Why inventory accuracy matters
Recently, I have had a number of conversations about inventory accuracy; or to be more precise, about maintaining inventory accuracy. An accurate inventory count is without doubt a top priority for good inventory management because inaccuracy causes problems.
For example, without an accurate inventory you will:
Encounter stock outs when you think that you have inventory on hand;
Order unnecessary items because you think that you have less than you actually do;
Spend more time and energy correcting problems via stock takes and cycle counts;
Inaccurately report your actual inventory levels in your finance statements;
Inaccurately cost your inventory when the items are expensed to an operating account.
The effect of an inaccurate inventory ripples through the organization and the implications can be significant: wasted money, additional downtime, exorbitant expediting costs, and inefficient labor, to name a few.
This topic naturally occupies a lot of time and attention, but here is the main thing to remember: The inventory (usually) doesn’t get up and walk away by itself! (I say “usually” because I am sure that someone will have a story about an inventory of critters!)
When it comes to maintaining an accurate inventory, control is simple —there are no real technical, system or educational barriers. Difficulties sometimes arise, however, in resourcing and having the discipline to identify and track the inventory.
Inaccurate inventory is solely the result of a team member not doing what is required to accurately record the relevant transaction.
Maintaining accuracy requires some simple (but not necessarily easy) steps. You need to ensure that:
The number of items physically received equals the number of items entered into your inventory control system.
Your personnel put those items in the correct location.
People entering the storeroom don’t mix up items while determining what they really need.
In my mind, inventory management is as simple, and yet as difficult as these three points. Control requires discipline.
The easiest way to maintain an accurate inventory is to maintain a closed storeroom, where only authorized personnel can pick and place items. All “customers” must request items either at a counter or via a computer system. Of course, this is not always possible, and sometimes companies that theoretically have closed storerooms are a bit lax in the execution of that plan.
The key is to instill, in everyone who interacts with your inventory, the discipline to control transactions and an understanding of the chaos and high costs that result from inaccuracy.