Introduction
Peter Drucker, the foremost author and expert on
enterprise and self-management, and one whom I am sure everyone reading this has
probably heard of, stated, “We know little more about distribution today than
Napoleon’s contemporaries knew about the interior of Africa.” I found out just
how true this was when I was gathering information for this article. I began by
searching to see what other experts had to say about maintaining an accurate
inventory. About one week after beginning my search, I was no closer than when I
started, so I decided to talk to people in the industry and ask them three
simple questions:
- What
are your currently doing to maintain the accuracy of your
inventory?
- Is what you are
currently doing working?
- If what you are
currently doing is not working then why haven't you changed?
You know
what the interesting thing was? Everyone answered number 1 and number 2, but
when it came to number 3, I ended up right back where I started: scratching my
head and saying, “I can’t believe since inventory is one of an organization’s
greatest asset, why do most companies do so little to maintain
it?”
There
are some interesting things about inventory that I am sure everyone knows, but
before I get to the nineteen steps I’m going to reiterate some key points about
inventory.
- Distribution inventory values range between 6 percent and 20
percent of the company’s annual revenue.
- An inaccurate
inventory causes several problems: lost sales, decreases in profitability, and
lost productivity from searching for products.
- Companies use
inventory as a security blanket to cover deficiencies in their warehouse.
Given
all of this, the only thing you really need to know is that it takes $2,500 in
new sales to make up $100 in lost inventory, assuming a 4 percent return. I
don’t think I am the only one in our industry who knows this, but if I am not,
then why are so few people talking about how to control the accuracy of their
inventory? Think about how much having an inaccurate inventory costing you and
your organization.
Again,
your inventory is one of the biggest, if not the largest investment you
have in your company. The only thing that comes close to it is your people. But
you know what I have learned over the years? People do what you inspect
and not what you expect! Most leaders expect their people to know why inventory
accuracy is important to the company, and it is with this assumption where the
problems begin. It is also where I am going to begin the first
step.
Step 1: Set Goals.
I know
this is a sore subject for most business leaders because they feel goals in the
warehouse is an oxymoron. However, I am not saying that by completing this
article today you will have 100 percent accuracy on your next physical. It takes
time for your warehouse personnel to internalize your warehouse goals. What I am
saying is that to do this, you need to determine how many
- inventory adjustments your warehouse makes on a daily
basis
- stock-outs you
have on a daily basis
- backorders you
have because the inventory was inaccurate
- items that were
wrong during your last physical
From
those numbers, you need to determine what will be acceptable and then you need
to implement the remaining eighteen steps to get to that level of acceptability.
I guarantee every department in your organization has goals except for your
warehouse. Why is that? You know what Michelangelo said: “The greatest danger is
not that our aim is too high and we miss it, but that it is too low and we reach
it.” You need to address your inventory issues by aiming higher than you have in
the past.
