Inventory Management 305

The traditional cycle-count program designed to verify the balance of each item based primarily upon time and value-based criteria is not rational in a manufacturing environment that contains either high mix, low volume or a JIT flow. Focusing on transaction activity is an action program that challenges the conventional wisdom, getting stockroom people involved, using current trans­actions as the "driver." With the program only in its second year, this approach brings record accuracy to the levels needed to assure auditors that it is appropriate to eliminate the annual physical inventory.

Operating in a fast changing marketplace. Fighting off domestic and serious foreign competition, in the perception of quality manufactured products and pricing, we embarked on a program modernizing the factory to stay competitive. Other serious issues involved inventory accuracy reported at an 82% level (a widely disputed number; conditions reflected a much lower level).

The traditional approach to this problem in the early 80's had been to upgrade technology, hire people and in general throw large amounts of money at the problems poking out among the clouds. Management's edict, "implement a cycle-count program," was only a partial solution. Resources were limited. The traditional approach was not feasible.

The traditional inventory accuracy level of 95% was the target to shoot for with the ultimate objective of eliminating the yearly annual inventory. The prime reason for correcting the recordkeep-ing activity was to eliminate the knee-jerk activities created by unexpected inventory adjustments. We introduced a new meas­urement of how many line items on a final assembly kit pull were not filled as a result of inventory adjustments. The traditional staging material to identify shortages was very much a part of the existing procedures. The planner could not rely upon their time-phased allocation status to know where they were.

The scheduling rules were changing. Instead of building large lots once a month, in final assembly, we dedicated assembly lines to run the same family of products every day, sometimes changing over three or four times in a day. The large lot sizes of demand at the 01 level disappeared, creating pressure on the stockroom; one inventory adjustment a month translated into as many as ten potential adjustments. The inability of the planner to rely upon the planning information was causing the use of safety stock and safety time, inflating inventories already bulging as a result of internal hedging.

Expense control was as important as ever. No one was going to give us a blank check and allow money and resources to be blindly thrown at a problem. The traditional cycle-counting way to accuracy was not going to happen.

Strong competition was forcing us to look at every aspect of our business for improvement. We were a leader in the industrial professional market, but competitors were threatening us and,

because of their sheer size, could dominate our market should we fail to improve in all aspects of the business.

Knowing that resources were limited, we looked to different approaches to the solution. Conventional cycle-count wisdom states that "the basic concept of cycle counting is to count selected items in inventory each day until all items have been counted at least once during the year." To accomplish this consumes the following resources (see Table 1).

298 man-days amounted to almost 9% of the total labor available in the Stockroom and Receiving departments. It was intuitively felt that at least half of this effort would be expended merely chasing the "locations counted" rather than focusing on the prime objective, that of correcting the cause of errors. While strongly believing in cycle-count programs, counting everything once a year should be secondary to utilizing the program as a tool to root out the underlying causes of record inaccuracy to correct the problems. In the rush to meet the auditor's guidelines, problem identification often takes the backseat and cycle-count programs revert to simply adding counts to improve record accuracy.

We were not in a position to hire additional people or to divert over a full headcount worth of time in this direction. Even though the benefits were obvious, the short-term constraints dictated the action.

To be Continued

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Supply Chain Inventory Management  Total Quality Management Principles
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