webftoc 12/16/2014 15:54:49 page 14

WEBFTOC 12/16/2014 15:54:49 Page 14

WEBFFIRS 12/16/2014 15:40:21 Page 1

InventoryBest Practices

Second Edition

Steven M. Bragg

WEBFFIRS 12/16/2014 15:40:21 Page 2

Copyright 2011 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the1976 United States Copyright Act, without either the prior written permission of thePublisher, or authorization through payment of the appropriate per-copy fee to theCopyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978)750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to thePublisher for permission should be addressed to the Permissions Department, JohnWiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201)748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have usedtheir best efforts in preparing this book, they make no representations or warranties withrespect to the accuracy or completeness of the contents of this book and specifi callydisclaim any implied warranties of merchantability or fitness for a particular purpose.No warranty may be created or extended by sales representatives or written salesmaterials. The advice and strategies contained herein may not be suitable for yoursituation. You should consult with a professional where appropriate. Neither thepublisher nor author shall be liable for any loss of profit or any other commercialdamages, including but not limited to special, incidental, consequential, or otherdamages.

For general information on our other products and services or for technical support,please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books. For more information aboutWiley products, visit our Web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Bragg, Steven M.Inventory best practices / Steven M. Bragg. – 2nd ed.

p. cm.Includes index.ISBN 978-1-118-00074-8 (hardback); 978-1-118-02584-0 (ebk);

978-1-118-02585-7 (ebk); 978-1-118-02586-4 (ebk)1. Inventories. 2. Inventory control. I. Title.HD40.B725 2011658.7 087–dc22

2010045648

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

http://www.wiley.com/go/permissions

http://www.copyright.com

http://www.wiley.com

WEBFTOC 12/16/2014 15:54:45 Page 3

Contents

Preface xv

Chapter 1 Success or Failure with Best Practices 1Types of Best Practices 1Most Fertile Ground for Best Practices 2Planning for Best Practices 3Timing of Best Practices 5Implementing Best Practices 6How to Use Best Practices: Best PracticeDuplication 9Why Best Practices Fail 10Summary 14

Chapter 2 Inventory Purchasing 152.1 Include Suppliers in the New Product

Design Process 172.2 Use Supplier-Concurrent Engineering 182.3 Avoid Designing Risky-Procurement

Items into Products 182.4 Match Product and Part Life Cycles 192.5 Reduce Safety Stocks by Shrinking

Supplier Lead Times 202.6 Purchase Supplier Capacity 202.7 Reduce Safety Stocks by Accelerating

the Flow of Internal Information 212.8 Buy from Suppliers Located Close to

the Company 222.9 Relocate Suppliers On-Site 232.10 Use Local Suppliers for Rapid Replenishment 242.11 Consider Foreign Sourcing 242.12 Use Auctions for Selective Purchases 252.13 Compare Suppliers Based on Total

Landed Cost 262.14 Eliminate Approvals of Routine Purchases 272.15 Purchase Based on Material Requirements

Planning 272.16 Compare Open Purchase Orders to Current

Requirements 28

iii

WEBFTOC 12/16/2014 15:54:45 Page 4

2.17 Freeze the Short-Term Production Schedule 292.18 Share Production Plan with Suppliers 302.19 Obtain Direct Links into Customer

Inventory Planning Systems 302.20 Require Frequent Deliveries of Small

Quantities 312.21 Arrange for Inbound Split Deliveries 332.22 Arrange for Phased Deliveries 332.23 Adopt Rolling Schedules 342.24 Adopt Just-in-Time Purchasing 352.25 Implement Stockless Purchasing 362.26 Centralize Purchasing 372.27 Designate Major Suppliers as Lead Suppliers 372.28 Single-Source Products 382.29 Install a Supplier Rating System 402.30 Use Long-Term Supplier Relationships

for Strategic Purchases 412.31 Shift Raw Materials Ownership to Suppliers 422.32 Flag Changes Impacting Advance Material

Requests 44

Chapter 3 Inventory Receiving and Shipping 453.1 Reject Unplanned Receipts 453.2 Obtain Advance Shipping Notices for

Inbound Deliveries 473.3 Directly Enter Receipts into Computer 483.4 Automatically Collect Inbound and

Outbound Cube and Weight Information 493.5 Repackage Incoming Items into Increments

Ordered by Customers 503.6 Put Away Items Immediately after Receipt 513.7 Stage Received Goods for Zone Putaways 523.8 Eliminate the Receiving Function 533.9 Combine the Shipping and Receiving

Functions in One Area 543.10 Assign Docks Based on Minimum

Warehouse Travel Time 553.11 Require Supplier Deliveries with Open-Sided

Trucks Directly to Production 553.12 Ship Using Returnable Wheeled Containers 563.13 Use Dunnage Bags to Cushion Outbound

Shipments 57

iv / Contents

WEBFTOC 12/16/2014 15:54:46 Page 5

3.14 Use Shippers with the Most ConsistentDelivery Performance 58

3.15 Have Delivery Person Deliver the Invoice 593.16 Pay Suppliers Based Only on Receiving

Approval 603.17 Provide Pending Shipment Information

to the Collections Staff 63

Chapter 4 Inventory Storage 654.1 Drop Ship Inventory 674.2 Cross-Dock Inventory 674.3 Move Inventory to Floor Stock 684.4 Use Temporary Storage for Peak Inventory

