1 © the delos partnership 2006 inventory accuracy how to get to 98 %

1 © The Delos Partnership 2006

Inventory AccuracyInventory Accuracy

How to get to 98 %


Inventory AccuracyInventory Accuracy

• Vital to have 100 % accuracy of inventory:– In the stores– On the shop floor– Anywhere in the company

• Vital to have 100 % accuracy of work in process


Steps to Gaining Inventory Steps to Gaining Inventory AccuracyAccuracy1. Establish definition of accuracy2. Establish control group to identify causes of

errors3. Review material flows4. Create Limited Access5. Define systems and processes6. Educate users7. Train users8. Cycle count9. Eliminate annual physical10. Never give up the challenge


Establish definition of accuracyEstablish definition of accuracy


How Accurate Is This How Accurate Is This Data ?Data ?

Item Counted Quantity

Value ( £’s) Computer Record

Value ( £’s)

12351 995 995 1000 100012352 996 996 1000 100012353 997 997 1000 100012357 998 998 1000 100012358 999 999 1000 100012359 1000 1000 1000 100012360 1001 1001 1000 100012372 1002 1002 1000 100012373 1003 1003 1000 100012374 1004 1004 1000 100012375 1005 1005 1000 1000TOTAL 11,000 £ 11,000 11,000 £ 11,000



Inventory status

Stores Location ST001

Factory F0001

Part Number 91121 200 Location ST001 200 Location F0001 0

Count 100

Count 100


Definition of AccuracyDefinition of Accuracy

Number of correct counts

Number of items counted

Item = product by location

X 100 %


Definition of Accuracy - Definition of Accuracy - TolerancesTolerancesCount is accurate if item is within preset

tolerance

Computer 100

Count 97 98 99 100 101 102 103

E.g. suppose tolerance = +/- 2 %

Accurate within these limits




Computer Record

Tolerance=/- %

Hit/Miss

12351 995 100012352 996 1000 +/-2 %12353 997 1000 +/-5 %12357 998 1000 +/-2 %12358 999 100012359 1000 100012360 1001 100012372 1002 1000 +/- 2 %12373 1003 100012374 1004 1000 +/-5 %12375 1005 1000TOTAL 11,000 11,000




Computer Record

Tolerance=/- %

Hit/Miss

12351 995 1000 Miss12352 996 1000 +/-2 % Miss12353 997 1000 +/-5% Hit12357 998 1000 +/-2 % Hit12358 999 1000 Miss12359 1000 1000 Hit12360 1001 1000 Miss12372 1002 1000 +/- 2 % Hit12373 1003 1000 Miss12374 1004 1000 +/-5 % Hit12375 1005 1000 MissTOTAL 11,000 11,000 =5/11 = 45 %


2. Establish Control Group2. Establish Control Group


2. Establish Control Group 2. Establish Control Group and start countingand start counting

1. Identify cycle counting resource2. Identify 100 parts to be regularly counted3. Establish counting regime4. Week 1 Count 20 each day

Reset computer to quantity counted5. Week 2 and on

Count same items as counted previous week on same day.

6. Investigate reasons for errors


2. Establish Control Group2. Establish Control Group

1. Select 100 different items– Fast moving– Slow moving– Large– Little– Expensive– Trivial

2. Purpose of control group is to identify sources of error to all items


Likely Causes of ErrorsLikely Causes of Errors

Inventory inaccurate

Equipment People Computer

Policies Procedures

Take the observed problems back To the root cause – 5 Why’s


3. Review Material Flows3. Review Material Flows

Kitting area

Kittingarea

Production

Production

Production

Stores Stores or Work-in-Process ?


44. Create Limited Access. Create Limited Access

Physical Limited access

Psychological limited access• Provide Terminals• Provide Training


4. Create Limited Access4. Create Limited Access

Kitting area

Kittingarea

Production

Production

Production

Stores Stores or Work-in-Process ?


