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management
The End
Thank You!
G.L. (Jerry) Kilty, CFPIM, CIRM, CSCP727 [email protected]