How accurate is your inventory count? Do you have an effective inventory measurement system? Organizations that regularly keep an accurate inventory count find they receive multiple benefits. These are:
- Ability to deliver excellent customer service
- Reduction of operating costs
- Accurate data for your financial records
- Accurate shipping lead times
- Precise schedule of future purchases
- Clear indication of internal priorities for manufacturing
While there have been significant advances in inventory technology and business processes, not all distributors and manufacturers have implemented them. If your business hasn’t modernized your inventory management procedures in recent years, and your procedures are still from the Stone Age, it’s likely that your inventory accuracy could be much improved.
Inventory Accuracy
How do you define inventory accuracy, a major performance factor in your distribution center or warehouse? Do you have the right amount of inventory for your operation to flow smoothly without storing extra product? Having the accurate amount of inventory on hand for your production schedule is a key success factor for most businesses.
If your count is off, you may not be able to fulfill a customer order due to insufficient stock on hand.
In order to have effective inventory management, you must instill proper inventory control measures and easy methods to report real-time transactions within your warehouse. This means that when an inventory issue does occur, it won’t result in a major explosion (figuratively, of course). Instead, you will have procedures in place to correct the issue.
The most efficient way to run your distribution center is to maintain documented procedures regularly to catch a small problem before it balloons into a catastrophe. Keeping your warehouse running proficiently will help you meet your inventory needs to meet your company’s customer demand.
A proficient warehouse operation keeping accurate inventory records includes:
- Optimal use of equipment and space
- Efficient order and demand management
- Minimal labor effort
- Increased on-time deliveries.
Organizations that follow these principles will likely succeed and outperform their competitors in today’s rapidly changing business world. They will surely perform better than any of their peers who don’t implement inventory accuracy.
Where to Get Started
The following six inventory accuracy best practices will help move your company towards efficient and accurate inventory management processes.
- Keep a well-organized distribution center
- Maintain inventory naming and labeling best practices
- Define proper receipt and storage policies and procedures
- Use cycle counting
- Limit access to inventory and track it
- Maximize use of inventory technology
With the proper implementation and maintenance of these inventory management processes, you will see a vast improvement of your inventory accuracy.
1. Physical Inventory Count
Establish that you’re doing a proper physical inventory count. This count is the basis of all of your inventory accuracy issues. If it is off, you’re in trouble.
An accurate physical count means counting EVERYTHING. Even that pile of whatsits that have been on the shelf since you started working at your company. There are two methods for maintaining an accurate count:
- Floor to sheet count – counting everything by hand and then comparing it to your database count
- Sheet to floor count – start with your database and compare it to what is on hand
When taking a physical inventory, cross-check each count. The most accurate procedure is to count using both methods. Start with a floor to sheet count, and then do a sheet to floor count.
2. Establish an Inventory Routine
Good habits start by creating a routine. Once they are routine, your team will be used to doing it correctly. After your first physical inventory count, do it again a couple of months later. You can use your first physical inventory as a baseline measurement, and then record all of your transactions since then to establish your perpetual inventory. Transactions include shipments, scraps, receipts, etc.
Does your new physical count match your inventory tracking system count? Next reconcile them, and you’ve taken the first steps towards a 100% accurate inventory count. Whoop!
3. Cycle Counting
Are you doing cycle counting? What? You don’t know what that is? That could be a problem.
Cycle counting is an inventory counting method where smaller subsets of your inventory are counted over a period of time.
This is different from physical inventory counting, which requires operations to stop before the count can be started. Cycle counts don’t disrupt regular operations. Instead, a cycle count provides a continuous assessment of inventory records and procedure accuracy. Cycle counts are often used for:
- High value items
- Higher movement volume
- Critical business components
Cycle counts help verify your inventory accuracy and point out where problems are occurring.
Having an accurate inventory count doesn’t happen when you just physically count inventory once a period. Instead, you maintain an accurate inventory count if you count a different subset of your inventory daily. This cycle count is for items that are critical for ensuring customer satisfaction, or are high in dollars or volume.
By instituting a cycle counting routine, you can check inventory daily without interrupting operations.
4. Naming Conventions
How do you name your inventory items? It’s not like choosing the best baby name for your newborn.
Do your part numbers include the letter “O” or “I”? Even if most of your inventory naming and labeling is done using barcodes and machine-scanning, at some point in the process, a flesh-and-blood person will be reading the item name. You can probably avert a future inventory disaster by eliminating ones, zeros, letters I and O from your naming convention.
Other best practices are:
- Clear labels
- Short, clear names
- Use numbers and letters
- Grouping by hierarchy (family, model, specific version)
- Avoid special characters or symbols
- Use a descriptive name if possible
Using these inventory best practices for naming will help immensely when searching for inventory, filing orders, or other inventory processing and reports. And don’t forget to give each item a description that is easy to understand and crystal clear.
5. Warehouse Management System (WMS)
Are you using established ecommerce inventory management software or is each person processing inventory in their own fashion? A best practice is to use a WMS software to organize and manage your inventory including:
- Quantity on hand
- Location
- # Allocated
- # in Receiving
The size of your business and/or inventory will dictate which WMS software is the best for you to use. They run from the simple to the complex. This software will improve inventory accuracy and cut down on costs and errors. It will also improve customer service.
6. Limit and Track Inventory Access
One significant action could improve the safety of your inventory and accuracy of count. And that is to limit and track all of your inventory access. By only granting access to a limited number of your staff, you know that trained inventory specialists handle the inventory. They will follow established inventory processing methods. By tracking this access, you can reduce errors.
7. Keep Inventory Secure
If your inventory contains items that are valuable to someone, unfortunately, it will draw the attention of thieves. Cycle counts will help track unexplained inventory losses, but storing your inventory in a secure location will discourage most people from stealing it.
8. Unit of Measure
Using a consistent unit of measure the same as your suppliers and customers will help with accuracy because you won’t have to convert a measurement. That being said, confirm when ordering the unit of measure (UOM) for each inventory item.
