Better and Best Practices in Physical Inventories By Marla Williams, CPPM President, Integrated Asset Management, Inc. President, Federal Center Chapter

What is a Best Practice? a technique or methodology that, through experience and research, has reliably led to a desired or optimum result

FAR “….the Contractor shall initiate and maintain the processes, systems, procedures, records, and methodologies necessary for effective control of Government property, consistent with voluntary consensus standards and/or industry-leading practices and standards for Government property..”

Where do I find standards? ASTM International Voluntary Consensus Standards Development Organization Wide base of users Vote to – Develop – Amend – Maintain

ASTM Committee E53 NPMA and ASTM formed E53 in June, Develops criteria for the management and administration of durable and movable assets, including: – Performance standards – Practices – Metrics – Methods of effectiveness Currently 25 Standards have been developed

E (2007) Standard Practice for Physical Inventory of Durable, Moveable Property Visit the ASTM.com web site to join. Basic Membership with on-line access to the current standards for $75.00 per year. Volume 4.12 Participate on Committees

Other Sources for Best Practices Join NPMA Attend your Chapter’s Monthly Meetings Join the Special Interest Group (SIG) – Property Inventory Management SIG – Federal or Contract Property SIG Never miss the National Education Seminar

What is a Physical Inventory? Verify that your records match the actual physical conditions Includes: – Identifying property that is not currently in the system – Identifying assets that are no longer needed by the organization.

What Do You Expect? Baseline or Fine Tuning your Data? What kind of deficiencies will you find? What is your past experience? What is the trend?

Loss Rate What loss rate is acceptable? Weapons, hazardous materials, laptop computers with sensitive information may have a zero acceptable loss rate Low cost items may have acceptable loss rates as high as 20% Typical Loss Rates --.5% to 5%

High loss rates = poor property management Cost and effort to replace the item Lost productivity Release of company-sensitive or personal info Danger to the individual, the community or the organization

Types of Inventories Cyclical or Inventory by Exception Inventories Contract Termination Inventories Statistical Sampling Wall to Wall

Cyclical or Inventory by Exception Every time item is touched, it counts as “inventoried” – Receiving, Transfers, Repairs, Retirements Inventory Period Specified – Every year or two years Items not “touched” are inventoried at the end of the period

Contract Termination Inventory 100% Inventory at Contract’s End For example, government furnished equipment must be 100% inventoried. – Team of Outgoing Contractor, Incoming Contractor and Government Representative – Outgoing Contractor locates items – Incoming Contractor verifies existence and condition – Government Rep witnesses transition

Statistical Sampling Based upon the laws of probability A small portion of the assets are inventoried and the results are used to assess the entire inventory – If results are favorable, you assume that the balance of your assets are accurate. – If results are unfavorable, a 100% inventory may be required. The smaller the sample, the higher the risk.

Wall to Wall Inventory Most common type of inventory Requires: – All locations are visited – All items are inventoried Most expensive type

Frequency Typically governed by: – internal policy – contract requirements – government regulation

Frequency – Other Factors Type of Equipment – Hazardous Materials – Precious Metals – Weapons and Ammunition – Equipment with Sensitive Information Consequence of Loss Security of Environment – Unlimited access, multiple buildings – Limited access, tight security Potential for Theft/Loss Value of Assets

What is included? Capitalized Assets Accountable or Controlled Assets – Sensitive Assets

Capitalized Assets Useful Life of Over One Year Acquisition Cost Greater Than Threshold – $5,000 to $300,000, depending on size of organization – Usually represents 80% of total asset value Reported on financial statement Any additions or changes must be noted on annual statements Ultimate responsibility of the Chief Financial Officer.