Requirements 704.5 Assign Unique Location Codes to All

Inventory Storage Locations 714.6 Reduce the Number of Inventory Bin

Locations Assigned to the Same Product 724.7 Assign Fixed Inventory Locations to

High-Volume Items 724.8 Segregate Customer-Owned Inventory 734.9 Allocate Warehouse Areas to Specific

Customers 744.10 Segregate Inventory by ABC Classification 754.11 Store High-Pick Items in Order

Fulfillment Zones 764.12 Adjust Case Height to Match Cubic Storage

Capabilities 764.13 Adjust Case Stacking or Width to

Avoid Pallet Overhang 774.14 Combine Out-and-Back Inventory Moves 784.15 Use Different Storage Systems Based on

Cubic Transactional Volume 784.16 Use Modular Storage Cabinets for

Low-Storage-Volume Items 794.17 Use Carousels to Increase Picking Efficiency 804.18 Use Movable Racking Systems 814.19 Use Multistory Manual Picking Systems 814.20 Use Gravity-Flow Racking for FIFO Picking 824.21 Use Pallet-Flow Racks for Pallet FIFO Picking 834.22 Create Double-Deep Racking or Stacking

Lanes for Large SKU Pallet Volumes 83

Contents / v

WEBFTOC 12/16/2014 15:54:46 Page 6

4.23 Use Push-Back Racks for MultiplePallet Storage 85

4.24 Eliminate Cross Bracing in Low-WeightStorage Configurations 85

Chapter 5 Inventory Picking 875.1 Group Single-Line Orders and Pick in

Order by Location 885.2 Use Single-Order Picks for Emergency

Orders 895.3 For Manual Systems, Pick from the

Source Document 905.4 Implement Forward Picking 905.5 Use Wave Picking by Grouping to

Consolidate Transactions 915.6 Use Zone Picking to Consolidate Total

Transactions 925.7 Use Zone Picking with Order Forwarding 935.8 Use Voice Picking to Record Low-Volume

Picking Transactions 945.9 Use Pick-to-Light to Record High-Volume

Picking Transactions 955.10 Use Portable Scales to Pick Small Items 975.11 Pick into Multibin Carts 975.12 Store Kitted Inventory in an

Accumulation Bin 985.13 Use Standard Containers to Move, Store,

and Count Inventory 995.14 Issue Parts in Full-Bin Increments 1005.15 Have Suppliers Sequence Their Parts

Deliveries 1015.16 Avoid Restocking during a Picking Shift 1015.17 Optimize Inventory Storage through

Periodic Location Changes 102

Chapter 6 Production Issues Impacting Inventory 1036.1 Eliminate Incentive Pay Systems Causing

Excessive Production 1056.2 Standardize the Number of Shifts Worked

throughout a Factory 1066.3 Allow Production Workers to Call Suppliers

about Faulty Materials 107

vi / Contents

WEBFTOC 12/16/2014 15:54:46 Page 7

6.4 Invest in Smaller, Low-Capacity MachinesRather than High-Capacity Ones 107

6.5 Purchase Machines from a Single Supplier 1086.6 Produce the Same Parts on the Same Machine

Every Time 1096.7 Perform Inspections at the Next Downstream

Workstation 1106.8 Improve Periodic Equipment Maintenance 1106.9 Shift Some Equipment Maintenance to the

Production Staff 1116.10 Preplan Major Equipment Maintenance 1126.11 Replace Aisles with Conveyors 1136.12 Schedule Smaller Production Batches 1146.13 Produce to Order Rather than to Stock 1156.14 Reduce Container Sizes 1156.15 Reduce Setup Times 1166.16 Shorten Cycle Times 1176.17 Replace Straight Assembly Lines with

Serpentine Lines 1186.18 Reduce the Length of the Assembly Line 1186.19 Divide the Assembly Line into Segments 1196.20 Use Cellular Manufacturing 1206.21 Group Machine Cells Near Common

Inventory Storage Areas 1216.22 Position Local Cell Storage between

Workstations and Aisles 122

Chapter 7 Inventory Transactions 1237.1 Reduce the Number of Stored Data Elements 1257.2 Record Inventory Transactions with Barcodes 1267.3 Record Inventory Transactions with Radio

Frequency Communications 1277.4 Track Inventory with Radio Frequency

Identification (RFID) 1287.5 Eliminate All Paper from Inventory

Transactions 1307.6 Use the Kanban System to Pull

Transactions through the Facility 1317.7 Eliminate All Transaction Backlogs 1327.8 Verify That Receipts Are Entered in the

Computer System at Once 1337.9 Have Customers Order by Part Number 1347.10 Audit All Inventory Transactions 135

Contents / vii

WEBFTOC 12/16/2014 15:54:47 Page 8

7.11 Compare Recorded Inventory Activity toOn-Hand Inventories 136

7.12 Immediately Review All NegativeInventory Balances 137

7.13 Replace the Physical Count Process withCycle Counts 138

7.14 Use Control Groups to LocateTransaction Errors 141

7.15 Prioritize Cycle Counts on Next-Usage Items 1427.16 Streamline the Physical Count Process 1427.17 Install a Warehouse Management System 145

Chapter 8 Inventory Planning and Management 1478.1 Include Materials Managers in the New

Product Design Process 1508.2 Reduce the Number of Product Options 1518.3 Increase Prices for Nonstandard Options 1528.4 Increase Prices for Small-Unit Orders 1528.5 Convert Information Products to

