Stock Audit – the Necessary Evil!

Speak to supply chain professionals and they will have war stories to share about inventory accuracy and audits. Audit of a warehouse is a stressful time for all involved. Be it a third party; the client or the in-house team who is doing the audit, it is not a pleasant experience. Even after the physical process of inventory scan is completed the reconciliation gives nightmares to the best warehouse managers. Pressure from sales teams to minimize disruptions and resume operations as soon as possible adds further fuel to the burning fire.

    What really makes the inventory reconciliations challenging post audit? In our experience, the following are the typical issues:

  • Missing Transactions: Material received or dispatched without recording the entries in the transaction system. We recently heard a story where a multi-national auto ancillary company was showing wrong raw material inventory a week before start of assembly for a new launch for a motor cycle company. Reason? Stock issue from warehouse was not recorded in the system! Seems the problem was grave enough that plant head lost his job.
  • Wrong Dispatches: Wrong items or excess/short have been received/ dispatched. Such incidences are typically higher when some or all of the processes are manual without barcode/RFID scanning.
  • Audit Scanning Errors: Hundreds of locations and places to scan, count, double check.
  • Pending Transactions: Open transactions (e.g. cancelled orders, incomplete GRN, picking/putaway in progress etc.). This is especially challenging when audit process is manual and not driven by a WMS or if WMS is not sophisticated enough to account for open transactions or the integration of WMS with inventory management system does not account for these scenarios

In most warehouses there aren’t any early warnings systems to detect and rectify inventory issues. Post audit, errors pop up suddenly for everyone to view and then it is the beginning of explanations, discussions and other repercussions leading to further loss of organizational productivity.

A high quality WMS is designed not only to simplify the entire audit exercise by automating the reconciliation process but have enough checks and balances like routine system driven cycle count, fill rate markers and not found warnings to initiate preventive actions. In addition, a robust transaction system will ensure scanning and weighing at all stages, data validations and auto data correction to make sure that the issues don’t arise in the first place.

Most critical features for a good WMS from inventory accuracy perspective are:

1. Cycle Count

In simple terms cycle count requires counting a subset of inventory in identified locations every day, day after day. A good system should:

  • Schedule regular cycle counts to cover the entire inventory in a predefined period of time, typically 1 quarter or 1% of inventory everyday
  • Trigger cycle count based on the fill rates and not found rates
  • Ensure cycle count is a perpetual exercise without any impact on routine inbound and outbound operations
  • Require no manual intervention before, during and after cycle count process. Warehouse executive simply needs to execute a scanning task assigned by system and all operations including reconciliation, blocking of relevant inventory/locations should be taken care of by the system.

2. Audit

Inventory audits typically require halting inbound and outbound operations to ensure data accuracy and as such efficiency of the process is extremely critical to minimize disruption. A quality audit system shall:

  • Provide flexibility to complete audit for a specific category, brand or SKU
  • Freeze the transactions at the beginning of the system
  • Factor in dispatch orders at various stages – cancelled, picked, packed, etc.
  • Factor in inbound at various stages – GRN, QC, putaway, etc.
  • Support for global count and validation of the scanned data with global count

3. Transaction System

This is the most-tricky part. Every WMS by definition is supposed to do this and do this well. Before we built our own solution we evaluated several systems available in the market but we discovered most of them do not do justice to the core transaction management platform. A good transaction system should have a high degree of focus on following key aspects:

  • Accessibility: We read somewhere that the best camera is the one that you have it with you when you need it. We guess one can say the something about a WMS in the warehouse! Unless it is extremely easy to record all transactions avoidance of errors is nearly impossible. Ideal WMS should be based on a mobile with hand held or body installed scanners such that the operator always carries it with minimal intrusion.
  • Accountability: Unless you hold people accountable you cannot expect productivity or accuracy. A good system should track every activity in the warehouse along with respective productivity to an individual executing the activity
  • Validations: To err is human but for a system to accept that error is plain dumb. A good system should have a robust checking mechanism to validate order, SKU, article, location, weight, volume, box, USN (if applicable) at every stage; rectify the error wherever possible and halt the transaction wherever not possible to rectify the error

As the companies and supply chains evolve, audit process needs to evolve as well. Our in-house development capability has allowed us to refine our system and processes over years to make inventory audit process hassle free for our clients.

If you have a war story to share or have discovered innovative ways to solve this age old problem or think that we can help you with inventory accuracy issues in your supply chain, please do reach out to us.

At Glaucus, we love exchanging stories on supply chain efficiency and effectiveness!!