LIFE SCIENCE SUPPLY CHAIN SOLUTIONS BY STEVE CLARKE
Challenge
These days, most supply chains have had to overcome major supply risk issues, due to longer, less predictable supplier lead times. One material shortage can shut down the plant, and cause customer delays and missed revenue targets. Therefore, it is truer than ever that your inventory record accuracy (IRA) must be very high. In this article, I will introduce a little-known practice that will help you achieve just that. Unfortunately, annual physical inventory counts are still the method that many organizations use to update their inventory records and correct any discrepancies between what you have and what you thought you had. Typically, the plant is closed for a couple of days, office workers are given a clipboard, paper and pen, and asked to count inventory in the warehouse. Those days are dreaded and likened to a corporate root-canal. Since they were not familiar with the products, the office staff will often make mistakes, and system inventory could be worse than when it started. Alternatively, the system inventory is corrected, but nobody has the time or the inclination to investigate the root cause of the discrepancies, except the ones with the largest dollar impact, so the same errors continued to occur, and inventory accuracy never improves. It is the quintessential non-value-added activity.
Solution (Control Group Cycle Counting)
A robust cycle count program is the key! These days, many organizations have introduced cycle count programs to replace these annual physical inventory events. Instead of counting items once per year, a few items are counted every day by warehouse personnel. When differences between actual and system counts occur, an investigation takes place to determine root cause. The results of these investigations can be analyzed to find and address the mostly frequently occurring root causes. In this way, inventory record accuracy should continuously improve. However, before you begin your cycle count program, measure your current IRA level. If it is low, it is not advisable to jump directly into a full-blown cycle count program. The reason is that it is likely that your warehouse staff who will perform the counts will not have time to investigate why inventory records are inaccurate, because there are so many discrepancies.Instead, it is better to create what is called a “Control Group”. This maybe 10-20 items, that are counted every day. The selected items should be a representative sample of your total item population. Once the items have been selected follow these steps: 1. Count all “control group” items each day.2. Find, investigate, and fix inaccuracies.3. Identify root cause and note a “reason code” for each inaccuracy.4. Identify and address critical few root causes.5. Repeat until 95% accuracy is consistently achieved.Once the desired inventory record accuracy has been achieved for the control group, it is reasonable to assume that the accuracy for the total item population will also be high. Now it is time to start cycle counting all items. Since the number of discrepancies will be minimal, it is now much more realistic to investigate the ones that do occur. If for whatever reason, you find that IRA consistently falls below 95%, then return to “Control group” until accuracy reaches the necessary levels.
Testimonial
“His knowledge of the supply side was well rounded, and he understood the processes very well.”
~ Mike Gleason, IT Director
Results
We recently led an ERP implementation at a biotech company, which included replacing the previous manual inventory management process with an ERP based process. Immediately after go-live, we created a control group to count a small group of items daily. Unfortunately, we found that inventory accuracy was at about 70%. Upon investigation, we found that there were three primary issues: Delayed system receipts due to lack of staff qualified to perform transactions. We quickly expedited the training program for material handlers, so that they could get access to perform these transactions. Unit of Measure discrepancies. Previously, warehouse staff were manually tracking inventory, using unit of measure that was different than set up in the ERP system. All items were found and inventory converted to correct UOM. Floor stock not tracked. Any items that were sent to the production floor from the warehouse, in excess of immediate needs were issued to the manufacturing work center, and so it was no longer visible in ERP. This practice was changed, so excess inventory was transferred to the manufacturing location instead. Once these 3 issues were addressed, then a full-blown cycle count program was able to be implemented with inventory accuracy around 96-98%. This enabled accurate plans, improved on time shipments, lower expedite costs, reduce overtime and improved morale.
