Sophisticated inventory management software is designed to minimize the risks of tallying inaccurate quantities, but that risk reduction may not be achieved without accurate physical inventory counts. Incorrect inventory quantities can lead to delays in order fulfillment and upset customers. When the data in the inventory system does not match the physical inventory in the warehouse, it is time to take corrective action.
Achieve Manufacturing Inventory Accuracy
Although there is rarely a quick fix for inaccurate inventory quantities, a multi-pronged solution may help. Here are five tips to achieve a more accurate count:
- Document the current workflow process. Work with employees to gain a comprehensive understanding of all steps involved in inventory management. Be sure to document the current operations.
- Develop a strategic workflow process. Define how the processes should work down to the individual task level for each step of the process: purchasing, receiving, stocking, order processing, fulfillment, and shipping. This process should include completing and processing paperwork, entering data through automated scanning techniques (or manually at workstations), and performing any required monitoring checks for inventory.
- Ensure all employees are properly trained. Set up customized, periodic training sessions for all employees to review inventory processes and individual responsibilities. By tailoring employee training, new employees can receive more extensive training while more experienced employees receive refreshers as processes change. Test employees on their knowledge and ability to perform expected tasks, and be sure to provide them with constructive feedback.
- Set realistic goals for inventory accuracy. Identify and report inventory inaccuracies (e.g. improper counting, data entry errors, or lost goods) on a regular basis. Determine the mistakes and calculate the lost profits they cause.
- Focus on continuous improvement. Regularly review operations to pinpoint weak process areas and identify solutions for reducing errors. Identifying these areas of development will allow for enhancements or new processes as business needs change. At this point, revisions to the documented current workflow process should be made as well as retraining of employees based on the identified weaknesses.
Implement Cycle Counting
Cycle counting involves taking a physical count of a portion of the inventory in the warehouse on a regular basis. Companies can meet their inventory accuracy goals by comparing physical counts against the inventory quantities shown in the inventory management system. By pinpointing inventory discrepancies through cycle counting, firms can determine the cause of accuracy problems and quickly implement the right solutions. There are two types of cycle counting that manufacturers and distributors need to employ in combination:
- Control group cycle counting. This kind of counting involves selecting a control group made up of a cross-section sample of inventory (including parts and materials), counting the items in the control group, and comparing the physical counts to the inventory management system. Companies rotate their control groups on a set schedule so that it counts all inventory at least annually. Control group cycle counting should be a weekly process so that companies can more efficiently identify the roots of any problems.
- Random cycle counting. After fully implementing the control group cycle counting process, businesses should then perform a random cycle counting process. Random cycle counting involves taking a random sample of the inventory to assess conformance to inventory accuracy expectations. The organization then makes an inference of the accuracy of the entire stock.
Does Your Manufacturing Inventory Accuracy Add Up?
If inaccurate inventory quantities are a problem for your manufacturing company, then take corrective steps as soon as possible. Failing to take proactive measures can result in lost customers and sales. Contact CRI’s manufacturing CPAs for help with remedying inventory inaccuracies and making sure that your numbers add up.
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