Case Study: How To Increase Your Inventory Accuracy by 50% or more... No kidding.
Dear reader ,
OK, let's get back on track...
This week, I'd like to demonstrate the power and ability of the two previous concepts which we discussed. Let's quickly recap:
· The Definition of "System": A system is a group of components organized is such a way as to create specific and measurable results on an on-going basis. This definition is an extremely effective way of maximizing a company's resources, achieving consistent system results, and minimizing expenses associated with systems.
· The Components of a "System": In addition to hardware and software, a system can also be composed of environmental, process oriented and people oriented components. Holistically speaking, a system's results are determined by how effectively a system's components are integrated.
I can't emphasize enough how important these two distinctions are in effectively implementing, and optimizing systems. Instead of laboring the points, let me describe my use of these concepts by using a straightforward case study to illustrate their power in achieving the results you want.
The Case Study:
A few years ago, I was presented a challenge. A prospect had heard me speak on these very concepts in a seminar workshop and asked that I come and see them.
This $20+ million company makes very high quality, high-end retail display furniture (cabinets, shelving, stuff like that) for the retail industry. Department stores like Nordstrom's and Kohl's. They had 40+ craftsmen working production. (Beware: In the woodworking industry you do not refer to these folks as production workers. These people are craftsmen or carpenters. Make no mistake.)
They also had a pretty big inventory problem. On around $4,000,000 of on hand inventory, they had an unbelievable...
45% Inventory Accuracy!
Which obviously is really bad. To make matters more challenging / difficult for me, this company had invested heavily in technology. They had all the hardware and software they could use. But they just couldn't figure out why they couldn't improve their inventory accuracy using it. They said in essence "Rick, we have all the hardware and software we need. We don't want any more of it." (Kind of a hard thing for a systems integrator to hear. Darn... No sale today!) "The reason you are here, is because we like what you said in your seminar and we would like you to fix our inventory accuracy problem."
So, under the understanding that I positively couldn't modify or enhance their hardware or software to solve this problem (which is like tying my hands behind my back) I agreed to help them. What can I say? I like challenges...
So armed with this basic information, they assembled a top-flight team of about 8 people to help me do a discovery process. We spent the first meeting talking about results, strategies and objectives. Overall, they wanted 97% inventory accuracy. They were pretty specific about the goals they wanted to achieve.
Howard, My Buddy...
Then while we were discussing potential opportunities, at one point, Howard, the foreman for all the craftsmen, said in a rather defiant tone (with the requisite arms folded in front of his chest):
"Rick, I know what you are going to do... You are going to make my craftsmen use those little handheld computers to enter the inventory that they use against a job instead of us filling out our green tickets. You are a systems guy, and I know that's exactly what will end up happening. You can't fool me. I'll be watching you..."
"Rick, and just remember this: Rabbits like to run. Rabbits like to run. We are craftsmen and our job is to build things, not do data entry. Rabbits like to run, Rick. Rabbits like to run..."
I said, (being respectful, and admittedly somewhat influenced / intimidated) "Howard. I got it. Rabbits like to run."
So with the information gleaned in the team meeting, I then spent the next three days out on the plant floor and in the inventory area working shoulder to shoulder with the craftsmen.
Here's the basic process: 1) Craftsmen get a work order and associated blueprints. 2) As he works, the Craftsmen fetches his own material from inventory. 3) As inventory is fetched/used against the job, he fills out a "green ticket" which tallies the inventory item #s and quantities used against the job. 4) At end of the shift, the tickets are entered by a data entry person into the computer.
Here's the thing I saw which totally made the difference in my mindset. When I saw how the green tickets' quantities were being filled out, I chuckled to myself. Let me ask YOU a question... How many is this:
You can probably guess the answer. If you're a craftsmen, the answer is three. If you're a data entry person, the answer is one hundred and eleven. (It became rather obvious how they had 45% inventory accuracy.) Now I knew one thing, Howard was onto something, his people were not computer, or for that matter, paperwork oriented. They had no accountability regarding: 1) Accurate paperwork, and 2) Accurate inventory. Expecting them to fill out inventory paperwork accurately was totally out of the question in my mind. I now saw my job - how do I get this inventory tracking process OUT of the hands of the craftsmen. My wheels started to turn...
A Possible Strategy...
