When our clients and prospects are successful, we assume that they have visibility into an accurate, perpetual inventory count. A July 2016 study, however, found that only 81% of best in class distributors and 63% of the remaining distributors in the study had real-time inventory information. If you’re reading this article, you may or may not have the basics of a perpetual inventory system in place, but you need one – a complete, accurate, and real-time inventory system.
There’s a difference between a perpetual inventory system and real-time inventory, though. A perpetual inventory system is defined as a system that updates the quantity of inventory on hand each time a transaction posts. The key to real-time inventory is posting a transaction as it’s actually occurring rather than sometime in the future or after a review.
Real-time Inventory Mistakes
We rarely hear that inaccurate/non-real-time inventory counts are because the processes to support real-time inventory are foreign to the company; the most common reasons are exceptions to the rules. Businesses can’t seem to keep up with the process fast enough to meet the customer demands. This leads to bad information, which causes more exceptions, expediting, and cost.
Some recent examples include:
- Salespeople walking onto the floor and grabbing inventory for a customer for a sample or a quick sale.
- Inventory isn’t received into the system before shipping out to the customer because they “don’t have time.”
- Counts occur annually and the December “surprise” adjustment is now considered normal.
The list could go on for days; in reality, the time to follow the process is typically far less than the time required to fix the mistakes or recover from the errors created. Any management book will indicate that rigorous and consistent adherence to process is the key to going from good to great.
Consider these key points when setting up your processes.
You can’t track it in real time if you don’t capture it in real time, so make this process as easy as possible and make your systems mirror the process.
- Set up items with appropriate Unit of Measure (UoM) conversions. UoM conversions are often different in purchasing (receiving) functions than sales (shipping) functions; counting the number “1” is much easier than counting the number of items in a container.
- Use bar codes. Bar code scanning systems increase both speed (efficiency) and accuracy of data capture. Bar coding must be tightly integrated in your business management software and is typically only effective when your item master is complete and accurate. We typically recommend implementation of these systems in a separate phase as an enhancement to your core functionality.
Control Access to Your Warehouse
Items may not have legs and your people may have only the best intentions, but it is amazing how many places you’ll see items walking out of the warehouse – unaccounted for. Things as simple as locks on door and enforced “no sales people beyond this point” signs can radically improve inventory accuracy.
Count Your Inventory on a Schedule
The schedule should vary based upon a number of factors:
- How quickly does the inventory turn?
- How much is the item worth in dollars and margin?
- How accurate are the counts on the inventory?
Based on the diagram, you’d care the most about green items and try to eliminate the red items from your catalogue. Therefore, you should ensure that the green items are very accurate by having appropriate cycle counts.
Your specific cycle counting technique will vary based upon a number of factors. Some companies use the A, B, C method, others use the color coding scheme on the 9 quadrant model (as above), but the most effective one is the one tailored to the product mix in your warehouse – and the one you’ll actually use.
Many of these concepts are familiar, but if your process doesn’t change with your business and isn’t supported by an easy-to-use, adaptable system, exceptions creep in and efficiency and accuracy erode – along with your profitability.
To learn more about how SAP provides the flexibility to meet your particular needs, contact us today.