Inventory Accuracy in the Supply Chain by umsymums34


                                                                                                                                                    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

                                             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-
                                   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.           variance. You can check your answers at                    2. Assign Accountability. It must be                Next month: how to align accountabilities for
                                               perfectly clear who is accountable for          inventory accuracy.

                                                                                                                                                      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
  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.

   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.

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