Electronic Versions 1538.6 Reduce the Number of Products 1538.7 Reduce the Number of Customers 1548.8 Avoid Promotions 1558.9 Design Products with Lower Tolerances 1558.10 Require Formal Review and Approval of

Engineering Change Orders 1568.11 Assign Inventory Items to Classifications 1578.12 Forecast Demand by Product Families 1588.13 Segment Forecasted Demand into Stable

and Unstable Products 1598.14 Centralize Responsibility for Inventory

Planning 1608.15 Delay the Order Penetration Point as

Long as Possible 1608.16 Use a Material Requirements Planning

System to Model Alternative Lot Sizes,Safety Stocks, and Lead Times 161

8.17 Reduce Job Releases to Production 1628.18 Prioritize Production Based on

Delivery Region 1638.19 Use Variable Safety Stocks for

Fluctuating Demand 1638.20 Convert Safety Stock to Just-in-Case Stock 164

viii / Contents

WEBFTOC 12/16/2014 15:54:47 Page 9

8.21 Eliminate Expediting 1658.22 Develop a Product Substitution System 1668.23 Question the Level of Customer

Service Provided 1668.24 Focus Inventory Reduction Efforts on

High-Usage Items 1678.25 Create a Visual Review System for

Noninventoried Parts 1688.26 Eliminate Departmental Stocks 1698.27 Install a Distribution Requirements

Planning System 1708.28 Distribute Slow-Moving Items from

Regional Warehouses 1708.29 Install a Hold and Flow System 1718.30 Use Overnight Delivery from a Single

Location for Selected Items 1728.31 Use Fair Shares Analysis to Allocate

Inventory to Warehouses 1738.32 Periodically Rationalize the

Warehouse Network 1738.33 Plan for Product Shutdowns 1758.34 Create a Materials Review Board 1758.35 Identify Obsolete Inventory via Physical

Inventory Tags 1768.36 Plan for Service Parts Inventory Levels 1778.37 Inspect Returned Merchandise for Usability 1788.38 Reserve Otherwise Obsolete Inventory with

“Service/Repair” Designation 1788.39 Avoid Product Obsolescence with

Shelf-Life Control 1798.40 Create an Obsolete Inventory Budget for

Disposals 1808.41 Batch Excess Inventory for Sale to Salvage

Contractors 1818.42 Sell Excess Items through the Service

Department 1818.43 Set Up a Reverse Logistics System 1828.44 Outsource Selected Warehousing Functions 183

Chapter 9 Warehouse Layout 1859.1 Include Other Issues than Cost in a

Warehouse Acquisition Decision 186

Contents / ix

WEBFTOC 12/16/2014 15:54:48 Page 10

9.2 Generally Organize the Warehouse in aU-Shaped Process Flow 187

9.3 Organize the Warehouse by Storage Zones 1889.4 Maximize Vertical Storage Space 1899.5 Tailor Vertical Storage Space to Manual

Picking Needs 1909.6 Enclose Building Supports in Racks 1909.7 Use Narrow Aisles in Manual Putaway

and Picking Zones 1919.8 Avoid Aisles Adjacent to Outside Walls 1929.9 Use Automated Storage and Retrieval

Systems 1929.10 Use Automated Guided Vehicle Systems 1939.11 Use Conveyors to Reduce Employee Travel 1949.12 Avoid an Excessive Level of Warehouse

Automation 1959.13 Eliminate the Quality Review Area 1979.14 Enlarge the Receiving Area 1979.15 Design Just-in-Time Docks for the Largest

Anticipated Trucks 1989.16 Lock Down the Warehouse Area 1999.17 Plan for Maximized Warehouse

Space Utilization 2009.18 Eliminate the Warehouse 200

Chapter 10 Cost Accounting 20310.1 Eliminate Purchase Price Variance Tracking 20310.2 Eliminate Tracking of Work-in-Process

Inventory 20510.3 Eliminate Scrap Reporting in the

Production Area 20610.4 Charge the Entire Inventory to Expense 20610.5 Use Specific Identification Costing

with RFID Tags 20710.6 Have the Cost System Separate Value-Added

and Nonvalue-Added Activities 20810.7 Assign Overhead Based on Square

Footage Used 20910.8 Do Not Credit Internal Departments with

Sales When Production Is Completed 21010.9 Report on Landed Cost Instead of

Supplier Price 21110.10 Report on the Total Cost of Product Ownership 211

x / Contents

WEBFTOC 12/16/2014 15:54:48 Page 11

10.11 Implement Activity-Based Costing 21210.12 Assign Overhead Personnel to Specific Subplants 21410.13 Implement Target Costing 21410.14 Limit Access to Unit-of-Measure Changes 21510.15 Review Cost Trends 21610.16 Review Material Scrap Levels 21810.17 Revise Traditional Cost Accounting Reports 22010.18 Audit Labor Routings 22210.19 Follow a Schedule of Inventory

Obsolescence Reviews 223

Chapter 11 Bills of Materials 22711.1 Audit Bills of Materials 22711.2 Conduct a Configuration Audit 22911.3 Modify the Bills of Materials Based on

Actual Scrap Levels 23011.4 Modify the Bills of Materials for

Temporary Substitutions 23111.5 Eliminate Redundant Part Numbers 23211.6 Standardize Parts 23311.7 Review Inventory Returned to the Warehouse 23411.8 Use Bills of Materials to Find Inventory

