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How to Improve Inventory Management Control

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An accurate inventory is crucial to your business. The sales department depends on its accuracy as does the purchasing department to make decisions on purchases, delivery dates, and budgeting decisions.

With many companies using a just-in-time inventory replenishment system, the old annual inventory method no longer provides the timely information needed to accommodate these demands. To maintain a inventory system with real-time accuracy, other methods must be implemented.

Improving Inventory Accuracy

Implement a cycle-count process in which a set percentage of inventory is counted each month. This percentage will be based on the number of times you wish to have your inventory counted annually. By counting 25 percent of inventory each month you will effectively complete three complete inventories each year.

If planned and coordinated properly these cycle counts can be completed without interruption of your normal business activities.

Enhance the effectiveness of your inventory counts by integrating the ABC inventory method, The fastest moving inventory items will be classified as "A" items. The next group of inventory items, those which are active but slightly below the fast-moving items will be classified as "B" items. Slow moving items, including obsolete inventory will be classified as "C" items.

Count all "A" classification items monthly, each "B" classification every two months, and "C" classification can be counted each quarter. This will insure the inventory items with the most turns and thus the highest probability of error will be counted most often.

By counting these items more frequently errors can be identified, researched, and corrected in a timely manner, thus preventing interruption of service to your customer or production line.

Develop a reporting method to record all inventory counts, their frequencies, and any variances found. Research all variances to discover the root cause of the discrepancy.

These records can then be used to identify patterns or deficiencies in your system/process. Once a pattern is discovered, corrective measures can be taken to eliminate the problem/errors and increase inventory accuracy.

Tip

Make certain you always have a clean cut-off before making counts. All receivers and orders must be processed and taken into account before any counts can be conducted.

Warning

Maintain discipline in your counts. Once you set a standard for number of items/locations to be counted monthly, make certain those standards are achieved.

References

About the Author

Tom Raley is a freelance writer living in central Arkansas. He has been writing for more than 20 years and his short stories and articles have appeared in more than 25 different publications including P.I. Magazine, Pulsar and Writer's Digest.

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