January 2012.
Advice and Assistance for Manufacturers.
Sadly, many companies are going through the annual physical inventory process at this time of year, wasting the company’s money and resources while providing no real value to the business or its customers. Why do they do it? Two reasons: (1) the accountants and auditors insist and (2) there is little confidence in the inventory records because of questionable processes and controls .
Most people in manufacturing now know that cycle counting is the definitive method for checking and improving inventory record accuracy. Most also know that inventory record accuracy is a key supporting structure for success with manufacturing business planning systems (ERP/MRP). Most also know that a full physical inventory is a waste of time, effort and money.
Yet, a lot of companies still do an annual physical inventory (and sometimes more than one per year). You can blame the accountants and auditors because they are the ones that insist that we do it. But accountants and auditors can be perfectly content with perpetual records as long as they are verified and maintained through a solid cycle counting process.
So, the real reason we do the physical is because we don’t have a functioning cycle count system in place and that means that record accuracy is low. And that also means that your ERP/MRP system is not providing the benefits that it should – fewer shortages (better customer service) with lower inventory.
Inventory accuracy is not the only determinant of success with ERP/MRP but it is an essential building block to that success. Once that issue is put to bed, then you can look at user understanding and training, proper measurements and corporate culture, and the other essential elements of effective manufacturing management.
If you haven’t made all of your New Year’s resolutions yet (or even if you have), why not put inventory record accuracy improvement at the top of your list for 2012. Even if you are doing well with cycle counting and your auditors don’t make you do an annual physical, there are always opportunities for improvement and improvements in inventory accuracy pay huge dividends in many other aspects of the business.
