Therefore, a company can lose production time if inventories are or become inaccurate.
Keeping the Records Straight
Companies use production systems, such as Enterprise Resource Planning (ERP), to keep track of many changes including daily material transactions.
However, for the production system to provide useful information, the data input to the production system must be accurate and timely.
So, keeping inventory records straight involves three keys areas. They include Transaction Records, Physical Inventory, and Cycle Counting.
Transaction Records
Transaction records consist of all the material transactions that take place every day. Examples of these transactions include purchase order receipts, stock issues to work orders, and work-in-process completions to finished goods inventory (among others).
So, as you can see, it is important that these transactions are accurate and completed in real time otherwise other departments using this information may not make good decisions if the information is not current or correct.
Physical Inventory
A physical inventory is a process whereby a company has personnel ‘physically’ count each of the inventory items, and then matches these inventory counts against what the production system records show. If there are differences, the counts are verified and then a decision is made about an inventory adjustment.
The primary reason for a physical inventory, is to place an accurate value on the inventory. But the physical inventory is also done to check and correct inventory accuracy.
Even so, the downside to a physical inventory is that the facility must be shut down long enough to count all materials. Furthermore, the company asks many different personnel to assist and take ‘counts.’
Many of these folks are unfamiliar with the process and the raw materials. So, it is possible that errors can ‘creep’ back into, instead of being removed from, inventory records.
Cycle Counting
Cycle Inventory, or taking inventories on random items at regular intervals, verifies inventory records.
The basic premise of cycle counting is to identify and eliminate causes of errors, in the day-to-day transactions, and prevent future inventory inaccuracies.
Moreover, cycle counting is handled by personnel familiar with the products and raw materials and can be completed without shutting the facility down.
The Bottom Line
To manufacture products on-time and optimize costs, companies must have the right quantity of material on-hand to meet production plans. This means keeping accurate inventory records. There are three key ways to ensure higher inventory accuracy and these include processing transaction records in a timely and accurate way, taking a physical inventory, and conducting cycle counts.
Related Topics
Transforming Procurement Operations. Today, procurement is expected to bring value to the entire business enterprise. Some organizations have difficulty migrating their legacy processes to more advanced procurement models. For more on this topic, please follow this link.
Process Management. It is important to have ‘effective business processes’ in place. Otherwise, it is very difficult to reach high-performance levels. For more on this topic, please follow this link.
Organizational Structure and Performance. Top performing organizations require structure, culture and resources to produce high performance. Departments designed around four areas achieve high-performance levels. For more on this topic, please follow this link.
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