INTDQ Inv 1 © The Delos Partnership 2003 Inventory Accuracy How to get to 98 % in the Stores and in Work-in-Process

INTDQ Inv 2 © The Delos Partnership 2003 Inventory Accuracy Vital to have 100 % accuracy of inventory: – In the stores – On the shop floor – Anywhere in the company Vital to have 100 % accuracy of work in process

INTDQ Inv 3 © The Delos Partnership 2003 What Inaccurate Data Does Periods Gross Req’ts10 Sch Rec20 PAB Planned Order20 Lead Time = 2 weeks Minimum Order Quantity = 20 Safety Stock = 10 On Hand = 20 Part Number Periods Gross Req’ts40 Sch Rec40 PAB Planned Order50 Lead Time = 6 weeks Minimum Order Quantity = 50 Safety Stock = 50 On Hand = 100 Allocated = 0 Part Number Action : Release Planned Order

INTDQ Inv 4 © The Delos Partnership 2003 What Inaccurate Data Does Periods Gross Req’ts10 Sch Rec20 PAB Planned Order20 Lead Time = 2 weeks Minimum Order Quantity = 20 Safety Stock = 10 On Hand = 20 Part Number Periods Gross Req’ts40 Sch Rec40 PAB Planned Order50 Lead Time = 6 weeks Minimum Order Quantity = 50 Safety Stock = 50 On Hand = 100 Allocated = 0 Part Number Action : Release Planned Order Suppose 20 not “in stock”

INTDQ Inv 5 © The Delos Partnership 2003 Results of Inaccurate Inventory Data  Firefighting  Disappointed customers  Expert expediters in purchasing  Frustration  Wasted time counting what is there  Exasperated suppliers  Chaos  Lack of faith in the basic numbers  Wasted time each year in the annual audit

INTDQ Inv 6 © The Delos Partnership 2003 How Accurate Is This Data ? ItemCounted Quantity Value ( $’s)Computer Record Value ( $’s) TOTAL11,000$ 11,00011,000£ 11,000

INTDQ Inv 7 © The Delos Partnership 2003 How Accurate Is This Data ? Inventory status Stores Location ST001 Factory F0001 Part Number Location ST Location F Count 100

INTDQ Inv 8 © The Delos Partnership 2003 Definition of Accuracy Number of correct counts Number of items counted Item = product by location X 100 %

INTDQ Inv 9 © The Delos Partnership 2003 Definition of Accuracy - Tolerances Count is accurate if item is within preset tolerance Computer 100 Count Computer 100 Count E.g. suppose tolerance = +/- 2 % Accurate within these limits

INTDQ Inv 10 © The Delos Partnership 2003 How Accurate Is This Data ? ItemCounted Quantity Computer Record Tolerance =/- % Hit/Miss /-2 % /-5 % /-2 % /- 2 % /-5 % TOTAL11,000

INTDQ Inv 11 © The Delos Partnership 2003 Steps to Gaining Inventory Accuracy 1.Establish levels of current accuracy 2.Establish control group to identify causes of errors 3.Review material flows 4.Create Limited Access 5.Define systems and processes 6.Educate users 7.Train users 8.Cycle count 9.Eliminate annual physical 10.Never give up the challenge

INTDQ Inv 12 © The Delos Partnership Establish Current Level of Accuracy 1.Select 100 different items  Fast moving  Slow moving  Large  Little  Expensive  Trivial 2.Print out computer quantity 3.Carry out count 4.Compare actual versus computer 5.Publish

INTDQ Inv 13 © The Delos Partnership Establish Control Group and start counting 1.Identify cycle counting resource 2.Identify 100 parts to be regularly counted 3.Establish counting regime 4.Week 1 Count 20 each day Reset computer to quantity counted 5.Week 2 and on Count same items as counted previous week on same day. 6.Investigate reasons for errors

INTDQ Inv 14 © The Delos Partnership 2003 Likely Causes of Errors Inventory inaccurate Equipment People Computer Policies Procedures Take the observed problems back To the root cause – 5 Why’s Take the observed problems back To the root cause – 5 Why’s

INTDQ Inv 15 © The Delos Partnership Review Material Flows Kitting area Kitting area Kitting area Kitting area Production Stores Stores or Work-in-Process ?