Made Obsolete by Product Withdrawals 23511.9 Identify Inactive Inventory in the Product

Master File 236

Chapter 12 Impact of Constraints on Inventory 237Overview of the Theory of Constraints 237Overview of the Constraint Buffer 239Alternatives to the Constraint Buffer 240Expedite Zone 241Buffer Manager 242Buffer Hole 242Buffers for Labor Operations 243Assembly Area Buffer 243Inventory Releases 244Batch Sizes 244Summary 246

Chapter 13 Inventory Policies and Procedures 24713.1 Create a Policies and Procedures Manual 24813.2 Train the Warehouse and Accounting

Staffs in Inventory Procedures 250

Contents / xi

WEBFTOC 12/16/2014 15:54:48 Page 12

13.3 Cross-Train for Mission-Critical Activities 25113.4 Train Using Training Teams 252

Chapter 14 Inventory Measurements 27114.1 Percentage of New Parts Used in

New Products 27114.2 Percentage of Existing Parts Reused in

New Products 27314.3 Raw Material Content 27414.4 Bill of Materials Accuracy 27514.5 Item Master File Accuracy 27614.6 Economic Order Quantity 27614.7 Distribution Turnover 27714.8 On-Time Parts Delivery Percentage 27814.9 Incoming Components Correct

Quantity Percentage 27914.10 Purchased Component Defect Rate 28014.11 Percentage of Receipts Authorized by

Purchase Orders 28114.12 Percentage of Purchase Orders Released

with Full Lead Time 28214.13 Putaway Accuracy 28214.14 Putaway Cycle Time 28314.15 Scrap Percentage 28414.16 Average Picking Time 28514.17 Picking Accuracy for Assembled Products 28614.18 Average Picking Cost 28714.19 Order Lines Shipped per Labor Hour 28814.20 Shipping Accuracy 28914.21 Percentage of Products Damaged in Transit 29014.22 Warehouse Order Cycle Time 29014.23 Inventory Availability 29114.24 Delivery Promise Slippage 29214.25 Average Back-Order Length 29314.26 Dock Door Utilization 29414.27 Inventory Accuracy 29414.28 Inventory Turnover 29514.29 Percentage of Warehouse Stock

Locations Utilized 29714.30 Square Footage of Warehouse Storage Space 29814.31 Storage Density Percentage 29914.32 Inventory per Square Foot of

Storage Space 299

xii / Contents

WEBFTOC 12/16/2014 15:54:48 Page 13

14.33 Storage Cost per Item 30014.34 Average Pallet Inventory per SKU 30114.35 Rate of Change in Inactive, Obsolete,

and Surplus Inventory 30214.36 Obsolete Inventory Percentage 30314.37 Percentage of Inventory > X Days Old 30414.38 Percentage of Returnable Inventory 305

Appendix Summary of Inventory Best Practices 307

Glossary 319

About the Author 331

Index 333

Contents / xiii

WEBFTOC 12/16/2014 15:54:49 Page 14

WEBFPREF 12/16/2014 15:44:17 Page 15

Preface

This book contains more than 200 best practices related to every phaseof a company’s activities involving inventory—its purchase, receipt,

storage, picking, and shipment—and includes 29 new best practices thatare unique to this second edition.

Special functions related to inventory contain so many best practicesthat they deserve their own chapters—production, transaction processing,planning, warehouse layout, cost accounting, and even bills of material.Further, you need to measure a company’s progress in achieving best prac-tices, so a comprehensive list of inventory-related measurements has beenadded to a separate chapter (including new metrics in this second edition).Also, a number of the inventory chapters refer to specific inventory proce-dures, which are helpfully detailed in yet another chapter. Further, anentirely new chapter describes the impact of constraint management sys-tems on how you should deal with inventory. Given the large number ofbest practices presented, the Appendix summarizes them for you. If thereare any concerns about the meaning of any inventory-specific terms, theglossary contains an inventory dictionary. In short, this book is the go-tosource for inventory improvements.

Inventory Best Practices is designed for people in many parts of acompany. The controller can use the cost accounting, inventory trans-actions, inventory measurements, and policies and procedures chaptersto increase the efficiency of inventory accounting. The CFO can usevirtually all the chapters to determine what options are available forreducing a company’s investment in inventory, while the purchasingmanager can use the purchasing chapter as well as the planning andmanagement chapter to increase that department’s effectiveness inprocuring inventory. The warehouse manager is a particular benefi-ciary, with the inventory receiving and shipping, storage, picking,transactions, and warehouse layout chapters devoted to that area ofexpertise. The engineering manager can also benefit from the inven-tory planning and management and bill of materials chapters. Finally,

xv

WEBFPREF 12/16/2014 15:44:17 Page 16

the CEO can use the entire book to gain a sweeping view of the scopeof inventory best practices on all aspects of a company.

This book is intended to be a buffet table of ideas from which one cansample. There is no clear set of inventory best practices recommended forall companies, all the time. Instead, given the wide array of industry-specific issues and inventory flow concepts in use, you should skimthrough the book and select only those best practices resulting in the mostobvious improvements. The Appendix, which summarizes all the bestpractices, is a good place to conduct this review. However, a company’sbusiness plan will likely change over time, so it is worthwhile to refer backto the book from time to time to see what other best practices may havebecome applicable as a result of those changes.

