When I walk through a local manufacturing facility, one of the first things I notice is how clean it is—or isn’t. A clean factory indicates at least one business fundamental has been mastered: inventory control. Of course, just having a clean, orderly factory doesn’t mean the company is using technology well, but it can certainly be an indicator of success. Conversely, a messy factory indicates a lack of controls and disciplines that almost certainly predict a less-than-effective Enterprise Resource Planning (ERP) implementation.
If you don’t have the discipline to keep inventory orderly and under control, what are the chances computer records are accurately kept? After all, computers are just big calculators and they must have accurate data to function properly. And, even though different facilities often have different managers and their own set of business issues and challenges, accurate inventory data is a common thread connecting those who are successful.
Worried? Don’t be. You have expert inventory management skills and you probably don’t even know it.
A Clean Slate
Let’s use an example close to all of us, so to speak: toilet paper (TP). The goal of TP management in your home is the same as inventory management in your business: You never want to run out.
As corny as this might sound, think about it. TP doesn’t command the same attention as bigger household budget items such as food or electricity. In fact, it’s so cheap you could buy a whole year’s worth at one time, if you wanted to. But you don’t because the storage and transportation would be unmanageable, not to mention a household nightmare.
Somehow you balance the frequency of the purchase, the quantity and storage issues. This is expert inventory management. This everyday balancing act demonstrates inventory management is more than inventory control; it’s also inventory management. But you must have inventory under control before you can manage it.
Many business owners, under the guise of staying modern, buy fancy technology to solve problems rather than address people and the culture of the organization. If the game were decided by technology alone, then it would simply be a matter of cost-of-capital. Obviously that is not the case. So, before you try to buy your way out of poor business practices, get your inventory under control.
Control is Key
One of the tricky things about inventory is how easily it slips from being a valued production asset to becoming a nebulous insurance policy against poor planning and sloppy execution. To really get your inventory under control you need to maintain—at a minimum—these four elements on every item:
- Identification. Make sure every item is clearly identified, with easy-to-read labels. You must never doubt what the item is.
- Location. Do you have a warehouse or a "where" house? Clean aisles, one box open at a time, and standard storage locations are benchmarks of good warehousing. There should never be difficulty in accessing stored inventory.
- Quantity. It is much easier to keep quantities correct if you use standard storage and transfer containers. Standard containers make it easy to use visual systems of inventory replenishment.
- Value. You really can’t make informed decisions on how to manage inventory if you don’t have a handle on all the associated costs. Every time you handle inventory, you add cost to it.
Any time one of these four elements changes, a transaction should record the change. If they are not accurate and up to date, effective management of inventory is impossible.
How to Fix It
If your shop is messy or your inventory records aren’t accurate, then you should take steps immediately. You might start with a shop floor physical inventory to get the records straight and to have a point to start. Organize a disposition team of engineers, purchasing, materials and manufacturing personnel. Establish the rules of disposition: i.e., return to stock, quality, or production, etc.
Walk around the factory and disposition everything right on the spot, so you can get it out of there. IBI