DBMEXECUTIVE DBMExecutive is a monthly newsletter created by DBM Systems Inc., a supply chain consulting group located in Cambridge, Ontario, Canada. ISSUE 1.5 May 5, 2008 To get your own copy please visit us at www.dbmsys.com. Let me count the ways... Inventory Accuracy in the Supply Chain by Duncan McLeod inventory accuracy. I recommend that the accountability structure be based President’s Note… on the geographic layout of the facility. In business, accuracy is not about being close to target. Accuracy is For example, the person responsible for a goal! A charge! A way to ensure that measures are being met! ﬁnished goods inventory accuracy may Then why do we treat it like yesterday’s news? be different from the person who owns raw material, sub-assemblies and work in process accuracy. This month DBMEXECUTIVE looks at inventory accuracy, another 3. Provide the Tools. If you don’t key measurement in the supply chain. We discuss what it is, how to have accurate inventory then you need get it, and more importantly, how to maintain it. to change to get it. These changes Why is Inventory Accuracy Important involve people, processes, and tools. The Also this month, Morgan Minor explains how to create successful This may seem like a silly question but I people and processes must be aligned, but teams—an essential piece of the S&OP puzzle. believe it is at the root of our inventory accuracy you also need to supply the tools required to problems. Let me explain. do the job. Align the accountabilities ﬁrst, Dennis is a long time Materials Manager “Kansas City Center? This is Charlie-Foxtrot- who has never worked in an environment with then rough out the processes and then implement the tools. Don’t be lured into Bravo-Victor-Charlie…uh…we’re at one one accurate inventory records. Cycle count, physical thousand enroute to Grand Rapids Michigan buying fancy tools until you know what you count, count and re-count, these are his accuracy and…well….I was just wondering if you could need! methods. In his mind he has survived without … uh ….maybe tell us where we are…..? 4. Cycle Counting. I will talk more inventory accuracy, so why should he go through Maybe?...Over.” the pain required to get it now? In fact if things about this important topic in a future article, but for now you need to know there are three Now that would be embarrassing. It really is have worked for all these years why does he need reasons for cycle counting. Unfortuately, few hard to ﬁgure out how to get where you are going inventory accuracy at all? plants ever get beyond the ﬁrst reason. if you don’t know where you are. Hence, my topic Today we work in an integrated supply chain (i) Fix the On-Hand Balances. This this month is inventory accuracy (IA). where we must take our master schedule, is the primary reason that most people If the situational awareness (where I am) of determine our component requirements, (what cycle count. They count and post the pilots in the aviation system was held to the same we need), and net these against our inventory new counts so that the inventory data is low standards as inventory accuracy in the supply (what we’ve got) to ﬁnd out what we need to get. more current. In fact, as I mentioned chain system, then the aviation system would Without inventory accuracy this math doesn’t earlier, some organizations count their come to a crashing stop. It runs at seven sigma work! critical parts every day! because everybody knows where they are! This logic applies equally to MRP and (ii) Measure the Inventory I have worked in hundreds, if not thousands, kanban environments. They handle the Accuracy. The second reason for cycle of supply chain manufacturing nodes and it never calculations differently, but they both rely on counting is measurement. If you count ceases to amaze me how few of them can actually accurate inventory data to determine what is 20 items and 19 are correct, within the trust their inventory records. needed when. But that’s not all. counting tolerance your inventory Many expensive investments in sophisticated In the following bill of material there are 10 accuracy is 95%. If only 15 are correct ERP systems are almost completely negated parts. One is a ﬁnished good—the master then the accuracy is 75%. Tracking because of the inability to maintain accurate scheduled item that is supplied to the customer, these results shows an organization they inventory records. three are stocked sub-assemblies, and six are are moving towards inventory accuracy. In fact, I have seen many cases where purchased components. If we counted all 10 If they already have it, it alerts them to organizations take a physical inventory of their records and found that only one of the sub- problems. critical parts every day and load the data into a assemblies was in error what would the inventory (iii) Find the Root Cause of spreadsheet based MRP system, completely accuracy be? How many of the generated Inventory Accuracy errors. This is bypassing their ERP system—the system that requirements would be wrong? the most important reason for cycle integrates them into the supply chain! ! counting. It really doesn’t matter how This article is about inventory accuracy. often you count if you don’t ﬁnd and What it is, why you need it, and how to get it. It eliminate the cause of the errors. may not be sexy, but IA is a supply chain must. 5. Eliminate the Cause of Errors. What is Inventory Accuracy Once you have found a root cause you need to eliminate it. Root causes can typically be Inventory Accuracy is a measure of the put into three groups. inventory records that are correct within (i) Poor Processes. If the process a counting tolerance. The counting doesn’t work or if it is too complicated it tolerance is a percentage, or a ﬁxed will be a cause of errors. Process errors quantity, that allows for the difﬁculty of counting