Finally, you do not install a best practice merely by ordering that it bedone. The “Make it so!” approach of Captain Picard of the Enterprise doesnot always work. Instead, read Chapter 1, “Success or Failure with BestPractices,” to learn what factors will impact a best practices implementa-tion and how you can increase your odds of success.

In short, use Inventory Best Practices to improve all aspects of yourcompany’s business that relate to inventory. This can result in far less timespent recording inventory transactions, reducing the company investmentin inventory, shrinking its scrap and obsolete inventory expense, improv-ing the efficiency of the warehouse, and shortening order cycle time.Enjoy!

Steven M. BraggCentennial, ColoradoMarch 2011

xvi / Preface

WEBCH01 12/16/2014 11:25:36 Page 1

1Success or Failure with

Best Practices

This chapter is about implementing best practices. It begins by describingthe various kinds of best practices and goes on to cover those situations

where best practices are most likely to be installed successfully. The keycomponents of a successful best practice installation are also noted, as wellas how to duplicate best practices throughout an organization. When plan-ning to add a best practice, it is also useful to know the ways in which theimplementation can fail, so there is a lengthy list of reasons for failure. Thechapter also addresses a number of planning issues related to the imple-mentation of inventory best practices. Only by carefully considering all ofthese issues in advance can one hope to achieve a successful best practiceimplementation that will result in increased levels of efficiency.

Types of Best Practices

This section describes the two main types of best practices, each onerequiring considerably different implementation approaches.

The first type of best practice is an incremental one. This usually in-volves either a small modification to an existing procedure or a replace-ment of a procedure that is so minor in effect that it has only a minimalimpact on the organization, or indeed, on the person who performs theprocedure. The increased level of efficiency contributed by a single bestpractice of this type is modest at best, but this type is also the easiest toinstall, since there is little resistance from the organization. Only whenthis type of best practice is used in large numbers is there a significantimprovement in the handling of inventory and the investment in inventory.

1

WEBCH01 12/16/2014 11:25:36 Page 2

The second type of best practice involves a considerable degree of re-engineering. This requires the complete reorganization or replacement ofan existing function. The level of change is massive, resulting in employ-ees either being laid off or receiving vastly different job descriptions. Thelevel of improvement in the handling or investment in inventory can beseveral times greater than the old methods being replaced. However, thelevel of risk matches the reward, for this type of best practice meets withenormous resistance and consequently is at great risk of failure. A singlebest practice implementation of this sort can reap major improvements.

Thus, given the considerable number and size of the differences be-tween the incremental and reengineering best practices, it is necessary tofirst determine which category a best practice falls into before designing aplan for implementing it. Given the difficulty of implementation for a re-engineering project, it may even be necessary to delay implementation orintersperse a series of such projects with easier incremental projects in or-der to allow employees to recover from the reengineering projects.

Most Fertile Ground for Best Practices

Before installing any best practice, it is useful to review the existing envi-ronment to see if there is a reasonable chance for the implementation tosucceed. The following points note the best environments in which bestpractices not only can be installed but also have a fair chance of continuingto succeed:

■ If benchmarking shows a problem. Some organizations regularly com-pare their performance levels against those of other companies, espe-cially those with a reputation for having extremely high levels ofperformance. If there is a significant difference in the performance levelsof these other organizations and the company doing the benchmarking,this can serve as a reminder that continuous change is necessary in orderto survive. If management sees and heeds this warning, the environmentin which best practices will be accepted is greatly improved.

■ If management has a change orientation. Some managers have a seem-ingly genetic disposition toward change. If a department has such a per-son in charge, there will certainly be a drive toward many changes. Ifanything, this type of person can go too far, implementing too many

2 / Inventory Best Practices

WEBCH01 12/16/2014 11:25:36 Page 3

projects with not enough preparation, resulting in a confused operationsgroup whose newly revised systems may take a considerable amount oftime to untangle. The presence of a detail-oriented second-in-commandis very helpful for preserving order and channeling the energies of sucha manager into the most productive directions.

■ If the company is experiencing poor financial results. If there is a signif-icant loss, or a trend in that direction, this serves as a wake-up call to man-agement, which, in turn, results in the creation of a multitude of bestpractices projects. In this case, the situation may even go too far, with somany improvement projects going on at once that there are not enoughresources to go around, resulting in the ultimate completion of few, if any,of the best practices.

■ If there is new management. Most people who are newly installed asmanagers want to make changes in order to leave their marks on theorganization. Though this can involve less-effective best practice itemssuch as organizational changes or a new strategic direction, it is possiblethat there will be a renewed focus on efficiency that will result in theimplementation of new best practices.

In short, as long as there is willingness by management to change and agood reason for doing so, then there is fertile ground for the implementa-tion of a multitude of best practices.

Planning for Best Practices

A critical issue for the success of any best practices implementation projectis an adequate degree of advance planning. The following list describes thekey components of a typical best practices implementation plan.

■ Capacity requirements. Any project plan must account for the amountof capacity needed to ensure success. Capacity can include the numberof people, computers, or floor space that is needed. For example, if theproject team requires 20 people, then there must be a planning item tofind and equip a sufficient amount of space for this group. Also, a projectthat requires a considerable amount of programming time should reservethat time in advance with the programming staff to ensure that the pro-gramming is completed on time. Further, the management team must

Success or Failure with Best Practices / 3

WEBCH01 12/16/2014 11:25:36 Page 4

have a sufficient amount of time available to properly oversee the projectteam’s activities. If any of these issues are not addressed in advance,there can be a major impact on the success of the implementation.

