Ramlee Ibrahim & Associates

Some years ago, I was the new director of materials for a company suffering from poor inventory accuracy – probably because we had no performance measurements for inventory accuracy and none of the areas generating inventory transactions reported to the director of materials.

One day, while I was in the President’s office, his coveted performance measurement landed on his desk. He rushed through the remainder of our conversation. His eagerness to view these latest reports gave me an idea. Because he wouldn’t surrender control of those areas generating most of the inventory transactions, would he, I asked, consider adding inventory measurements to hold appropriate supervisors accountable? He said yes.

I needed a performance measurement that would identify responsibility even if we didn’t know the cause of the error. I decided to copy a measurement I had heard about. A few days later, the president explained the measurement in a shop floor supervisor meeting.

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Several weeks back, I shared about the physical inventory disaster I witnessed at a Thai company. Here’s how the story ends…

Where to start? To be honest I could have started any place and made progress. However, I decided to start witha an aggressive attitude change about physical inventory. All departments had to embrace ownership. The company issued a letter listing the many failures of the recent inventory requesting suggestions on how to do better. Many people made suggestions; it was obvious there was a nucleus of concerned employees and managers. For the first time in the corporation’s history, operations and finance worked together to solve a problem inherent to both. These people were given tasks such as training and writing procedures and, in doing os, they learned how to work together.

We agreed to take a small physical inventory each month, in a selected area, prior to the “big one”. We started with stores for the first month and added an area each suceeding month. This helped people become trained and confident as accuracy improved. (more…)

Someone with 25 years experience in operations management starts to believe he’s seen it all. He’s confident his fine-honed skills will solve any and all problems. Such was my state of mind when I accepted an engagement to help a company with its inventory management woes. Little did I know that it would require all my skills, and add several more to my war chest.

I was asked immediately if I would observe the physical inventory of the company’s plants in Thailand and write a critique of the inventory process. I agreed but I realized that this exercise would provide insights into problems that I soon would inherit. To my dismay, I was exposed to a classic lesson of how not to take physical inventory.

Upon arriving, I was surprised to see counting and production taking place in the same area. The activity level in all five plants was the same – people counting and people working. I inquired about cutoffs and was told there were none. I asked if the lines were being purged of work in progress to make counting of the line and finished goods (FG) easier. No, the line would be working through the week. I felt a burning sensation in the pit of my stomach. (more…)

What do you do with slow movers? You can identify and focus on a few inventory items – the A items. But another side must be considered: what to do with the slow movers? Read on and I will help identify different strategies to effectively deal with slow movers by first identifying the problems slow movers create.

The slow movers are those items or SKUs for which sporadic or very little demand exists. Typically, these items fall into the “C” category of the ABC analysis and constitute about 50 percent of the part numbers but only about 5 percent of the total value (where total value is based on total revenue and demand usage).

But a single C-class item, while generating less demand per unit, consumes about the same amount of overhead resources used to store the item (physical space, stockeeping personnel, obsolesence costs, and the time and effort to enter the data and to maintain it in the computer system) and to maintain the demand for the products that use these items. These resources are also used to maintain the demand and the products that use these items. Fir the first, the demand, there is marketing and the need for a marketing/sales person to call people and to forecast demand. For the second, the products that use these items, consider the time and effort needed for an engineer to design, revise, and maintain the demands. At some point, you have to consider that the costs for many C-class items often exceed the benefits. (more…)

The motive for inventory performance metrics like inventory turnover and inventory days of supply is to know how much inventory is on hand and to help us decide if that amount is right for our business. That information is useful for finance so that it can reflect its current assets picture. To operations, it indicates the ability to cover production requirements and/or customer orders. But which is the better measure?

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Several years ago, an electronics original equipment manufacturer company hired me to salvage its investment in an MRP system. The company had recently been awarded a large contract on the condition it follow an aggressive timetable for the product launch.

After the annual shutdown, a group of concerned employees was waiting for me in my office. The buyer informed me that MRP failed to generate the requirements for the new product and suggested MRP “may work for some products but just doesn’t work for ours.” One of the planners also explained that MRP had generated requirements for old part numbers but the newly created part numbers were missing from the MRP run.

“Are you certain you loaded these new numbers into the part master?” I asked the planner. Without a word, she handed me the part master maintenance log for the last workday before the annual shutdown, which showed that all the new part numbers were loaded properly. Perhaps we entered the wrong buyer code on these parts or perhaps purchasing failed to load any buyer code at all,” I said. But the planner handed me the maintenance record for the item vendor file with all the buyer codes highlighted. “I entered them myself because I was afraid purchasing would forget,” she explained. (more…)

Traditional measures of accuracy can be a double-edged sword. While their objective is to confirm cost or inventory accuracy, these methods often serve as a disincentive by inadvertently discouraging an all-out effort to find and eliminate the real root of the problem. When too many inaccuracies are found, the company’s calculated inventory accuracy drops, and this reflects poorly on the worker or workers responsible.

In this instance, the manufacturer needs to understand that inventory accuracy is only an indicator of performance and is not a true measure of the actual process. By definition, performance measures track a process, but something must have been performed in order to have a performance measure. Cycle counting is a process and has a performance measure related to its effectiveness.

Traditionally, companies judge a cycle-counting process based upon a measure of inventory accuracy. The more the process confirms the accuracy of the company’s inventory, the higher the process’ measure of effectiveness – or so it would seem.

Challenging The Traditional Measures

Consider the results of the cycle counts shown below. The mix of counts is representative of the category mix in order to suggest a level of inventory accuracy across all parts. Compare the total calculated accuracy of 98.7% with the following weighted calculation (there is more than one way to calculate accuracy): (more…)