the item. are typically the ﬁrst errors to indentify - Duncan McLeod That’s right, the inventory accuracy is 90%, and ﬁx. but 70% of the plan is based on inaccurate data. (ii) People. If the processes work but Often we think of inventory accuracy as a The one inventory error corrupted the plan for people are not following them, then you ﬁnancial measurement. the lower components. In fact this problem gets need to improve the performance of the “Our physical inventory was only out by worse as this error impacts the quality of data people— or change the people. This 0.05% ,” says our Controller. communicated to the vendors, since they will may sound harsh but there is a speciﬁc However, from a ﬁnancial point of view, the continue to propagate this error through their aptitude required to maintain the pluses and minuses cancel out. If we looked at the own bills of material. discipline in the inventory system and absolute value of the accuracy error it would be If you are using inventory data to plan, it not everyone has it. I for one would not much higher. To solve accuracy issues we need to had better be accurate! be a good choice for this role. know what inventory we have for each speciﬁc (iii) Tools. Tools can be used to part number—the ﬁnancial formula would only How do we get Inventory Accuracy simplify and poke yoke the transaction apply if all of the parts were interchangeable and There are ﬁve basic steps that you must go system. For example, well implemented Duncan McLeod, MBA, that is rarely the case. through to achieve accurate inventory records: scanning systems can simplify and CFPIM, CSCP, PMP, is the If we count 100 items, and for 96 of them President and CEO of DBM 1. Educate. Everyone in the organization improve the integrity of the inventory the error between the count and the computer must know what inventory accuracy is, why it system. Systems Inc. in Cambridge, on-hand balance is less than the counting is important and how you get it. The people 6. I know I said ﬁve steps but there are Ontario, Canada, where his consulting and research focus tolerance then the inventory accuracy is 96%. directly responsible for inventory accuracy really six. The sixth step is to keep at it. on management strategy in This is what I mean by inventory accuracy. must also know how to manage an effective Like physical ﬁtness, it takes commitment to fast-paced industries. Duncan Try the following exercise and see if you can cycle counting program and do root cause keep the beneﬁts. So commit to it. can be reached at calculate the inventory accuracy and the ﬁnancial problem solving. email@example.com. variance. You can check your answers at 2. Assign Accountability. It must be Next month: how to align accountabilities for http://www.dbmsys.com/newsletter.html perfectly clear who is accountable for inventory accuracy. 1 DBMEXECUTIVE DBMExecutive is a monthly newsletter created by DBM Systems Inc., a supply chain consulting group located in Cambridge, Ontario, Canada. To get your ISSUE 1.5 own copy please visit us at www.dbmsys.com. May 5, 2008 Making it work takes a little time Team Dynamics for S&OP and Beyond by Morgan Minor I’m a pretty sociable guy. I like kite boarding As companies embrace new technologies Through a series of weighted questions and and snowboarding, and in my spare time I design and processes to become better performing nodes answers a proﬁle of each S&OP team member is boards and windsurﬁng sails too. in the supply chain they evolve through these calculated. These index results divide your an- I’m not a big talker. I like to listen, and to be stages. swers into four distinct Kolbe Action Modes™: a part of groups and teams and solve problems. I The problem is that each stage along this Fact Finder, Follow Thru, Quick Start, and Im- have been on some really great teams and some path requires a more coordinated team effort and plementor. really bad ones. In both cases the teams, as indi- better communications between people. New Knowing the action styles of each team viduals, were excellent people. On the bad teams, software may be implemented and employees member makes it easier to identify a person’s they just didn’t make excellent teammates. And may be trained on new processes, but the culture strengths, and then to focus their commitment on this bothered me. change needed to embrace the business changes the tasks they already have a natural tendency to As an engineer, this really bothered me be- tends to lag behind, unless focus and thought is excel in. cause it was a problem, and as a problem it had given to promote it to the next step. Here is an example of one of the Kolbe A™ to have a solution. Just not an engineering solu- As an organization evolves through the Index Results: tion. It took me years to understand this and put stages to an Extended it into practice with my customers. Enterprise in the supply In this article I will discuss team dynamics, chain, its methods of and explain why it is an essential piece in success- solving problems, con- ful S&OP projects. It has nothing to do with the ﬂicts and team building size of your team. It has everything to do with must evolve too. the strengths of the individuals. Stage Hands Setting The Stage For Team Dynamics Needed Putting together a winning team is not sim- Back in the days of ply a matter of assembling a cross-functional the Semi-Functional group of people. If it were that simple we’d have Enterprise (stage 2) no need for coaching. But it’s not. there was a deﬁnite For a winning team (one that accomplishes departmental focus its objective) you need to identify individual within organizations. strengths, and you need to assign roles based on Sales got the or- those strengths. You need to learn how to over- ders and threw them come conﬂict, and to problem-solve as a team. over the wall to manu- These are not