■ Common change calendar. If there are many best practices beingimplemented at the same time, there is a high risk that resources sched-uled for one project will not be available for other projects. To avoidthis, use a single-change calendar, so that planned changes can be seenin the context of other changes being planned. You should examine thecalendar for conflicts every time you make a change to it. Also, make itavailable for general review by all of the project teams.

■ Contingencies. Murphy’s Law always applies, so build contingenciesinto the project plan to cover any issues where you think there is a rea-sonable chance of failure.

■ Dependencies. Properly sequence the steps required to complete aproject, so that any bottleneck steps are clearly defined and havesufficient resources allocated to them to ensure that they are com-pleted on time.

■ Funding requirements. Any project requires some funding, such as thepurchase of equipment for the project team or software licenses oremployee training. Consequently, include in the project plan the dateson which funding is expected, so that dependent tasks involving theexpenditure of those funds can be properly positioned.

■ Review points. For all but the smallest projects, there must be controlpoints at which the project manager has a formal review meeting withthose people who are responsible for certain deliverables. You shouldbuild these review points into the plan, along with a sufficient amountof time for follow-up meetings to resolve any issues that may arise dur-ing the initial review meetings.

■ Risk levels. Some best practices, especially those involving a large pro-portion of reengineering activities, run a considerable risk of failure.In these cases, it is necessary to conduct a careful review of what willhappen if the project fails. For example, can the existing system be rein-stituted if the new system does not work? What if funding runs out?What if management support for the project falters? The answers tothese questions may result in additional project steps to safeguardthe project, or to at least back it up with a contingency plan in case theproject cannot reach a successful conclusion.


WEBCH01 12/16/2014 11:25:36 Page 5

■ Total time required. All of the previous planning steps are influencedby one of the most important considerations of all—how much time isallocated to the project. Though there may be some play in the final proj-ect due date, it is always unacceptable to let a project run too long, sinceit ties up the time of project team members and will probably accumu-late extra costs until it is completed. Consequently, you should continu-ally revise the existing project plan to account for new contingencies andproblems as they arise, given the overriding restriction of the amount oftime available.

The elements of planning that have just been described will all go fornaught if there is not an additional linkage to corporate strategy at the high-est levels. The reason is that although an implementation may be com-pletely successful, it may not make any difference, and even be renderedunusable, if corporate strategy calls for a shift that will render the best prac-tice obsolete. Thus, the proper integration of low-level best practices plan-ning with high-level corporate planning is required to ensure that thecorrect projects are completed.

Given the large number of issues to resolve in order to give an implemen-tation project a reasonable chance of success, it is apparent that the presenceof a manager who is very experienced in the intricacies of project planning isa key component of an effective project team. Consequently, acquiring sucha person should be one of the first steps to include in a project plan.

This section described in general terms the key components of a projectplan that must be considered in order to foresee where problems may arisein the course of an implementation. We now turn to a discussion of theimpact of time on the success of a best practices implementation.

Timing of Best Practices

The timing of a best practice implementation, the time it takes to completeit, and the pacing of installations have a major impact on the likelihoodof success.

The timing of an implementation project is critical. For example, an in-stallation that comes at the same time as a major deliverable in another areawill receive scant attention from the person who is most responsible forusing the best practice, since it takes a distant second place to the


WEBCH01 12/16/2014 11:25:37 Page 6

deliverable. Also, any project that comes on the heels of a disastrousimplementation will not be expected to succeed, though this problem canbe overcome by targeting a quick and easy project that results in a rapidsuccess—and that overcomes the stigma of the earlier failure. Further,proper implementation timing must take into account other project imple-mentations going on elsewhere in the company or even in the same depart-ment, so there is no conflict over project resources. Only by carefullyconsidering these issues prior to scheduling a project will a best practiceimplementation not be impacted by timing issues.

In addition to timing, the time required to complete a project is of majorimportance. A quick project brings with it the aura of success, a reputationfor completion, and a much better chance of being allowed to take on amore difficult and expensive project. Alternatively, a project that impactslots of departments or people, or that involves the liberal application of cut-ting-edge technology, runs a major risk of running for a long time; and thelonger the project, the greater the risk that something will go wrong, objec-tions will arise, or funding will run out. Thus, close attention to project du-ration will increase the odds of success.

Also, the concept of pacing is important. This means that a best prac-tices implementation will be more likely to succeed if only a certain num-ber of implementations are scheduled for a specific area. For example, ifcorporate management wants to install several dozen different types ofbest practices in five different departments, the best implementationapproach is to install one best practice in a single department and thenmove to a different department. By doing so, the staff of each departmenthas a chance to assimilate a single best practice, which involves staff train-ing, adjustments to policies and procedures, and modifications of workschedules. Otherwise, if they are bombarded with multiple best practices atthe same time or one after another, there is more likelihood that all of thebest practices will fail or at least not achieve high levels of performance forsome time. In addition, the staff may rebel at the constant stream ofchanges and refuse to cooperate with further implementations.

Implementing Best Practices

The implementation of any best practice requires a great deal of carefulplanning. However, planning is not enough. The implementation process


WEBCH01 12/16/2014 11:25:37 Page 7

itself requires a number of key components in order to ensure a successfulconclusion. This section discusses those components.

