Many times we get so involved in the daily problems of a business that we lose sight of the big picture. “Can’t see the forest for the trees.” I want to take this opportunity to look at some basic principles of inventory management. The purpose is to help you re-focus on the central role of raw materials and work in process inventories in the support of manufacturing operations.
Remember why we maintain inventory. It is there to enable us to start the production process to fill customer orders. To get the finished product to the customer before our competitors. How much inventory we keep; and how we know when, and how much, to re-order are topics for other bulletins. Let’s focus for now on some simple criteria for the management of inventory;
Housekeeping: How do we store our inventory? Do we arrange the stock keeping units (SKUs) in numerical sequence in fixed locations, or in random (floating) sequence? In a random sequence for storage the parts are stored in any open shelf space. This system makes the best use of available space. However, it is very important that part numbers and their locations are quickly, and accurately, entered into our inventory record keeping system. If we are slow in data entry or forget to make an entry, those parts are pretty much lost forever, because nobody can find them again.
In fixed location storage system there is the advantage of being able to find parts very quickly with a minimum of training for warehouse personnel. Whether we use a fixed or random sequence will in large measure depend on the type of goods we are storing; the size and layout of the storage facility; the thorough-put volume and the size of the picked orders.
Is the warehouse kept in a neat and orderly fashion? This is more than a matter of looking good. A neat, clean warehouse is symptomatic of a well-organized and well-kept inventory. As a consultant, when I see a dirty, sloppy warehouse, I can be certain of other failures in inventory management.
It is important that shelf locations and aisles be clearly marked. The parts should be stored in a matter that allows for easy recognition of the part without having to remove it from the shelf to read the part number. Aisles should be kept clear of debris and allow for easy passage of vehicles and personnel. If we use temporary locations to kit inventory, these locations should be clearly marked and not used as a “catch-all” for parts with which nobody knows what to do.
Remember the simple phrase: A place for everything, and everything in its place.
Record keeping: How are we keeping track of part numbers, part locations and quantities? This is very important!! If we don’t know how much, or where any parts are located, we will spend an incredible amount of time trying to find parts for production orders. In many cases we will discover the hard way that we don’t have an important part and have to place the needed part on “rush order” and delay the start of the production order. The inventory records must be accurate and reflect the true story of the physical inventory.
Look at your procedures for gathering and entering to your computer system all information on the receipt, and issuance, of materials from inventory. Record keeping has to be both accurate and timely. Having the correct inventory amounts will allow production planners to schedule production orders that can be completely assembled or fabricated in the least amount of time. Timeliness is just as important. Can we track in real time, what is entering and leaving the inventory? Nobody will trust old information. If we take a day to enter inventory data, we have lost a day for each set of production orders. Nobody can make production decisions in confidence if the data for the production orders is delayed by a day. Watch to see if your production schedulers or material planners walk to the warehouse to double-check their computer data before releasing an order.
Security: How secure is our inventory? Who has access to the physical inventory? Are the people with access trained to make the proper recording of material movement? Do we know to which production order a part was allocated? In the interest of speed, many companies allow open access to the inventory. This method usually results in parts being sent into production without the data records being adjusted for this change in part status.
Warehouse personnel and training: In many factories the warehouse personnel are the least educated; the most poorly trained; and have the least supervision of any work center in the plant. Yet these workers are dealing with a large investment in materials. They deserve better training. This training should include how to identify part numbers, how to read picking lists and packing lists, data entry into the record keeping system, how to fix or report problems, and the use and maintenance of warehouse equipment.
Organization and Layout: The warehouse should be organized in a manner that allows for the speedy storage and retrieval of materials. There should be space set aside for the accumulation of picked orders, shipment of orders (along with packaging materials); space for temporary staging of materials between shipment receipt and storage; a special location for materials that are below quality standards. The location of the loading dock and doors into the production floor should allow for a smooth flow of materials across the warehouse area.
When faced with poor inventory management, let’s get back to the basics. Look at the organization and layout, staffing and training, security, and housekeeping of your inventories before you consider expensive, capital intensive systems to track and account for your materials.
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