Inventory: Never Give Up, Never Surrender

Inventory is simple. It involves the simple processes of receiving specific items, selling specific items and counting specific items. How is it that this simple process with specific items lends itself to so much inaccuracy and confusion? Many of our clients ask the same question, and after many years of dealing with incorrect inventory counts and multiple systems related inventory issues, I have determined a couple of reasons for the inventory dilemma.

There are two contributing factors to incorrect inventory: human error and organizational error. The issue is not that we don’t know about this, but that we refuse to admit to ourselves that we as employers are the problem, or worse, that the procedures we have set as an organization either don’t work or are being ignored by our highly trained staff.

Organizational Error

As much as we would like to believe that our company’s inventory control procedures are simple, clear and easy to follow, many of them are open to interpretation and lack consequences for failure to follow them. Organizational error is evident in the attitude the organization has towards inventory. We have had clients that simply gave up and decided since inventory was never right anyway, they just wouldn’t track it at all anymore. Management decided that the value of the time spent tracking inventory and identifying the cause of inventory errors wasn’t high enough to justify the costs of additional controls. Conversely, we have had clients put their inventory in a company lockdown to the detriment of sales and customer service.

Organizational controls need to be clear and effective, and reflect a healthy organizational attitude towards inventory. Controls need to be trained, monitored and revised as needed to reflect the importance of inventory controls at all levels of the organization. All levels of the organization need to buy in to inventory controls with no exceptions. If an employee sees a manager making an exception, they are going to make an exception for themselves as well.

I’ll be the first to admit that, as a manager, I have bypassed inventory control procedures under the guise of providing “great customer service.” I made the customer happy because I got them what they wanted quickly, but I also created two inventory problems. First, I gave the customer an item that hadn’t been received, and inventory was instantly incorrect. Second, I had staff see me make the exception, and they in turn believed this behavior was acceptable as long as the customer was happy. Not only was current inventory incorrect, I had inadvertently created multiple inventory problems well into the future. I was I able to change the staff’s attitudes towards inventory only by admitting to making a mistake, taking responsibility for my error in judgment and clearly stating that this will never happen again.

Human Error

The majority of inventory discrepancies can be directly traced to human error. I am always amazed how two different people can count the same rack of inventory and come up with completely different results. I truly believe that there are personality types that are just better at inventory control. Managers need to identify the staff that are good at inventory control and give them the responsibility. They also need to stop assigning inventory tasks to those that are incapable of doing a complete and accurate job.

It would be easy to attribute human error to laziness. However, I don’t believe this is the case. In most cases, people aren’t lazy or careless because they want to be, they just don’t have an incentive to try harder. In addition to assigning the right type of person to inventory control, it is also important to develop measurement standards for accuracy. Distractions, interruptions, poor training and lack of accountability could all result in poor inventory control. Examples that come to mind are:

• Counting what is on the Cycle Count Sheet, rather than what is actually in stock.
• Failure to look in all areas that the inventory could be stored.
• With similar packaging, it is easy to count the quantity but not verify the items themselves.
• Making simple quantity entry errors in the receiving or sales invoicing process.
• Failure to point out discrepancies and find solutions to issues as they occur.
• Assuming someone else will notice it during a count and take care of it later.
• Making estimates based on a quick review rather than taking the time to do an actual count.

If an employee makes an error, it is important that they see the impact of that error on the rest of the organization. We once had an employee that would override serial numbers on sales transactions if they did not find the correct serial number available to them. Even though they were told numerous times that this was difficult to fix, they didn’t change their behavior until they were forced to work through the time consuming adjustment process with the accounting department.

Solid inventory control is possible. It truly is a set of simple processes, dealing with specific items that need to been accounted for in a clear and simple way. Make positive attitudes towards inventory control an organizational priority. Management needs to lead by example, assign the right staff to the task and make changes to inventory procedures immediately when issues are discovered. While your inventory may not ever be exact, it can be manageable. With inventory, attitude is everything.

In the words of Commander Taggert of Galaxy Quest, “Never give up! Never surrender!"