trivial tasks. facturing, who had to Some team members may need to learn new ﬁgure out how to get behaviours so they don’t inhibit team perform- them made, then ance. And the team needs to learn how to work passed the product on together to deliver the best results. Building a to shipping, who had to strong team takes time and patience but the re- get the product out the sult is worth it. door on time. Now with an en- Standing Before The Bright Lights terprise wide resource In previous DBMExecutive articles Doug planning system, a stressed the business advantages of S&OP. He good S&OP, and mas- discussed the need for change management proc- ter scheduling process, ! esses, and how an organization can self-assess its we have the tools and readiness for a formal S&OP project. processes to run in a much more integrated fash- These are business objectives, and they are ion. necessary for success in business today. But they The problem is that the people in the or- The Kolbe analysis tells us that some people are not the whole story. They can’t guarantee are more natural at gathering information, some ganization are still working in the culture of the success on their own. people are better suited to organizing informa- previous stage (departmentally focused, stage 2). S&OP is one element in supply chain man- tion, some are more action oriented and can There likely wasn’t any thought given to teaching agement, and supply chain management is a drive to the bottom line quicker, and some have a these employees how to work as a team with the global issue affecting thousands of businesses as more hands-on approach. new tools and processes. they begin to position themselves in a data-driven If tasks are not allocated based on individual Most implementations of new technologies marketplace. The business goal of a supply chain strengths you are not taking the best advantage of focus on getting them up and running as cheaply is integration: process, product and people—with as possible. New processes can change the way your team. Also, if people don’t understand both the people requirement often left to its own de- things get done, but not necessarily change the their own strengths and the strengths of everyone vices. way people think or interact with each other. else, they cannot work together as a team in the For example, The Association for Opera- most productive manner. Old methods of team dynamics remain, and tions Management (APICS) describes 4 stages in This is a starting point. The Kolbe analysis conﬂicts are carried forward. Soon new oppor- the growth of an organization from a node in a gives teams a visual reminder of a team mem- tunities for improvement—identiﬁed through the supply chain to an integrated extended enter- ber’s instinctive strengths, which leads to a better S&OP Self-Assessment—encounter the same old prise. Here are the stages: understanding of team dynamics. problems, and team conﬁdence begins to weaken. Concluding Actions Teamwork With A Capital K Stage 1: Multiple Dysfunction How then do we improve our team’s per- Time and again I have witnessed the recog- - disorganized, random, lack of formance while we evolve our business? nition that ﬂashes across a team member’s face communication when they see their Kolbe results. More impres- When I help with team coaching I focus on sive is the recognition they experience when they Stage 2: Semi-Functional Enterprise three things: Process, Synergy, and Emotions. Morgan Minor, BASc, CPIM, is understand someone else’s results—usually a - departmental focus, silos of First, teams must have a process to follow a Management Consultant and team member they have struggled to work with. information that works. Second, the individuals that make up Certiﬁed ModelWorks™ Imple- Process, team synergy and emotional issues Stage 3: Integrated Enterprise the team can potentially produce a natural syn- mentor with DBM Systems Inc. can all be addressed in an open and co-operative - better communication, focus on ergy that can boost team performance. And in Cambridge, Ontario, Canada. working environment. This is a great experience, process third, emotional issues need to be addressed if Morgan consults with global they affect team performance. and I get to help solve a problem—one of my Stage 4: Extended Enterprise own personal satisfactions fulﬁlled. manufacturing organizations with The key here is that before you can work as - complete integration of the supply Next month Doug will return with an article a focus on business process im- a team, you must know how you work as indi- chain on the validation process of the S&OP Self- provements. Morgan can be viduals. To help with the individual assessment reached at Assessment. we rely on the Kolbe A™ Index. firstname.lastname@example.org. 2 Augustinian Friar's Astrological Clock. Made in 1679, one of the hands takes 20,000 years to revolve. It is calibrated to the year 9999. At the Clock Museum in Vienna. The DBM Sales and Operations Planning Initial Review IT’S NOT ABOUT WHERE YOU ARE NOW, BUT WHERE YOU ARE GOING TO BE. Time isn’t just about money. And we do this in one week, start to finish. It’s about opportunities. About clarity. About plans and actions. One week. A small investment of time to get your organization focused and A DBM Sales and Operations Planning ready for action. Initial Review will help you with all three. Email us at email@example.com to get Our team of S&OP experts work with more information about a DBM S&OP your people to understand the state of Initial Review, or to book one for your your implementation. organization today. We then give you a plan, a template to Because time isn’t just about money. show what needs to be done. And we It’s about value earned. link it to your best opportunities so things can get done quickly.
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