Defining Inventory Accuracy and Inventory Management Best Practices

How do you define accurate inventory? Learn tactics to improve your inventory accuracy and share best practices with others!

04/21/2020 | Marketing | 5

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Breakfast Roundtable Blog

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Two times per month, we will start the discussion with relevant supply chain information. We encourage you to comment with your thoughts, share best practices, ask questions, etc. 

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Defining Inventory Accuracy and Inventory Management Best Practices

How do you define accurate inventory? What tools do you use to measure your inventory?

This week's blog will look at what an expert says is a good benchmark for accurate inventory levels. We've also included some tactics for improving your accuracy. We'd love to hear from you in the comments! Share questions and your best practices for maintaining the right amount of inventory. 

Per Tompkins, a supply chain consulting company, "The ultimate goal of a cycle counting program is to achieve an absolute bin (location) level inventory accuracy of 97 percent or greater, eliminate the need to do wall-to-wall physical inventories, and to achieve this with the most efficient use of resources possible."

If your goal is 97% inventory accuracy, what does that really mean? Here's a way to measure your inventory accuracy:

    • If I check 100 items [including all valid locations] and the system balance matches the physical [floor or warehouse] balance within tolerance that is a “hit”.
    • If outside the tolerance that is a “miss.” If you have 97 out of 100 item “hits” you have 97% record accuracy.

If your accuracy is below your goal, here are some tactics you can use to improve your accuracy:

1: Establish a Control Group:

  • Pick sample items to count.  Perhaps 25 – 30.

  • Can be typical trouble parts, a statistical sample or, critical-to-customer-delivery items.

  • Schedule control group counting once per week. Can become a cycle counting training tool and/or an input to a cycle counting policy and procedure.

  • What is the advantage? Fewer transactions to review. Less time spent on the “effect” & more time spent on the “cause”. 

2. Education and Training:

  • “Why” is it important to have accurate inventory records?

  • “How” do we keep inventory records accurate?

  • Causes of inventory discrepancies: Systems [rare, but possible], Processes and/or Procedures.

3. Implement strict accountability. Since it can be hard to measure non-value added time spent on expediting or, extra dollars of additional inventory, we suggest setting clear expectations for accuracy and holding your team accountable for when goals are not achieved. 

Each company must decide what their goal will be for inventory accuracy, depending on the nature of your business. Some materials are harder to keep track of than others. It takes careful thought, commitment, as well as perhaps - a culture change, but achieving accurate inventory will help a company compete in the long run. 

What are your thoughts? We'd love to hear from you below on your inventory challenges and best practices! Remember, every 5 posts earns 1 certification maintenance point. 

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5 Comments

  1. fred kindelberger

    May. 7, 2020

    Z brought up some good points on cycle counting. The first being the standard answer, 80/20 rule. If you are interested in just counting and not developing accuracy, that's ok. That is Z's second point. Root cause analysis is how you get to inventory accuracy. Thank you Z. I could use some help in that area. I spoke to the programmer for the software that I am using. All that I wanted was the ability to add error codes to their cycle counting program. The feeling was that it wouldn't be used because there isn't time to make it work. Jenn brought up a big root cause for inventory inaccuracy, the BOM's need to be shored up. This has been a great topic.

    Reply
  2. Jenn Lisser

    May. 6, 2020

    Agree with the culture change as big as correct BOMs. In several "lean" areas, we do not print a job pick list so we don't have that level of checking BOM accuracy. Tribal knowledge has people picking what they need. Any other companies using mass customization in a "lean" assembly line environment? If so, what are you doing to ensure BOM accuracy? Thanks! Jenn

    Reply
  3. Z

    Apr. 22, 2020

    Actually, a cycle count program done correctly is there to discover the root cause of the error so it can be corrected to prevent further inaccuracies on all parts. If the program is just there to verify your inventory $$, you're not really doing cycle counting -- you're doing an annual physical day by day.

    Reply
  4. Z

    Apr. 21, 2020

    I'd prefer to vary the level of accuracy to be attained by the importance of the part. So, for those 20% of items that account for 80% of the value [cost X usage], I'd want 99%; for the next 30 % of the items that add 15% of the value, 97%; and then for the 50% of the items that only account for 5% of the value, 92% would work. You could accomplish the same thing by saying 97% but adjust tolerances accordingly.

    Reply
    1. Fred Kindelberger

      Apr. 22, 2020

      The problem that I have with ABC logic in cycle counting is it only helps the accountants. The smallest items can cost shipments. The focus with control groups is it looks to find the reason the inventory is off. The other comment, "it takes careful thought, commitment, as well as perhaps - a culture change." Culture can be as big as correct BOM's.

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