Inventory management is one of the most complex supply chain management topics and challenging capabilities to master. Positioning inventory at the right time and place in a manufacturing and distribution network requires multiple simultaneous control mechanisms for raw material, intermediate components and finished product to balance complex interactions. Organizational stakeholders have different views and expectations for inventory.
- Financial stakeholder views inventory from P&L statement.
- For a Supply chain strategist, inventory represents an alternative form of investment.
- For Supply planning and operations leaders, inventory is a form of stored capacity that drives effective service delivery.
Inventory performance and inventory accuracy are critical to any firm, as it directly affects revenue in one form or another. More and more firms are excelling in inventory performance through inventory categorization like structural(pipeline), operational(cycle) and situational(anticipation).
Challenges arise on inventory accuracy when there are discrepancies between IT Inventory, Available Inventory, Actual Inventory.
In recent times, Multichannel evolution is further complicating the supply chain cycle and fueling this problem multifold.
Companies are pumping millions of dollars on marketing to get the market share yet couldn’t serve the customer order due to lack of inventory accuracy. Every business nightmare is to avoid cuts, cancels and retain customers. Firms are investing heavily on supply chain technologies such as Forecasting & Planning systems, Warehouse Management Systems, Order Management Systems, Store systems, RFID technologies, reverse logistics planning to mitigate risks. Although applications were imparted to improvise accuracy, they are counteracting when not designed, implemented and integrated for ever changing business environment. Having in-depth understanding on Cycle Count, Receiving, shipping, inventory maintenance, inventory adjustment operations and appreciating the larger impact will alleviate some of those supply chain design or implementation flaws.
Inventory inaccuracy stems from process gaps or failures in one form or another.
- Inventory shrinkage (an inventory error that is defined as an event that changes the actual inventory but does not affect the IT inventory) is often the result of breakage or pilferage.
- Misplacing is an inventory error that decreases the available inventory (the actual inventory is unchanged, the item is still physically present, just in the wrong place).
- Wrong scanning of an item constitutes an inventory error that results in a decrease in the quantity of the item. Wrong scanning affects two categories: the item that is handled, is added to/removed from the actual inventory without being reported to the IT system (shrinkage) and the item that is reported to the IT system yet has not been handled. There is no impact on the available inventory, but it may decrease or enlarge the IT inventory.
In recent engagements, ITOrizon consistently identified root cause that contributes to discrepancies and offered alternate mechanism to mitigate that.
Receipt – Streamlining warehouse operations ranging from receiving, auditing, putaway are critical for inventory accuracy across your ecosystems. Triggering receipts too early is not wise. Inheriting shipment shipped count as official received count post receiving process without audit often leads to inventory errors.
E.g. If vendor promised 100 Units of product A as part of ASN, it is advisable to wait till ASN reaches warehouse, perform quality check and putaway process before making those units as official available units. Triggering receipt based on vendor ASN before quality audit procedures leads to inaccuracies.
Product Variation – Attribute variation often leads to misconceptions on inventory. Capturing critical product details and setting appropriate product id as part of receiving attributes will avoid such mishaps. For example, if vendor promised 100 Units of product A with 1year expiration date but shipped 80 units with 1year expiration date and another 20 units with 1month expiration, then system should track these critical fields during receipt process to drive allocation logic and track inventory.
Cycle & Physical Counts – Despite all firms follow this process, its often the design and implementation details behind pre and post counts that create discrepancies. Process itself will identify the mismatches but how this is interpreted and got updated within WMS and communicated to external system is very critical. Closer look into programs and process which triggered cycle count task, related pre-cycle updates, parallel inventory change operations must be reviewed before designing post cycle count changes & updates. E.g. If short picking process triggered the cycle count, study if that process updates inventory records before updating posting cycle count results to avoid double negation or positive cases.
Vendor Performance – Investing on assessing your vendor product quality, quantity attributes through systematic approach is valuable. Random or consistent check points on vendor performance and accessing critical product information such as manufacturing date, bad barcode, overdelivery / under-delivery value add services commitment prevents damaged products and tally promised inventory in check.
Technology – Leveraging RFID, pick-tolight, put-to-light technologies and efficient barcode designs (avoiding O & I), are yielding good return on investment and minimizing inventory errors. Minimum touch and minimizing manual interactions will avoid invalid barcode reading, incorrect put away (misplaced items), short picks, incorrect quantity scans or incorrect picks for customer orders.
Floor Performance – Implementing additional scans within floor operations may have some tradeoffs on productivity. For example, pickers may scan the location but may end up picking the product from next location and add it to wrong tote. By forcing pickers to scan location, product barcode and tote barcode for every pick task may slightly impact the floor productivity but in exchange it yields inventory accuracy which in turn helps with accurate order fulfillment and customer satisfaction.
Inventory accuracy is not correcting incorrect data. It is finding out why the data was incorrect to begin with and accept that this will happen in your everchanging applications & processes. We need mechanism for process – people – system failures across ecosystem in an automated fashion. It’s never the good idea to take one-off updates as it is risk prone and trigger audit failures, financial obligations on stakeholders.
Valuable Touch Points – Interconnecting systems is a costlier effort, cumbersome and often complicate your ecosystem. Customers often think that integrating systems and keeping all the systems in sync is answer to accuracy problem. But the reality is, there is no point in syncing inaccurate information. Successful system integration projects need 360degree viewpoints, thorough understanding of the business, future IT landscape and smarter implementation approach. Every integration touch points requirement had to be questioned on factors like system of records, value-add and, ever changing business process and technology landscape and continued integration cost.
Real Time and Offline Inventory Sync – Overcommunication is never a problem. It’s ideal to double track our inventory programs. Real, up-to-date supply chain events information must be there to accurately plan, forecast and allocate, to truly take advantage of inventory strategies that are defined by supply chain planning and inventory management leaders. Without real time information about pipeline inventory, buffer inventory and anticipated Inventory, strategies that are in place for inventory performance cannot be putto-use up to full extent. Yet, end of sync events gives an opportunity to correct or update inventory counts related to misplaced, wrong scans and exceptional application availability cases.
Inventory Automation – Despite having smart systems and process, customer behavior and operational changes often leads to inaccuracies from time to time. Dedicated cross functional team focusing on inventory accuracy, persistently reviewing mismatches across systems, optimizing their automation jobs for newer inaccuracy patterns and holistically address the problem within system of records and across your ecosystems is effective.