A recent article in APICS Magazine (Jul/Aug 2014) reminds us that it is generally accepted that inventory records should be at least 95-98% accurate “in order to enable successful ERP planning and provide good customer service.”
The APICS body of knowledge emphasizes that cycle counting is the key to accurate inventory. “By counting items regularly and using the cycle count process to identify and correct the sources of errors, companies can quickly raise accuracy levels beyond 90 percent and maintain a continuous improvement posture that maintains a high level of performance,” according to Dave Turbide, CPIM, a consultant and APICS instructor.
But as Turbide points out, just as important as cycle counting is the follow-through necessary to identify and correct the source of errors. Only then can improvement be attained; cycle counting alone is not quite enough.
While correcting an inaccurate balance may treat the symptom, it ignores the disease, Turbide notes. You need to figure out how to prevent the errors in the first place – and that requires identifying and remedying the source of those errors.
What’s the secret? No secret at all actually… The only way to achieve and maintain a high level of inventory accuracy is through a solid and reliable transaction reporting process. We didn’t say it would be fun or glamorous – but it is necessary.
Transactions, as Turbide points out, are created by people or machines – machines being the more reliable. Thus, any transaction that can be automated should be. The hierarchy of transaction accuracy looks about like this:
- Direct connected sensors, like PLCs for recording inventory movement and usage; after that come computer-validated entries, like…
- RFID – radio frequency identifications – though signal interference and bad scans can affect results
- Bar codes – similar issues to RFID, but computers and a good WMS system can help validate scans
- Validated manual entries – systems usually can validate at least some of the data entered by humans
- Manual entry – the least accurate. Systems often cannot validate unexpected transactions like adjustments, certain scrap or unplanned issues.
In the end, cycle counting helps – a lot. But it’s not enough to achieve the premium (95%+) levels of accuracy required to maintain strong controls and customer service. To achieve these goals, companies need to make the best use of automation, ERP and error correction.