INTDQ Inv 16 © The Delos Partnership Create Limited Access  Physical Limited access  Psychological limited access Provide Terminals Provide Training

INTDQ Inv 17 © The Delos Partnership Create Limited Access Kitting area Kitting area Kitting area Kitting area Production Stores Stores or Work-in-Process ?

INTDQ Inv 18 © The Delos Partnership Define Systems and Procedures Every material movement needs a transaction Material movement can be recorded by discrete issue or backflush In = + Out = - In = + Out = -

INTDQ Inv 19 © The Delos Partnership 2003 Discrete Issue 1.Release order : allocate materials 2.Paperwork received in stores 3.Items picked 4.Issued to factory etc. 5.On hand balance downdated StageAllocatedOn HandAvailable Step Step Step Step Step 5000

INTDQ Inv 20 © The Delos Partnership 2003 Generating the Pick List from the Bill of Material LocationPart Number DescriptionQty Req’d Qty Issued Point of Use A Pen Barrel20SA A Finished Nib20SA M Cap20SA Work Order Number :4567Quantity : 20 Part Number : 14356Start : 1/07/02 Description : Pen Complete : 15/07/02

INTDQ Inv 21 © The Delos Partnership 2003 Generating the Pick List from the Bill of Material LocationPart Number DescriptionQty Req’d Qty Issued Point of Use A Pen Barrel20 SA A Finished Nib20 SA M Cap20 SA Work Order Number :4567Quantity : 20 Part Number : 14356Start : 1/07/02 Description : Pen Complete : 15/07/02

INTDQ Inv 22 © The Delos Partnership 2003 Backflush Technique Backflushing is a technique for downdating inventory Uses Bill of Material to work out what has been used Supports an environment in which works orders are not used Allows bulk replenishment Simplifies material control

INTDQ Inv 23 © The Delos Partnership 2003 Backflush Mechanics Red Pen Part Number Red Pen Part Number Pen Barrel Part Number Pen Barrel Part Number Finished Nib Part Number Finished Nib Part Number Cap Part Number Cap Part Number Stock record for Cap – works order number 4675 Stores on hand TransactionFactory On Hand Total Stock 1000Opening Balance Move Complete Production Of

INTDQ Inv 24 © The Delos Partnership 2003 Backflushing Prerequisites  Timing of transactions  Report Production in Timely manner  Scrap/Yield/Exception reporting needs to be done quickly  Bill of material accuracy needs to be 100 %  Point of Use Inventory Accuracy needs to be > 95 %  Routings need to be 100 % accurate  Bill of Material change control needs to be excellent

INTDQ Inv 25 © The Delos Partnership Educate Users  Educate all users  Sales and Marketing  Production  Planning  Supervision  Research and Development  Ensure understanding of Importance  Continue to educate  Provide training to users of system

INTDQ Inv 26 © The Delos Partnership Train Users Ensure they understand transactions Ensure they understand procedures Ensure they carry out transactions accurately and in a timely fashion

INTDQ Inv 27 © The Delos Partnership Carry out cycle counting Three recognised ways to cycle count By part number 1.Random selection of parts 2.ABC Cycle Count By Location Product Class % of Volume % of Value% Tolerance Counts per annum Interval - weeks “A” Class20 %80 %+/- 0%413 “B” Class30 %15 %+/- 2%226 “C” Class50 %5%+/- 5%152

INTDQ Inv 28 © The Delos Partnership 2003 Process for getting Data Right Control Group Audit Fix Data Base Control Group

INTDQ Inv 29 © The Delos Partnership 2003 Process Control cycle counting Divide Warehouse into locations For cycle counting Week 1 Week 2 Week 3 Week 4 Week 5`

INTDQ Inv 30 © The Delos Partnership 2003 Process Control Count –When Easy to count Low balance high exposure –Obvious errors Eyeball large quantities –By Location Efficient All physical inventory Ensures physical locations recognised Reconciliation easier

INTDQ Inv 31 © The Delos Partnership 2003 Process Control cycle counting LocationPart QuantityCountHit/ NumberMiss A Hit A A Miss A ,234 A Hit A Hit A Hit 4 hits 5 counts = 80 %

INTDQ Inv 32 © The Delos Partnership Do away with the annual Physical Establish 98 % accuracy through Cycle counting Show regular results Process under control so need for once a year check of “everything” No auditors here thanks

INTDQ Inv 33 © The Delos Partnership Never Give up Continue with Control Group Continue with Process control cycle counting forever –Informal disciplines will creep back