Accountable Assets Items that may be vulnerable to theft Computers or PDA’s with personal or sensitive information Hazardous material Weapons See ASTM E2608 Standard – provides Equipment Control Matrix

Who Should Do the Inventory? Inventory is an audit Needs to be performed by individuals who have no vested interest in the outcome. Use: – third party vendor – headquarters personnel – teams from another location

What Tools Should You Use? Over 1,000 assets, should justify automated inventory tools: – Commercial Off-the-Shelf (COTS) Single Workstation System with one HandHeld Computer <$10,000 – COTS Multiple Workstation System over a network with two HandHeld Computers $20,000-$25,000 – Oracle or SQL-based system with customized screens and interfaces to suit your specific needs $250,000+

Handheld Computers Old handhelds had proprietary operating systems and limited memory New handhelds are portable computers running Windows Mobile or CE operating systems: – Can read RFID, UID codes or bar codes – Allow multiple configurations or prompts – Run multiple applications (e.g. work orders, preventative maintenance, etc.)

Automated Identification Linear Bar Codes – Most common and affordable UID – DOD Program for Equipment over $5,000 – 2d matrix codes and linear bar codes assign unique identification numbers to serialized equipment – Purchase Information is sent to a National Registry – Benefit to non-DOD...

Automated Identification RFID – Tags can be passive or – active – Inventory with Handhelds – or Fixed Station Scanners – Fixed Scanning at Loading Dock, Entrances, and Hallways makes collection automatic but can be expensive – Consider for server rooms or areas that contain sensitive or hazardous materials – Not a “real” security measure unless hidden inside equipment – Cost Effective for High Volume Supply Chain Management Applications like Wal Mart

Make an Inventory Plan Project Manager should develop a detailed Inventory Plan and share it with all interested parties – Inventory personnel – Employees – Security personnel – Management

Inventory Plan Preliminary Schedule – Dependencies, resource availability, unforeseen circumstances (Microsoft Project) Temporary Office for Contractor, if any – If using your system, access to your system – If their system, lockable private office or place to store personal items, table, task chairs, power, telephone, fax and copier access, internet access, printer, etc.

Inventory Plan What Property Records to Provide: – Barcode Number – Category, Class, Type, Description Features, Color, Material, Width, Depth, Height – Manufacturer – Model – Serial Number – Location (Region, Building, Floor, Room) – Organization (Division, Department, Unit) – Property Custodian – Status – Purchase Date and Value

Inventory Plan Main Contact – Available during work hours Location Contact or Custodian Access Cards/Security Badges If escorts are required, how many? Procedures for Locked Rooms Maximum Number of Returns to Location

Inventory Plan or Flyer to Employees – Ask for complete cooperation – Instruct employees to remove property from overhead compartments, desk drawers and storage closets and leave the items out until inventoried. – Give employees a contact name and telephone number for questions. – Provide copies of the to the inventory team - to reduce interruptions.

Inventory Plan Bar Code Label Supply – Consider pre-printed labels or print your own

Inventory Plan Bar Code Labels for Locations – Some systems use bar code room tags to identify locations. Floor Plans with Location Names and Organization boundaries – Assign location names to workstations/cubicles

Inventory Plan Condition Codes Put them in writing Give Examples Ask for specific damage information

Inventory Plan Status Codes – IU-In Use – IS-In Storage (available for use by another) – EX-Excess to be turned in

Inventory Plan Strategy for Laptops, PDA’s, Cellphones – known owners – Create Flyer for inventory team to leave – Host doughnut stations at elevator banks – Create Mail In Packages for Remote users – Don’t Forget Federal Continuity of Operation Assets (COOP)

Inventory Plan Laptops and Docking Stations – Many users are not familiar with proper undocking procedures – Check with IT Department for proper “undocking” procedures – Consider assigning special IT Help Desk person to assist with docking issues during inventory Leave flyer with Help Desk contact at each station when finished

Inventory Plan Strategy for Vehicles – Station Inventory personnel at Centralized Maintenance or Fueling Locations – Use fuel card system data – Organize special inventory times that minimize disruption

Inventory Plan Catalogs keep descriptions uniform and consistent – Identify Categories and Classifications – Basic Types (e.g. PC-Desktop, PC-Laptop) – Manufacturer Names – Model Numbers, Part Numbers – Dimensions (Floor Standing Equipment, Furniture) – Furniture Attributes (Color, Material, Finish, etc.) – Document Catalog Development Guidelines – Determine Process for Adding New Catalogs

