Automating Inventory Control - Part 2
Phase II - Look Back At Your BusinessLast month I wrote about the beginning phases of automation. Now comes the most laborious, tedious and critical task - looking back at your business' sales history. For those of you without an inventory control solution this will take some time, but it will be one of the most revealing aspects of this entire process. By looking back at your business, we will accomplish three steps:
- Load your inventory into your system.
- Perform an inventory count.
- Determine critical information for your automated solution.
Here we go. First, after you have your inventory control system (hardware and software), you will need to load in your inventory. Don't fret - there are normally some good, lazy ways to make this a lot faster.
First, call your suppliers and ask for an electronic listing of their items with your purchase prices. The reason we are asking for this is so we can have the inventory control program import your supplier's inventory listing. Specifically, check with your software company to see what data format they recommend. Fair warning, the sales rep at the counter, in all odds, cannot tell you if he can get a file for you. You will need to talk to the purchasing rep.
Second, after you have imported the files from your vendors, print out a list of all the inventory items. List in hand, start counting your inventory. I suggest you do this during a slow period when you can close the stockroom and adjust your count for any "sudden withdrawals." Once you are done, load the data into your system.
For vehicles, I suggest first building a basic vehicle inventory package from the stockroom inventory. You should have a rough idea of what each vehicle should have as a minimum.
Now, in the inventory control system, transfer the basic package from the stockroom to the vehicle, which had electronically nothing in stock. Then, go to your tech's van, take a deep breath and have him dump out all of his inventory into a pile (be ready for a few surprises). Then have him load the basic package into his van. When he asks to take something out of the pile, the answer is NO unless it is needed for a job that day.
Your next task is to add the items in the pile to your existing inventory count. Repeat this process for every vehicle. From now on, when your techs need an item, electronically transfer it to their vehicle first, then give them the item.
I suggest having a tech sign for the inventory in the vehicle, especially if he has his own vehicle. You may want to talk
to a lawyer who specializes in employment law about what the document can and cannot state.
The DrudgeryDig out all of your purchase orders and invoices from the past year. You want to end up with a chart that looks like the one in Figure 1. This chart will tell you a lot of information about your business.
If you can sort it by the amount sold, you have what is called a Quantity Leaders Report. If you multiply the amount sold for each item by the item's profit, you have a Profit Leaders Report. These two are critical to managing your purchasing and business.
Every inventory control system should have two data fields for every item - minimum and maximum. Respectively, this is what you always want to keep on hand, and you never want to go over the maximum. To figure those two numbers out from the chart, divide the # Purchased and # Sold by the number of months of historical data you are looking at. #Purchased divided by number of months is your maximum, while # Sold divided by number of months is your minimum inventory level for that item.
For those with an automated solution in place, run the reports in your software that will give you that same data, and figure your minimum and maximum levels. This process should be done annually.
The last step of looking back is to run the Quantity Leader Report monthly, if not weekly. Create a folder to put the reports in and look for trends in what is selling the most and bringing you the most profit.
Based on this info, push the dying stock via discounts, maintenance agreements or resell, but get it off your shelves
before you have a paperweight. On the other side of the coin, ratchet up the sales push on the most profitable items to
bring in even more money.
Phase III - Implement & Change Your ProcessesIf you think the last phase was tough, get ready - you're about to be thrown into the fire.
Implementing an inventory control solution requires 100 percent commitment from every person on your staff. In the computing profession there is an old adage that goes, "Garbage in, garbage out." Your inventory control solution will only be as accurate as what data is put in. Or, just as equally, your inventory control solution will be inaccurate in proportion to what data is not put in. What do I mean? If your tech says he sold two widgets but only sold one, either an item has wandered from inventory or he simply miscounted, which means your count is off. The flip side of this is when your tech forgets to list an item used in an invoice.
Getting your techs to change is easy É OK, stop laughing. In the inventory control process, this is the phase that has the greatest chance to cripple the implementation process because your techs don't like change (no matter how enthusiastic you are). The other issue is simply a matter of habit. They have been trained in the old way of doing things and now you are changing what they know. How do you overcome this major hurdle? Here are a few practical suggestions:
- Be Patient. Remember it takes up to 30 days to change a habit. For stubborn people like me, it can take 90. You will quickly know who will adapt the quickest and who will be your laggards. Again, be patient.
- Be Consistent. People want to know what the boundaries are. The strong-willed ones want to know even more. So once you set a course and decide on how to implement locally, don't change or you'll have to start the 30 days all over again.
- Reward Your Techs. Announce a recognition program when you implement the inventory control solution to motivate your techs to handle their inventory properly. For example, after you have gone through the last phase, you should have an accounting of what is in their vehicles. Run an inventory listing of what should be in their vans.
On a Thursday afternoon, have one of them back his van up to the shop and begin an inventory check. He pulls and you count. (By the way, before you do this, be prepared - your techs will catch you or your staff if you make a mistake somewhere in process.)
This should take no more than two hours. Grade his inventory check and put it in his personnel file after he signs it. If he has a 100 percent check, give him Friday or a day of his choice off! Make sure the whole company knows, too. Think of how much money that tech is saving you by doing his inventory control properly.
Over the course of a year, a few days off is chump change in comparison. This example can be applied to your purchasing and receiving person also.
- Discipline. Did you catch that I suggested putting the graded inventory control list in the tech's personnel file? I hate to say it, but I have seen businesses fail to implement inventory control because they didn't want to fire someone who simply refused to get with the show. By keeping your lists, you are building a history of neglect and disobedience to company policies that will stand up in a court of law.
- "Blame The Computer," as Connie Everett of Quality Software Training says. As you move to an inventory-centristic system, the computer, in the end, does drive the solution. Fair warning from a computer technician's point of view, this line will only last so long.
Phase IV - Adjust & RestartLike last month's diagram showed, the implementation of an inventory control solution is a living, breathing process within your business. In order to truly keep your inventory control solution going, you need to go back through the cycle continually. This is the introspective, "how's it going" phase when you look back over the past three phases for possible areas of improvement - things that worked well, and what you want to implement on the next cycle. What can you expect as you continue to go through this cycle?
For starters, it will get easier. The yearly inventory can be done in a few hours versus days, and with the help of a portable data terminal, you can simply "hot synch" the portable data terminal with your main system for any stock variances. And you will be able to decide what products to order and how many of each based on solid data versus your best guess.
The automate phase will become "Automation Enhancements" as you implement palmtop computers, wireless inventory control tools and improved software. The implementation phase will become the "way things are done" in your business and eventually only the newbies will have to be educated.
As I alluded to, this is a long process, but well worth it for the financial welfare of your business.