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1 © The Delos Partnership 2003 INTDQ Inv
Inventory AccuracyInventory Accuracy
How to get to 98 % in the Stores and in Work-in-Process
2 © The Delos Partnership 2003 INTDQ Inv
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
3 © The Delos Partnership 2003 INTDQ Inv
What Inaccurate Data What Inaccurate Data DoesDoes
Periods 1 2 3 4 5 6 7 8
Gross Req’ts 10 10 10 10 10 10 10 10
Sch Rec 20
PAB 10 20 10 20 10 20 10 20
Planned Order 20 20 20
Lead Time = 2 weeks Minimum Order Quantity = 20 Safety Stock = 10 On Hand = 20
Part Number 14356
Periods 1 2 3 4 5 6 7 8
Gross Req’ts 40 40 40
Sch Rec 40
PAB 100 100 100 60 60 70 70 70
Planned Order 50
Lead Time = 6 weeks Minimum Order Quantity = 50 Safety Stock = 50 On Hand = 100 Allocated = 0Part Number 89563
Action : Release Planned Order
4 © The Delos Partnership 2003 INTDQ Inv
What Inaccurate Data What Inaccurate Data DoesDoes
Periods 1 2 3 4 5 6 7 8
Gross Req’ts 10 10 10 10 10 10 10 10
Sch Rec 20
PAB 10 20 10 20 10 20 10 20
Planned Order 20 20 20
Lead Time = 2 weeks Minimum Order Quantity = 20 Safety Stock = 10 On Hand = 20
Part Number 14356
Periods 1 2 3 4 5 6 7 8
Gross Req’ts 40 40 40
Sch Rec 40
PAB 100 100 100 60 60 70 70 70
Planned Order 50
Lead Time = 6 weeks Minimum Order Quantity = 50 Safety Stock = 50 On Hand = 100 Allocated = 0
Part Number 89563
Action : Release Planned Order
Suppose20 not “in
stock”-10 0 10
20 20
20
20
40
60 60 60 20 20 30 30 30
5 © The Delos Partnership 2003 INTDQ Inv
Results of Inaccurate Results of Inaccurate Inventory DataInventory Data Firefighting Disappointed customers Expert expediters in purchasing Frustration Wasted time counting what is there Exasperated suppliers Chaos Lack of faith in the basic numbers Wasted time each year in the annual audit
6 © The Delos Partnership 2003 INTDQ Inv
How Accurate Is This How Accurate Is This Data ?Data ?
Item Counted Quantity
Value ( $’s) Computer Record
Value ( $’s)
12351 995 995 1000 1000
12352 996 996 1000 1000
12353 997 997 1000 1000
12357 998 998 1000 1000
12358 999 999 1000 1000
12359 1000 1000 1000 1000
12360 1001 1001 1000 1000
12372 1002 1002 1000 1000
12373 1003 1003 1000 1000
12374 1004 1004 1000 1000
12375 1005 1005 1000 1000
TOTAL 11,000 $ 11,000 11,000 £ 11,000
7 © The Delos Partnership 2003 INTDQ Inv
How Accurate Is This How Accurate Is This Data ?Data ?
Inventory status
Stores Location ST001
Factory F0001
Part Number 91121 200 Location ST001 200 Location F0001 0
Count 100
Count 100
8 © The Delos Partnership 2003 INTDQ Inv
Definition of AccuracyDefinition of Accuracy
Number of correct counts
Number of items counted
Item = product by location
X 100 %
9 © The Delos Partnership 2003 INTDQ Inv
Definition of Accuracy - Definition of Accuracy - TolerancesTolerances
Count is accurate if item is within preset tolerance
Computer 100
Count 97 98 99 100 101 102 103
Computer 100
Count 97 98 99 100 101 102 103
E.g. suppose tolerance = +/- 2 % E.g. suppose tolerance = +/- 2 %
Accurate within these limits
10 © The Delos Partnership 2003 INTDQ Inv
How Accurate Is This How Accurate Is This Data ?Data ?
Item Counted Quantity
Computer Record
Tolerance
=/- %
Hit/Miss
12351 995 1000
12352 996 1000 +/-2 %
12353 997 1000 +/-5 %
12357 998 1000 +/-2 %
12358 999 1000
12359 1000 1000
12360 1001 1000
12372 1002 1000 +/- 2 %
12373 1003 1000
12374 1004 1000 +/-5 %
12375 1005 1000
TOTAL 11,000 11,000
11 © The Delos Partnership 2003 INTDQ Inv
Steps to Gaining Inventory Steps to Gaining Inventory AccuracyAccuracy
1. Establish levels of current 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
12 © The Delos Partnership 2003 INTDQ Inv
1. Establish Current Level of 1. Establish Current Level of AccuracyAccuracy
1. Select 100 different items Fast moving Slow moving Large Little Expensive Trivial
2. Print out computer quantity
3. Carry out count
4. Compare actual versus computer
5. Publish
13 © The Delos Partnership 2003 INTDQ Inv
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
14 © The Delos Partnership 2003 INTDQ Inv
Likely Causes of ErrorsLikely Causes of Errors
Inventory inaccurate
Inventory inaccurate
Equipment People Computer
Policies Procedures
Take the observed problems back To the root cause – 5 Why’s
Take the observed problems back To the root cause – 5 Why’s
15 © The Delos Partnership 2003 INTDQ Inv
3. Review Material Flows3. Review Material Flows
Kitting area
Kitting area
Kittingarea
Kittingarea
ProductionProduction
ProductionProduction
ProductionProduction
StoresStores Stores or Work-in-Process ?Stores or Work-in-Process ?
