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Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Achieving Inventory Accuracy

G.L. (Jerry) Kilty, CFPIM, CIRM, CSCP727 725-7674qmsjerry@tampabay.rr.com

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Two Messages Today

Data must be accurateBest way to audit records

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Is your company taking a periodic inventory?

Yes No

0%0%

a. Yesb. No

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Is your company doing cycle counts?

Yes No

May

be

0% 0%0%

a. Yesb. Noc. Maybe

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Data Integrity

Customer data basesSuppliers data basesBills of materialsInventory records

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Data Integrity

Lead time dataCapacity dataInformation flows

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Inventory Accuracy Calculations

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Part Shelf Inventory No. Count Record

1 95 1002 99 1003 101 100

Total 295 300

Inventory Accuracy Calculations

Accuracy = 295/300Or 98.3 %

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Part Shelf Inventory Accuracy No. Count Record Calculation

1 95 100 95 % 2 99 100 99 % 3 101 100 99 %

Total 295 300

Inventory Accuracy Calculations

Accuracy = Avg. of the threeOr 97.7 %

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Inventory Accuracy Calculations

1. Financial ($$$$)2. Planning (Units with tolerances)3. Production (Units w/o tolerances)

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Part Unit Shelf Inventory AdjustmentNo. Cost Count Record Unit $$$$1 $ 10 95 100 - 5 - 502 $ 30 99 100 - 1 - 303 $ 80 101 100 + 1 + 80

Total 295 300 0

Financial ($$$)

No FinancialAdjustment100 % Accurate

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Part Toler- Shelf Inventory Within OutsideNo. ance Count Record Tolerance Tolerance

1 7 % 95 100 X2 3 % 99 100 X 3 0 % 101 100 X

Total 295 300

Planning (Units w. Tolerances)

Accuracy = 2/3Or 67 %

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Part Shelf Inventory No. Count Record

1 95 1002 99 1003 101 100

Total 295 300

Production (Units)

Accuracy = 0/3Or 0 %

WrongWrong

WrongWrongWrongWrong

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Sigma Levels

Level654321

Defects per Million3.42336,21066,807308,537690,000

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Which method of measurement does your company use?

Fina

ncial

Plan

ning

Pro

ducti

on A

ll of a

bove

Don

’t kno

w

0% 0% 0%0%0%

a. Financialb. Planningc. Productiond. All of abovee. Don’t know

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Auditing the Records

The annual physical will adjust the recordsCycle counting will correct the problems!

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Why take a Physical Inventory?

FINANCIAL!

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Physical Inventory

ExpensiveTime consumingExhaustingCreates more inaccuracies

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Cycle Counting

The Solution!

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Cycle Counting

Sample countsEvery dayInvestigate as to causeTrained personnelCorrective action implemented

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Cycle Counting Methods

1. Count and adjust2. Quick fix3. Long lasting accuracy

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

1. Count and Adjust

Popular, but not effectiveDoes not correct the recordDoes not identify problemsDoes not replace the need for a physical inventory

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

2. Quick Fix

Report honestlyDon’t use random generatorsSelect with a bias for improvementCycle Counting Done Right

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Cycle Counting Done Right!

A specific approach to fix serious accuracy problemsA 5 - step method

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Select Control Sample

Count Sample

Measure and Record Accuracy

Investigate Causes

FIX the PROBLEM

1

2

3

4

5

Select based on degree of problems; No Tolerances

Count each weekUntil perfect

Be Brutally Honest

Root Cause Analysis

Sustain the Improvement

The 5 Step Quick Fix Process

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Quick Fix Method Summary

If record accuracy is below 95%Control sampleCount on a periodic and frequent basisMeasure & investigate as to causePerformed by trained personnelCorrective action implementedDoes not replace physical inventories

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

3. Long Lasting Accurate Inventory Records

Accuracy maintenanceCount frequency determined– “A” = 12– “B” = 4– “C” = 2

Does replace the annual physical inventory!

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

ABC Classification

20% of the items = 80% of the value30% of the items = 15% of the value50% of the items = 5% of the value

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Cycle Counting Frequency

“A” = 12 4“B” = 4 2“C” = 2 1

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

Cycle Counting vs. Physical Inventory

Cycle CountingInvestigates the causes and fixes themRequires continuous effortRequires trained personnel

Physical InventoryDoes not do a cause analysisIs exhaustive when done, but over a short timeEverybody is involved

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

What’s your Company’s Inventory Accuracy?

99 –

100%

97 –

98%

95 –

96%

Low –

95%

Don

’t kno

w

0% 0% 0%0%0%

a. 99 – 100%b. 97 – 98%c. 95 – 96%d. Low – 95%e. Don’t know

Advancing Productivity, Innovation, and Competitive SuccessThe Association forOperations Management

The End

Thank You!

G.L. (Jerry) Kilty, CFPIM, CIRM, CSCP727 725-7674qmsjerry@tampabay.rr.com