Last week we mentioned Gordon Graham , the father of modern Inventory Management, and talked about one of Charles J Bodenstab's Tools and Rules for Inventory Management. We had the good fortune to catch the eye of inventory management specialist Jon Schreibfeder of effectiveinventory.com who has offered to do a piece for us on some of the more advanced inventory challenges facing food distributors. We'll continue working our way up to speed coming through the basics and look forward to his insight in two to three weeks. This week we review and recap the remaining Tools and Rules Charles set forth. It is important to understand that very little technology needs to be implemented to follow these "rules". Charlies last statement is the best "Keeping data entry accurate should be a 'condition of employment' in any company today."
"These tools and rules are crucial for inventory control...a number of tools that seem to be habitually misused and with rules that seem to be habitually violated by many distributors, and which - given a bit of attention - can yield significant benefits...This is not high tech stuff."
- Charles J Bodenstab
Let's take a look at the hit list.
- Utilize an Authorized Stock List
- Ruthlessly Eliminate Slow Moving Product
- Master Managing Order Frequency
- Be Prudent with the Initial Order of New Items
- Avoid Other People's Problems
- Enforce Housekeeping
- Be Disciplined with Information and Data (Sales and On-hand Balances)
We talked about the Authorized Stock List in Issue 271 last week and we covered eliminating Slow Moving Product back in Issue 124. Housekeeping is the rule that everyone comes up with excuses for breaking even though 25% of your miss-picks can be attributed to housekeeping problems (Issue 130) along with countless hours of lost time and increased risk of employee injury and inventory shrink.
I'm going to lump Initial Order of New Items and Other People's Problems together, because they deal with the same basic rule...stick to your ordering policy. When you're experimenting with a new product or when you see the opportunity to grab what looks to be a "great deal" you need to be very cautious. When bringing in new product order the barest minimum and then let your sales history on those products guide your purchasing, when you see the opportunity to make a "good buy" be very aware of the increased carrying cost that's going to come with it and the risk of picking up items that will become slow movers. We're going to be looking at developing what that ordering policy will be over the next few newsletters.
This leaves us with the topic for today Disciplined Information and Data, and the topic for next week Order Frequency.
Discipline: Control obtained by enforcing compliance or order or Punishment intended to correct or train.
Read the definition above and lock it into your mind, understand that if you are not enforcing compliance and do not have a system in place to "punish" bad data then you do not have a disciplined approach to your information and data. Charles gives the following example to illustrate how people learn to manage even extremely complex systems so long as they are disciplined.
"There is a device that requires the operator to input seven or more digits in an exact sequence with absolutely no errors. Yet this device is operated by our youngest citizens at an extremely early age, and with virtually no difficulty. This device is the telephone.
The reason children learn this task rapidly and accurately is that the system provides immediate reward or punishment in its use. Dial correctly, and you are rewarded by reaching your party. Dial incorrectly, and you get a punitive mechanical sound or someone you don't know."
What is missing in most systems is that immediate feedback between correct use and misuse in most food distributors information and data management policies. Charles breaks this down into two main sections:
- Sales Data: Generally the more accurate of the pair. Sales data often flows from invoicing which is watched by the customer and later by your bookkeeping/accounting staff. The trouble here is that it is easy to get lazy and assume that any errors are going to get "cleaned up" when the sales reset at the beginning of each month or to fall prey to "after the fact" sales adjustments (returns, credit memos, or adjustments that are not recorded into your sales reporting).
- On-Hand Balances: Generally the mess. Most food distributors will rely on tracking inventory coming in the door via Vendor statements, and tracking inventory out the door by invoicing and doing physical counts (cycle counting) to catch shrink. Others have given up on this method and rely solely on physical counts. Potential concerns range from physical miss-picks to typographical errors 90% of the things that can go wrong in a warehouse are going to mess up your on-hand balances.
So what can you do to become disciplined? You must put in place policies and systems that provide positive or negative feedback as immediately as possible. "The key is that everyone in the organization must be committed." says Charles. We spoke to creating the positive feedback in our series on Employee incentives Issues 76, 77, 78, and 79 . As for the negative feedback Charles urges that "Keeping data entry accurate should be a 'condition of employment' in any company today."
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