55. Define Systems and . Define Systems and ProceduresProceduresEvery material movement needs a

transactionMaterial movement can be recorded by

discrete issue or backflush

In = +

Out = -

In = +

Out = -


Discrete IssueDiscrete Issue

1. Release order : allocate materials2. Paperwork received in stores3. Items picked4. Issued to factory etc.5. On hand balance downdated

Stage Allocated On Hand Available

Step 1 0 100 100

Step 2 100 100 0

Step 3 100 100 0

Step 4 100 100 0

Step 5 0 0 0


Generating the Pick ListGenerating the Pick Listfrom the Bill of Materialfrom the Bill of Material

Location PartNumber

Description Qty Req’d

QtyIssued

Point of Use

A114 43768 Pen Barrel 20 SA

A118 76452 Finished Nib 20 SA

M054 89563 Cap 20 SA

Work Order Number : 4567 Quantity : 100 Part Number : 14356 Start : 1/07/02 Description : Pen Complete : 15/07/02


Generating the Pick ListGenerating the Pick Listfrom the Bill of Materialfrom the Bill of Material

Location PartNumber

Description Qty Req’d

QtyIssued

Point of Use

A114 43768 Pen Barrel 20 20 SA

A118 76452 Finished Nib 20 20 SA

M054 89563 Cap 20 20 SA

Work Order Number : 4567 Quantity : 100 Part Number : 14356 Start : 1/07/02 Description : Pen Complete : 15/07/02


Backflush Technique Backflush Technique

• Backflushing is a technique for downdating inventory

• Uses Bill of Material to work out what has been used

• Supports an environment in which works orders are not used

• Allows bulk replenishment• Simplifies material control


Backflush MechanicsBackflush Mechanics

Red PenPart Number 14356

Pen BarrelPart Number 43768

Finished NibPart Number 76452

CapPart Number 89563

Stock record for Cap 89563 – works order number 4675

Stores on hand

Transaction Factory On Hand

Total Stock

1000 Opening Balance 1000

800 Move 200 1000

800 Complete ProductionOf 14356

0 800


Backflushing Backflushing PrerequisitesPrerequisites

Timing of transactions Report Production in Timely manner Scrap/Yield/Exception reporting needs to be

done quickly Bill of material accuracy needs to be 100 % Point of Use Inventory Accuracy needs to be

> 95 % Routings need to be 100 % accurate Bill of Material change control needs to be

excellent


66. Educate Users. Educate Users Educate all users

Sales and Marketing Production Planning Supervision Research and Development

Ensure understanding of Importance Continue to educate Provide training to users of system


77. Train Users. Train Users

• Ensure they understand• transactions• Ensure they understand • procedures• Ensure they carry out transactions accurately and in a timely

fashion


88. Carry out cycle counting. Carry out cycle counting

Three recognised ways to cycle countBy part number

1. Random selection of parts2. ABC Cycle Count

By Location

Product Class

% of Volume

% of Value % Tolerance

Counts per annum

Interval- weeks

“A” Class 20 % 80 % +/- 0% 4 13

“B” Class 30 % 15 % +/- 2% 2 26

“C” Class 50 % 5% +/- 5% 1 52


Process for getting Data Process for getting Data RightRight

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12

Accuracy

Control Group

Audit

Fix Data Base

Control Group


Process Control cycle Process Control cycle countingcounting

Divide Warehouse into locations For cycle counting

Week 1 Week 2 Week 3 Week 4 Week 5`


Process ControlProcess Control

Counting regime :When Easy to count

– Low balance high exposureObvious errors

– Eyeball large quantitiesBy Location

– Efficient– All physical inventory– Ensures physical locations recognised– Reconciliation easier


Process Control cycle Process Control cycle countingcounting

Location Part Quantity Count Hit/Number Miss

A3452 23654 100 100 HitA3453 24568 1245

A3454 24367 22 20 MissA3455 70659 2,234

A3456 39060 101 101 HitA3457 39081 43 43 Hit

A3458 42020 75 75 Hit4 hits5 counts

= 90 %


99. Do away with the annual . Do away with the annual PhysicalPhysicalEstablish 98 % accuracy through Cycle

countingShow regular resultsProcess under control so need for once a year

check of “everything”

No auditors here thanks


10. Never Give up10. Never Give up

• Continue with Control Group

• Continue with Process control cycle counting forever– Informal disciplines will creep back

1 © the delos partnership 2006 inventory accuracy how to get to 98 %

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