One of the first implementation steps for all but the simplest best prac-tice improvements is to study and flowchart the existing system about to beimproved. By doing so, one can ascertain any unusual requirements thatare not readily apparent and that must be included in the planning for theupcoming implementation. Though some reengineering efforts do notspend much time on this task (on the grounds that the entire systemis about to be replaced), the same issue still applies—there are usually spe-cial requirements, unique to any company, that must be addressed in anew system. Accordingly, nearly all implementation projects must includethis critical step.

Another issue is the cost-benefit analysis. This is a compilation of all thecosts required to both install and maintain a best practice, which is offsetagainst the benefits of doing so. These costs must include project team pay-roll and related expenses, outside services, programming costs, training,travel, and capital expenditures. This step is worth a great deal of attention,for a wise manager will not undertake a new project, no matter how cut-ting-edge and high-profile it may be, if there is not a sound analysis inplace that clearly shows the benefit of moving forward with it.

Yet another implementation issue is the use of new technology. Thoughthere may be new devices or software on the market that can clearlyimprove the efficiency of a company’s operations, and perhaps even makea demonstrative impact on a company’s competitive situation, it still maybe more prudent to wait until the technology has been tested in the market-place for a short time before proceeding with an implementation. This is aparticular problem if there is only one supplier available offering the tech-nology, especially if that supplier is a small one or with inadequate fund-ing, with the attendant risk of going out of business. In most cases, theprudent manager will elect to use technology that has proven itself in themarketplace, rather than using the most cutting-edge applications.

Of great importance to most best practice implementations is system test-ing. Any new application, unless it is astoundingly simple, carries with it therisk of failure. This risk must be tested repeatedly to ensure that it will notoccur under actual use. The type of testing can take a variety of forms. Oneis volume testing, to ensure that a large number of employees using the sys-tem at the same time will not result in failure. Another is feature testing, inwhich sample transactions that test the boundaries of the possible


WEBCH01 12/16/2014 11:25:37 Page 8

information to be used are run through the system. Yet another possibility isrecovery testing—bringing down a computer system suddenly to see howeasy it is to restart the system. All of these approaches, or others, dependingon the type of best practice, should be completed before unleashing a newapplication on employees.

One of the last implementation steps before firing up a new best practiceis to provide training to employees in how to run the new system. Thismust be done as late as possible, since employee retention of this informa-tion will dwindle rapidly if not reinforced by actual practice. In addition,this training should be hands-on whenever possible, since employeesretain the most information when training is conducted in this manner. It isimportant to identify in advance all possible users of a new system fortraining, since a few untrained employees can result in the failure of a newbest practice.

A key element of any training class is procedures. These must be com-pleted, reviewed, and made available for employee use not only at the timeof training, but also at all times thereafter, which requires a good managerto oversee the procedure creation and distribution phases. Procedurewriting is a special skill that may require the hiring of technical writers,interviewers, and systems analysts to ensure that procedures are properlycrafted. The input of users into the accuracy of all procedures is also anintegral step in this process.

Even after the new system has been installed, it is necessary to conduct apost-implementation review. This analysis determines if the cost savings orefficiency improvements are in the expected range, what problems aroseduring the implementation that should be avoided during future projects,and what issues are still unresolved from the current implementation. Thislast point is particularly important, for many managers do not followthrough completely on all the stray implementation issues that inevitablyarise after a new system is put in place. Only by carefully listing theseissues and working through them will the employees using the new systembe completely satisfied with how a best practice has been installed.

An issue that arises during all phases of a project implementation iscommunication. Since there may be a wide range of activities going on,many of them dependent on each other, it is important that the status of allproject steps be continually communicated to the entire project team, aswell as all affected employees. By doing so, a project manager can avoidsuch gaffes as having one task proceed without knowing that, due to


WEBCH01 12/16/2014 11:25:37 Page 9

changes elsewhere in the project, the entire task has been rendered un-necessary. These communications should not just be limited to project planupdates, but should also include all meeting minutes in which changes aredecided on, documented, and approved by team leaders. By paying atten-tion to this important item at every step of an implementation, the entireprocess will be completed much more smoothly.

As described in this section, a successful best practice implementationnearly always includes a review of the current system, a cost-benefit analy-sis, responsible use of new technology, system testing, training, and apost-implementation review, with a generous dash of communications atevery step.

How to Use Best Practices: Best Practice Duplication

It can be a particularly difficult challenge to duplicate a successful bestpractice when opening a new company facility, especially if expansion iscontemplated in many locations over a short time period. The difficultywith best practice duplication is that employees in the new locations aretypically given a brief overview of a best practice and told to “go do it.”Under this scenario, they have only a sketchy idea of what they are sup-posed to do, and so create a process that varies in some key details fromthe baseline situation. To make matters worse, managers at the new loca-tion may feel that they can create a better best practice from the start,and so create something that differs in key respects from the baseline.For both reasons, the incidence of best practice duplication failureis high.

To avoid these problems, a company should first be certain that it hasaccumulated all possible knowledge about a functioning best practice—the forms, policies, procedures, equipment, and special knowledgerequired to make it work properly—and then transfer this information intoa concise document that can be shared with new locations. Second, a rov-ing team of expert users must be commissioned to visit all new companylocations and personally install the new systems, thereby ensuring thatthe proper level of experience with a best practice is brought to bear on aduplication activity. Finally, a company should transfer the practitionersof best practices to new locations on a semi-permanent basis to ensure thatthe necessary knowledge required to make a best practice effective over


WEBCH01 12/16/2014 11:25:37 Page 10

the long term remains on site. By taking these steps, a company can in-crease its odds of spreading best practices throughout all of its locations.

