INVENTORY NIGHTMARES– 8 TRANSACTIONS THAT CAUSE THEM & 1 TIP TO COMPLETELY SOLVE THEM WITH PROPER INVENTORY ACCURACY

INVENTORY ACCURACY

In this article we will be discussing common problems with regards to inventory accuracy and methods to avoid inventory nightmares that frequently follow these problems.

Traditional Issues with Inventory Accuracy:

1. Inability to find items which the inventory system shows to have on-hand quantities
2. Maintenance and Storeroom inefficiencies looking for missing parts
3. Holding excess inventory due to lack of faith in the inventory system
4. Finding additional items that are not in inventory
5. Expediting too many items (Expediting items too frequently?)
6. Ordering items that are actually in stock

Question 1: What is the No. 1 reason for inventory accuracy issues?

Answer: The main reason for inventory accuracy issues is unrecorded inventory transactions. This can happen for many reasons, but must be corrected if you are to ever improve your inventory accuracy and management.

Question 2: What are the main consequences of inaccurate inventory?

Answers:  Lower actual quantity than what is recorded in the inventory system can cause stock-out issues

– Higher quantity than what is recorded in the inventory system will cause overstocking issues

– (Further) Loss of confidence in the system

– Increased mini-warehouses / stashes / squirrel-holes stores (“off the record” storage areas)

– $$$$$$$$ Eventually, potentially major increased costs

Question 3:       What are the types of inventory transactions that affect inventory accuracy and what can be done to ensure accuracy?

Answers:  Issues- in the rig environment, this happens several ways, but one of the most common is when maintenance staff remove items from the shelf when the warehouse is not manned, and do not record the transaction on the daily issue log. This must be addressed by stressing the importance of using the daily issue log to the maintenance staff since they will ultimately be impacted by these poor behaviors and lack of control. It is recommended that issued items should be recorded immediately in the inventory system, or at most before the end of the shift/tour. Bar coding technology may be introduced to make it easier for the craftsmen to record items that are being removed from the warehouse.

Returns to stores- all maintenance activities require some level of returns as part of the normal process. These items should be returned to inventory within 24 hours of completion of the maintenance activity. The craft supervisor should be held responsible to these returns and should not sign off on completed PMs or CMs until these items are returned. Consider adding an additional task to the end of PMs and CMs to make this check for returnable items. Note: All parts should be inspected before returning them to inventory, especially on critical items / assets).

Transferring storage locations/bins- this is a common cause of error due to items being relocated in a warehouse with the transaction not being recorded in the inventory system. A good practice is to keep a SIMPLE written transfer log that your back-to-back can double check and that can be referred to in the future, if need be.

Loans to maintenance staff- any item that leaves the warehouse should be recorded in the inventory system and/or daily issue log with no exceptions. The materialsman needs to know that he will be held accountable for anything that leaves his warehouse.

Receipts/Put-aways- timely receipts are key to maintaining inventory accuracy and can cause major variances if not handled promptly and properly. It is recommended that all PO receipts should be recorded with 48 hours of arriving at the facility. This means breaking down crates and boxes, counting line items against packing lists and manifests, recording the receipts in the inventory system, and filing away the hard copy paperwork. If possible, the materialsman should verify every item first before releasing it to the craftsman for use – avoid letting craftsmen pull their own items, no matter how urgent, from shipping containers and crates without the materialsman present.

Cycle counting- it is crucial that all discrepancies noted during a cycle count should be recorded in the inventory system in a timely manner. The OIM and Maintenance Supervisor should be held accountable for timely cycle counts and signing off on adjustments to the inventory, along with the Materialsman. One important note is that frequency of counting items stored outside of lock and key or the main warehouse must be increased (every month or less for critical items).

• As with all transactions, personnel should ensure that they have not “fat fingered” any values into the inventory system which would cause a false recording. On one occasion an employee at a well-known (don’t want to imply they are no longer a client) client errantly entered 1,000,000 boxes of pens during a cycle count, instead of the 100 boxes that were actually there. This caused a variance of almost $3 million USD which resulted in it being included on the executive management reporting for the remainder of the fiscal year.

Returns to vendors- any item that leaves the warehouse should be recorded in the inventory system or daily issue log with no exceptions.

Inter-unit transfers- any item that leaves the warehouse should be recorded in the inventory system or daily issue log with no exceptions. We have seen this frequently where a rig will transfer an item to another rig in the fleet, as a loan, and both rigs forget about or think the other is reordering the item. They usually remember only when the part is needed on the rig that loaned it out which in most cases is too late.

TIP: Any item that leaves the warehouse or moves in the warehouse should be recorded in the inventory system with no exceptions 

Take-away #1: Ensure that all inventory that is moved, stored, consumed, shipped, loaned or returned is recorded in the inventory system ASAP.

Take-away #2: Inexpensive and easy to use technology such as barcode readers can greatly increase inventory accuracy. One great use of this proven technology is on rigs where there is not a night time materials coordinator to validate and record transactions. By providing a barcode reader, the timely and accurate recording of inventory movements can greatly increase.

Take-away #3: Most companies have a procedure for counting all items on an annual basis. That’s a great start, but all items that are not stored in the secured warehouse should be counted more frequently.

Stay Tuned for the next articles in the series on improving Inventory Management.