16 © The Delos Partnership 2003 INTDQ Inv
44. Create Limited Access. Create Limited Access
Physical Limited access
Psychological limited access• Provide Terminals• Provide Training
17 © The Delos Partnership 2003 INTDQ Inv
4. Create Limited Access4. Create Limited Access
Kitting area
Kitting area
Kittingarea
Kittingarea
ProductionProduction
ProductionProduction
ProductionProduction
StoresStores Stores or Work-in-Process ?Stores or Work-in-Process ?
18 © The Delos Partnership 2003 INTDQ Inv
55. Define Systems and . Define Systems and ProceduresProceduresEvery material movement needs a
transaction
Material movement can be recorded by discrete issue or backflush
In = +
Out = -
In = +
Out = -
19 © The Delos Partnership 2003 INTDQ Inv
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
20 © The Delos Partnership 2003 INTDQ Inv
Generating the Pick ListGenerating the Pick Listfrom the Bill of Materialfrom the Bill of Material
Location Part
Number
Description Qty Req’d
Qty
Issued
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 : 20
Part Number : 14356 Start : 1/07/02
Description : Pen Complete : 15/07/02
21 © The Delos Partnership 2003 INTDQ Inv
Generating the Pick ListGenerating the Pick Listfrom the Bill of Materialfrom the Bill of Material
Location Part
Number
Description Qty Req’d
Qty
Issued
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 : 20
Part Number : 14356 Start : 1/07/02
Description : Pen Complete : 15/07/02
22 © The Delos Partnership 2003 INTDQ Inv
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
23 © The Delos Partnership 2003 INTDQ Inv
Backflush MechanicsBackflush Mechanics
Red PenPart Number 14356
Red PenPart Number 14356
Pen BarrelPart Number 43768
Pen BarrelPart Number 43768
Finished NibPart Number 76452
Finished NibPart Number 76452
CapPart Number 89563
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 Production
Of 14356
0 800
24 © The Delos Partnership 2003 INTDQ Inv
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
25 © The Delos Partnership 2003 INTDQ Inv
66. Educate Users. Educate Users
Educate all usersSales and MarketingProductionPlanningSupervisionResearch and Development
Ensure understanding of Importance Continue to educate Provide training to users of system
26 © The Delos Partnership 2003 INTDQ Inv
77. Train Users. Train Users
• Ensure they understand
• transactions
• Ensure they understand
• procedures
• Ensure they carry out
transactions accurately and in a timely fashion
27 © The Delos Partnership 2003 INTDQ Inv
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
28 © The Delos Partnership 2003 INTDQ Inv
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
29 © The Delos Partnership 2003 INTDQ Inv
Process Control cycle Process Control cycle countingcounting
Divide Warehouse into locations For cycle counting
Divide Warehouse into locations For cycle counting
Week 1 Week 2 Week 3 Week 4 Week 5`
30 © The Delos Partnership 2003 INTDQ Inv
Process ControlProcess Control
• Count– When Easy to count
• Low balance high exposure
– Obvious errors• Eyeball large quantities
– By Location• Efficient• All physical inventory• Ensures physical locations recognised• Reconciliation easier
31 © The Delos Partnership 2003 INTDQ Inv
Process Control cycle Process Control cycle countingcounting
Location Part Quantity Count Hit/Number Miss
A3452 23654 100 100 Hit
A3453 24568 1245
A3454 24367 22 20 Miss
A3455 70659 2,234
A3456 39060 101 101 Hit
A3457 39081 43 43 Hit
A3458 42020 75 75 Hit
4 hits5 counts
= 80 %
32 © The Delos Partnership 2003 INTDQ Inv
99. Do away with the annual . Do away with the annual PhysicalPhysical
Establish 98 % accuracy through Cycle counting
Show regular results
Process under control so need for once a year check of “everything”
No auditors here thanks
No auditors here thanks
33 © The Delos Partnership 2003 INTDQ Inv
10. Never Give up10. Never Give up
• Continue with Control Group
• Continue with Process control cycle counting forever– Informal disciplines will creep back