The Bee Hive

Cycle counting is the process of verifying the on-hand quantity of a specific number of stock products every day. In previous articles, I have described how to set up and maintain an effective cycle counting program and why this process is usually better than a full physical inventory for maintaining an accurate perpetual inventory in your computer system. But verifying on-hand quantities is only one of the advantages of cycle counting. The other benefit of a cycle counting program is to improve your business processes, including:

• Making sure that all material movement is properly recorded.

• Ensuring that stock receipts are put away in the proper location.

• Verifying that the right quantity of the right item is shipped on outgoing orders or is pulled from stock for an assembly.

• Preventing shrinkage from theft and the mishandling of stocked items.

Process improvement results from carefully analyzing significant stock discrepancies. A discrepancy is the percentage difference between the actual quantity physically counted and the stock level in the computer system at the time of the count:

[Absolute Value of (Quantity Counted – Current Stock Level)] ÷ Current Stock Level

Including the "absolute value" of "Quantity Counted – Current Stock Level" in this equation signifies that a discrepancy should be analyzed if significantly more or less inventory is found during the cycle counting process. For example, assume that a distributor has a cycle count tolerance percentage of 5%.

SCOR is a cross-industry standard for supply chain management and has been developed and endorsed by the Supply-Chain Council (SCC), an independent not-for-profit corporation. The SCC was organized in 1996 by Pittiglio Radin Todd & McGrath (PRTM) and AMR Research, and initially included 69 voluntary member companies. Council membership is now open to all companies and organizations interested in advancing supply chain management practices and technologies.

SCOR is based on five distinct management processes: Plan, Source, Make, Deliver, and Return. Please refer to Figure 1 for an illustration of SCOR and a brief overview of each management process.

Recently, I came across a production manager at a conference and was engaged in a conversation. It was evident to me from the way the manager was talking that he was excited. He thought he had found a way to really enhance the effectiveness and efficiency of his operations that could give his plant a true competitive advantage.

He had just received a mailing sent out by a well-known professional society. The organization had developed numerous benchmarks, along with guidelines on how to implement them. The implications of this mailing were clear: Join us, learn about these benchmarks, implement them, and succeed.

After reviewing the material and asking the manager a few questions about his operations, it become clear to me that applying these benchmarks only would help the manager prevent failure, rather than lead to his ultimate success. A fundamental question was then posed: "Do you want to succeed, or are you simply interested in not failing?"

The goal of warehouse layout design is to optimize your warehousing functions and achieve maximum efficiency and space utilization. A warehouse is typically divided into areas to support your every day processes. These areas include: reserve storage, forward pick, cross docking, shipping, receiving, assembly/special handling lines, and quality/inspection area. Designing a new facility starts with analyzing your current and projected data on the activities in each of these areas, including the receiving, shipping and inventory levels. This data should be supported by other considerations such as process flows, material handling equipment, type and styles of racking equipment, special handling requirements, and personnel.

I am prompted to write this posting as a result of a question I just received from a client colleague. He said there has been some internal dispute between his information systems department (IS) and his materials management people over the definition of on-hand inventory. Materials management, according to him, uses the term to reflect total inventory received and not consumed. Any current inventory, according to them, is therefore "on-hand." He goes on to explain that materials personnel in his firm had been taught that on-hand inventory is inventory that is available for production use. Therefore, it would not include floor stock, also known as work in process (WIP); quality, yet rejected, material; any material on the docks awaiting put-away or testing; or interplant transfer materials.

Here is where I will use the APICS Dictionary, Eleventh Edition that defines on-hand balance as "the quantity shown in the inventory records as being physically in stock."

My colleague asked if they need an updated definition? Or are they doing this incorrectly? They would like to have the MRP system changed to reflect their way of thinking.

With the widespread emergence of standards-based integration technology such as Web services and extensible markup language, service-oriented architecture (SOA) has become the key to interoperability among disparate processes and pieces of software. The current demand for for SOA is motivating forward-thinking solution providers to design applications specifically for reduced complexity, efficient data sharing, and collaboration throughout the supply chain.

Achieving true integration between factory floor and business systems entails a good deal of creative thinking and "what-if" type analysis of your plant's workflow.