Inventory Plan Digital Images – Linked to Catalog/Asset by Renaming Image e.g. J jpg becomes EP1000,jpg or jpg – Can be done with $100 digital cameras – Place sign in photograph with number to allow you to rename later Can be dry eraser boards with magnets/velcro or pre- printed numbers generated in Excel in a large font printed on plain paper – Some companies use cameras that will allow them to assign the name in the camera

Inventory Plan Standardize Tag Placement Guidelines – Keep it simple – Use photographs to illustrate – How will it look? – Is the tag easy to remove or tamper with? – If locked, can I access the tag? – If moved, will it block the tag?

Inventory Plan Training – If Contractor is using your equipment, be sure they have been adequately trained – Consider train the trainer sessions for handhelds – Consider detailed scripts for inventory personnel Flyer to Leave for Employees Who Are Out Set Progress Goals and Monitor Them – How many assets will be inventoried each day? – What level of accuracy should we find during auditing? – Are we on target to meet our completion deadline?

Inventory Process Ideally, wall to wall inventories should be conducted building by building, floor by floor, room by room Rooms should be inventoried sweeping from left to right, right to left or some consistent pattern If done by Organization or Custodial Officer, may miss items or whole room/areas not previously recorded – suggest tracking carefully on master floor plans

Daily Process Uploads – Equipment failures or accidents could lose hours or days of valuable work if not transferred Enter New Catalogs – New catalogs should be entered immediately to reduce duplications and keep descriptions uniform Update Master Floor Plan – Master Floor Plan should be updated to reflect each team’s work, locked rooms or unusual conditions

Daily Auditing Run Reports by Location Randomly audit 5% of each inventory team’s work – catching problems while they are small...

Daily Meetings  PM posts each team’s counts and reasons for daily gains and losses  PM meets with teams at the end of each day:  to receive feedback from teams about their progress  review previous days audit results  share productivity gains or losses  Go over information about changes in schedule, etc.

Interim Reconciliations Run Exception List of Items Not Found by previous location Send Inventory Personnel back Update inventory data Run Exception List of Items Not Found by Organization and Location Send list to the Accountable Organization for further research Third Party should verify items found

Final Reconciliation Reconcile all assets inventoried by tag Does the system look for duplicate Serial Numbers? Look for Serial Number matches between: – List of All New Assets Tagged – Exception Listing of Items Not Found Update reconciliation

Final Reports Run several reports or spreadsheets: – All New Items Tagged by Organization – All Items Not Found with Purchase Cost by Organization – All Items Found with Purchase Cost by Organization

Import Inventory Data If you used a Contractor’s Inventory System, the inventory data will need to be imported. If required, the file format and data elements should be specified in the Request for Proposal.

Results Measure annual overage or loss rates by overall number and value Also makes these calculations for each Organization Also calculate these values by category of equipment Compare new information to previous losses/gains for trend

Investigate Generally, if the total value of your losses are in excess of 5% Or you have an Organization with losses in excess of that rate, further investigation is required.

Independent Review Form a temporary committee At least three people without responsibility for property under review May individually or collectively examine property and/or records. Determines the circumstances of a specific instance involving, loss, damage, destruction or similar matters Results may indicate failure to observe procedures, discrepancies, premature or excessive wear or requests for early disposal

Possible Improvements Too many assets not tagged: – Consider requiring assets to be tagged before contractors are paid. – Consider centralized receiving – Look at credit card purchases IT assets missing: – Consider putting scanners in the hands of IT Technicians and provide data to their Help Desk system. – Consider linking to auto-discovery tools Key to Success – Get those assets tagged and identified when they arrive...

Now its up to you! You can just rely on the physical inventory to maintain accuracy and continue to get the same results, or worse, or you can look at the physical inventory as an opportunity to make improvements in the property management process

Questions? Marla Williams, CPPM President Integrated Asset Management, Inc. (800) Severna Park, Maryland President, Federal Center Chapter