Article by Nancy Phillippi, Custom Information Services
March 15,
2010
Formula Manufacturers:
Inventory Control Issues A Recipe For Disaster
Most
formula manufacturers that I encounter are
constantly looking at ways to improve their
inventory costs and reliability. Nothing is worse
for them than having a customer order and/or
production ticket ready for staging only to find
that the raw materials are not available.
During my review of business
processes for prospects many times the Material
Planner/Purchasing Manager is doing a visual review
of the raw materials in the warehouse to verify
inventory quantities to either complete purchase
orders or create the production schedule. They
don’t trust their ’system’ numbers. Raw material
inventory integrity is often one of the biggest
problems that I encounter with prospects.
There could be many reasons why
inventory control is such a pervasive problem:
- The use of separate accounting/financial
systems for the inventory and manufacturing
systems. Raw materials are ordered on one system
and manually updated in another system.
- The purchase receipts are not completed in a
timely and correct manner. Raw material is
received at the wrong cost or wrong quantity.
Human error. By the time the vendor invoice
arrives the raw material has been consumed.
- Raw material quantities are purchased on one
unit of measure but consumed in another unit of
measure with incorrect conversion methods.
- Quality control is not tracked therefore
inferior materials are hitting production
causing production to use more than the formula
or batch ticket calls for. Production is not
recording actual.
- Not inputting quantities used for production
or staging in a timely manner to relieve raw
material inventory. Not having a work in
process (wip) of the manufacturing process takes
several steps and time.
- Cycle counting is not in place. Physical
inventories occur once a year. Once a year is
pretty extreme! Some companies complete this
task once a month due to poor inventory
controls.
The majority of the companies I
encounter with these problems are using two or more
systems to manage their business. Sometimes one or
more of the business tools is a spreadsheet. I have
nothing against spreadsheets as long as they
actually tie back to a database that is driven by
real transactions. One system for accounting and
one system for manufacturing makes no business
sense to me. This use of disparate systems can
cause many problems; one being inventory control.
If you are selling out of one system and
manufacturing in another how do you know what your
demand is for production? Is someone taking the
sales orders and then filling out a
production schedule?Then someone is updating one
system with the finished goods to ship and invoice…
I have to enter vendor invoices into the accounting
system to cut checks, but I am purchasing in another
system… Confusing? This scenario demands a lot of
manpower just to function on a day to day basis.
These problems of course point to
operational and personnel issues, but they also
point out to the need for an integrated financial
and manufacturing system that is inherently designed
to track items 1 – 6 and more. A production and
material planner should not be spending his days
looking for raw material in your warehouse; he
should be on the phone getting you the best price
available for the items. He should be able to feel
confident that your system data is accurate and so
should you.
If you care to comment on the
information above or have any questions please feel
free to contact me at 817-640-0016 x 109 or by
emailing me at nphillippi@customis.com.
By Custom Information Services -
Dynamics reseller
in Dallas, Fort Worth Texas. |
