1. 1 © The Delos Partnership 2006 Inventory Accuracy How to get to 98 %

2. 2 © The Delos Partnership 2006 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

3. 3 © The Delos Partnership 2006 Steps to Gaining Inventory Accuracy 1.Establish definition of 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

4. 4 © The Delos Partnership 2006 Establish definition of accuracy

5. 5 © The Delos Partnership 2006 How Accurate Is This Data ? ItemCounted Quantity Value ( £’s)Computer Record Value ( £’s) 12351995 1000 12352996 1000 12353997 1000 12357998 1000 12358999 1000 123591000 123601001 1000 123721002 1000 123731003 1000 123741004 1000 123751005 1000 TOTAL11,000£ 11,00011,000£ 11,000

6. 6 © The Delos Partnership 2006 How Accurate Is This Data ? Inventory status Stores Location ST001 Factory F0001 Part Number 91121 200 Location ST001 200 Location F0001 0 Count 100

7. 7 © The Delos Partnership 2006 Definition of Accuracy Number of correct counts Number of items counted Item = product by location X 100 %

8. 8 © The Delos Partnership 2006 Definition of Accuracy - Tolerances Count is accurate if item is within preset tolerance Computer 100 Count 97 98 99 100 101 102 103 Computer 100 Count 97 98 99 100 101 102 103 E.g. suppose tolerance = +/- 2 % Accurate within these limits

9. 9 © The Delos Partnership 2006 How Accurate Is This Data ? ItemCounted Quantity Computer Record Tolerance =/- % Hit/Miss 123519951000 123529961000+/-2 % 123539971000+/-5 % 123579981000+/-2 % 123589991000 123591000 1236010011000 1237210021000+/- 2 % 1237310031000 1237410041000+/-5 % 1237510051000 TOTAL11,000

10. 10 © The Delos Partnership 2006 How Accurate Is This Data ? ItemCounted Quantity Computer Record Tolerance =/- % Hit/Miss 123519951000Miss 123529961000+/-2 %Miss 123539971000+/-5%Hit 123579981000+/-2 %Hit 123589991000Miss 123591000 Hit 1236010011000Miss 1237210021000+/- 2 %Hit 1237310031000Miss 1237410041000+/-5 %Hit 1237510051000Miss TOTAL11,000 =5/11 = 45 %

11. 11 © The Delos Partnership 2006 2. Establish Control Group

12. 12 © The Delos Partnership 2006 2. 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

13. 13 © The Delos Partnership 2006 2. Establish Control Group 1.Select 100 different items –Fast moving –Slow moving –Large –Little –Expensive –Trivial 2.Purpose of control group is to identify sources of error to all items

14. 14 © The Delos Partnership 2006 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

15. 15 © The Delos Partnership 2006 3. Review Material Flows Kitting area Kitting area Kitting area Kitting area Production Stores Stores or Work-in-Process ?

16. 16 © The Delos Partnership 2006 4. Create Limited Access  Physical Limited access  Psychological limited access Provide Terminals Provide Training

17. 17 © The Delos Partnership 2006 4. Create Limited Access Kitting area Kitting area Kitting area Kitting area Production Stores Stores or Work-in-Process ?

18. 18 © The Delos Partnership 2006 5. Define Systems and Procedures Every material movement needs a transaction Material movement can be recorded by discrete issue or backflush In = + Out = - In = + Out = -

19. 19 © The Delos Partnership 2006 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 10100 Step 2100 0 Step 3100 0 Step 4100 0 Step 5000

20. 20 © The Delos Partnership 2006 Generating the Pick List from the Bill of Material LocationPart Number DescriptionQty Req’d Qty Issued Point of Use A11443768Pen Barrel20SA A11876452Finished Nib20SA M05489563Cap20SA Work Order Number :4567Quantity : 100 Part Number : 14356Start : 1/07/02 Description : Pen Complete : 15/07/02

21. 21 © The Delos Partnership 2006 Generating the Pick List from the Bill of Material LocationPart Number DescriptionQty Req’d Qty Issued Point of Use A11443768Pen Barrel20 SA A11876452Finished Nib20 SA M05489563Cap20 SA Work Order Number :4567Quantity : 100 Part Number : 14356Start : 1/07/02 Description : Pen Complete : 15/07/02

22. 22 © The Delos Partnership 2006 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

23. 23 © The Delos Partnership 2006 Backflush Mechanics Red Pen Part Number 14356 Red Pen Part Number 14356 Pen Barrel Part Number 43768 Pen Barrel Part Number 43768 Finished Nib Part Number 76452 Finished Nib Part Number 76452 Cap Part Number 89563 Cap Part Number 89563 Stock record for Cap 89563 – works order number 4675 Stores on hand TransactionFactory On Hand Total Stock 1000Opening Balance1000 800Move2001000 800Complete Production Of 14356 0800

24. 24 © The Delos Partnership 2006 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

25. 25 © The Delos Partnership 2006 6. 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

26. 26 © The Delos Partnership 2006 7. Train Users Ensure they understand transactions Ensure they understand procedures Ensure they carry out transactions accurately and in a timely fashion

27. 27 © The Delos Partnership 2006 8. 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

28. 28 © The Delos Partnership 2006 Process for getting Data Right Control Group Audit Fix Data Base Control Group

29. 29 © The Delos Partnership 2006 Process Control cycle counting Divide Warehouse into locations For cycle counting Week 1 Week 2 Week 3 Week 4 Week 5`

30. 30 © The Delos Partnership 2006 Process Control Counting regime : 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

31. 31 © The Delos Partnership 2006 Process Control cycle counting LocationPart QuantityCountHit/ NumberMiss A345223654 100100 Hit A3453245681245 A345424367 22 20 Miss A345570659 2,234 A345639060 101 101 Hit A345739081 43 43 Hit A345842020 75 75Hit 4 hits 5 counts = 90 %

32. 32 © The Delos Partnership 2006 9. 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

33. 33 © The Delos Partnership 2006 10. Never Give up Continue with Control Group Continue with Process control cycle counting forever –Informal disciplines will creep back