In the past I’ve talked about the need to reconcile your parts inventory (PAD) with the general ledger (GL), but we didn’t get into the “what to do” when they don’t match up. One of the most common problems comes from an inventory that is so out of place, you really don’t know what you’ve got until you take a full physical inventory, which is expensive and time consuming.
Location, location, location…
As the title of this article states, you can’t sell something you can’t find. One of the most pervasive problems in a parts department is that parts are not where they’re supposed to be. Why is this an issue?First of all, even if the part is found, there is time wasted finding it.
Both for parts personnel and technicians whose clock is ticking away while they wait. This can be a substantial contributor to lost workshop output.
- It’s embarrassing to tell a customer “come on down and pick it up” when the DMS says you have one, but it can’t be located when they get there.
- It’s expensive when another part has to be special ordered because the original can’t be found, only to be located at a later time.
Studies have shown that approximately 3% of all parts are put away incorrectly, on a daily basis. At that rate it doesn’t take long for multiple parts to be hiding from you very quickly. This is largely a function of human error and happens to the best of us (think of your sock drawer). Have you ever noticed that right after the annual physical inventory everyone trusts the DMS count and location, but a few months down the road they start to verify the part before progressing with the sale. This is the reason why. To make matters worse, the majority of stocking part numbers have a best stocking level (BSL) of one piece, so if it can’t be found there isn’t another to fall back on.
Like most things in this business there’s more than one way to fix this. The common answer is “wait until we do our annual physical and we’ll find them all when we clean up our bin locations”. This turns into a monumental task in a large store. Just consider the ramifications of a 3% error rate times 225 business days, times 10,000 part numbers! It’s a mess that takes a week or more to correct with lots of overtime and infighting among the inmates who initially put them away incorrectly. Then, guess what, it starts all over again so that this time next year you go through this all again. Does this sound familiar?
The alternative is to conduct a daily perpetual inventory (DPI), which means constant bin counts and making corrections to avoid the above issues of delays and lost parts. If done correctly, you can even prolong or avoid the expensive annual physical. Following are the basic elements of a good DPI:
- Bins are counted every day. That’s why it’s called daily perpetual inventory. You count enough so that the entire population of parts is counted between three and four times annually. You can count bins, or drawers, or even sheds and floor locations, but the point here is to count everything, not just a sample.
- Blind counts are best for accuracy. Many dealers print out a list of the bin’s contents and have someone verify it. That’s all well and good until someone is in a hurry and just checks the parts off to get the task done. You’re better off printing a list of part numbers assigned to that bin with no counts and letting the counter tell you what they find. In this way you know what’s really there and can also pick up inactive part numbers that appear in that location. It’s also important that the counter is not the one who verifies the bin count to the PAD. This ensures accuracy.
- Have a plan. Set up a map or planogram of the entire warehouse, and don’t forget the boutique if you have one. Check off the bins as you go along to be sure you’ve done them all.
- Make adjustments a day or two after the initial count to allow time for work in process to filter through. Check receipts before making large adjustments to be sure they were accurate, otherwise you could be creating a variance with the GL. If the parts are really missing, a corresponding entry to the GL must be made to keep it in balance with the PAD.
- Count special order bins monthly. These bins have the most activity of all and are the most likely to have problems.
- Try to do the counts at a time of the day when there is little or no activity in the bins. The end of the day usually works best since most picks are done by then and receipts have been put away.
- Everyone counts every day, except for the person who verifies the counts. Figure out how many locations need to be counted and divide them up by the days in the counting cycle and the number of counters available.
Done correctly you may be able eliminate the dreaded and expensive annual physical inventory, comfortable in the knowledge that instead of knowing where and what you actually have once a year, you have that information every day. Believe me, it’s a comforting thought.