A special issue is the tendency of a new company location to attempt toenhance a copied best practice at the earliest opportunity. This tendencyfrequently arises from the belief that one can always improve on somethingthat was created elsewhere. However, these changes may negatively impactother parts of the company’s systems, resulting in an overall reduction inperformance. Consequently, it is better to insist that new locations dupli-cate a best practice in all respects and use it to match the performance lev-els of the baseline location before they are allowed to make any changes toit. By doing so, the new locations must take the time to fully utilize the bestpractice and learn its intricacies before they can modify it.

Why Best Practices Fail

There is a lengthy list of reasons why a best practice installation may notsucceed, as noted in the following points. The various reasons for failurecan be grouped into a relatively small cluster of primary reasons. The firstis the lack of planning, which can include inadequate budgeting for time,money, or personnel. Another is the lack of cooperation by other entities,such as the programming staff or other departments that will be impactedby any changes. The final, and most important, problem is that there is littleor no effort made to prepare the organization for change. This last itemtends to build up over time as more and more best practices are imple-mented, eventually resulting in the total resistance by the organization toany further change. At its root, this problem involves a fundamental lackof communication, especially with those people who are most impacted bychange. When a single implementation is completed without informing allemployees of the change, this may be tolerated, but a continuous stream ofthem will encourage a revolt. In alphabetical order, the various causes offailure follow:

■ Alterations to packaged software. A very common cause of failure isthat a best practice requires changes to a software package providedby a software supplier. After the changes are made, the company findsthat the newest release of the software contains features that it musthave and so it updates the software—wiping out the programming


WEBCH01 12/16/2014 11:25:37 Page 11

changes that were made to accommodate the best practice. This problemcan also arise even if there is only a custom interface between thepackaged software and some other application needed for a best prac-tice, because a software upgrade may alter the data accessed through theinterface. Thus, alterations to packaged software are doomed to failureunless there is absolutely no way that the company will ever update thesoftware package.

■ Custom programming. A major cause of implementation failure is thatthe programming required to make it a reality either does not have therequested specifications, costs more than expected, arrives too late, isunreliable—or all of the above! Since many best practices are closelylinked to the latest advances in technology, this is an increasingly com-mon cause of failure. To keep from being a victim of programmingproblems, one should never attempt to implement the most “bleeding-edge” technology, because it is the most subject to failure. Instead, waitfor some other company to work out all of the bugs and make it a reli-able concept, and then proceed with the implementation. Also, it isuseful to interview other people who have gone through a complete in-stallation to see what tips they can give that will result in a smootherimplementation. Finally, one should always interview any otheremployees who have had programming work done for them by the in-house staff. If the results of these previous efforts were not acceptable, itmay be better to look outside the company for more competent program-ming assistance.

■ Inadequate preparation of the organization. Communication is the keyto a successful implementation. Alternatively, lack of communicationkeeps an organization from understanding what is happening; this in-creases the rumors about a project, builds resistance to it, and reducesthe level of cooperation that people are likely to give it. Avoiding thiseffect requires a considerable amount of up-front communication aboutthe intents and likely impacts of any project, with that communicationtargeted not just at the impacted managers but also at all impactedemployees, and to some extent even the corporation or departmentas a whole.

■ Intransigent personnel. A major cause of failure is the employee whoeither refuses to use a best practice or who actively tries to sabotage it.This person may have a vested interest in using the old system, does not


WEBCH01 12/16/2014 11:25:37 Page 12

like change in general, or has a personality clash with someone on theimplementation team. In any of these cases, the person must either bewon over through good communication (especially if the employee is ina controlling position) or removed to a position that has no impact on theproject. If neither of these actions is successful, the project will almostcertainly fail.

■ Lack of control points. One of the best ways to maintain control over anyproject is to set up regular review meetings, as well as additional meetingsto review the situation when preset milestone targets are reached. Thesemeetings are designed to see how a project is progressing, to discuss anyproblems that have occurred or are anticipated, and to determine how cur-rent or potential problems can best be avoided. Without the benefit ofthese regular meetings, it is much more likely that unexpected problemswill arise, or that existing ones will be exacerbated.

■ Lack of funding. A project can be canceled either because it has asignificant cost overrun exceeding the original funding request orbecause it was initiated without any funding request in the first place.Either approach results in failure. Besides the obvious platitude of“don’t go over budget,” the best way to avoid this problem is to build acushion into the original funding request that should see the projectthrough, barring any unusually large extra expenditures.

■ Lack of planning. A critical aspect of any project is the planning thatgoes into it. If there is no plan, there is no way to determine the cost,number of employees, or time requirements, nor is there any formal re-view of the inherent project risks. Without this formal planning process,a project is very likely to hit a snag or be stopped cold at some pointprior to its timely completion. On the contrary, using proper planningresults in a smooth implementation process that builds a goodreputation for the project manager and thereby leads to more funding foradditional projects.

■ Lack of post-implementation review. Though it is not a criterion for thesuccessful implementation of any single project, a missing post-implementation review can cause the failure of later projects. For exam-ple, if such a review reveals that a project was completed despite theinadequate project planning skills of a specific manager, it might be bestto use a different person in the future for new projects, thereby increas-ing his or her chances of success.


webftoc 12/16/2014 15:54:49 page 14

Documents