At the next team meeting, I discussed my finding and proposed this to Howard and the team. Here was the conversation:
Rick: "Howard, you are right, Rabbits DO like to run! And under that assumption, I propose that we assign material handlers to: 1) Be accountable for accurately filling out the inventory usage (i.e. green tickets) 2) Be accountable for the accuracy and integrity of the inventory 3) Fetching the inventory on behalf of the craftsmen. Then we let the craftsmen do what they do best... Build stuff."
Howard: "Rick, that will never work. You have to know how to build cabinets in order to fetch the inventory. This means you must be a craftsmen to be a material handler."
Rick: "Howard, I don't get it. If you give a material handler a list of item #s, quantities and locations to fetch the materials from, why does that require the intelligence and skill of a craftsmen?"
Howard couldn't give me an answer which I could appreciate, so I suggested that we prototype the process for a week and then evaluate the results after that. He reluctantly agreed.
At the end of the week, I had a conversation with Howard which went something like this:
Rick: "What do think Howard?"
Howard: "Rick, you can't take that guy (the material handler) away from me. That guy just added 15% productivity to my seven craftsmen each which I assigned him to. Plus, there is a definite improvement in the accuracy of our inventory. If we rolled this strategy out, assigning one material handler for every seven craftsmen, I can see our accuracy shooting straight up and at minimal overhead!"
Howard was pretty excited. And so was I! A 15% boost in productivity plus a substantial increase in inventory accuracy (again, without touching the hardware and software) is pretty good work.
Now I did some other things such as segregating raw inventory from WIP and from finished goods inventory, labeling, item identification and focused on inventory counting. By far the greatest improvements came from adjusting/modifying the people and procedural components. Within about five months they had reached they're goal of 97% inventory accuracy.
Pretty, darn, cool.
So let's recap, analyze and spell out exactly why we were successful.
· I realized the problem was a question of accountability / responsibility. A people thing. The craftsmen were predominantly accountable for production. It was clear from the very start--- "Rabbits like to run" as Howard said. (He unknowingly gave me the key to success right up front and I was perceptive enough to "connect the dots" and naïve enough to trust his insight.)
· The Craftsmen had no commitment to inventory accuracy or accurate paperwork, even though it was in the best interest to do so. (Please understand, I am not criticizing when I say this. A person's got to have his priorities, and I can appreciate the priorities of production... Errrr, Craftsmen.)
· Now I know, if they were forced to, by management, they'd make an attempt to do paperwork and such, but let's face it--Their heart wouldn't be in it. So what do you think the quality/accuracy would be? As I told Howard afterward "Now that I understand this, there'd be NO WAY, I'd let them have a handheld computer now that I know what's most important to them." (He was happy to hear that!)
· Not only did I have to figure out who else could be accountable for the paperwork, I also had to figure out how to prohibit the craftsmen from entering the inventory area and taking things which they wouldn't document. Since the craftsmen were fetching their own material, and I saw this to be the long term bigger problem, again because of the lack of caring about inventory accuracy.
· Once I knew the two problems, I started conceptually playing with who is or could be accountable. I thought they would highly benefit from having dedicated material handlers, to fill out paperwork accurately AND fetch the material. Even though the overhead was going to be something I would definitely have to justify.
· It was really great that we got the craftsmen's productivity improvement of that 15% percentage. I could bet on it from watching and helping the craftsmen for three days. I knew I was onto something when they started asking when I was coming back to help them. Especially because I suck at most hard labor effort. (Including cutting my lawn. Who knows? Maybe I made them laugh...)
· I kept incrementally optimizing/reworking the systems' components until I could see the inventory accuracy increasing month by month. To be honest, there were some things which didn't work, but that goes hand in hand with trying stuff and incrementally optimizing the system's components and functionality.
Oh yeah, one last thing and it is important: Remember when Howard told me only craftsmen were smart enough to fetch their inventory? Want to know why? Here's what I discovered: The craftsmen were too smart. That's right. You see, when they got the work order from planning, they KNEW it was wrong. It had wrong item numbers associated with it.
So to save time, they would pull the right items from inventory, and write the work order's specified (old) item #s on the green tickets. Yeah, I know it was a mistake, but they didn't. They were just trying to help by pulling the right inventory. They didn't realize how important item numbers are in an inventory system. Once I found that out, I had the Planning department go back and re-update their bills of material to be accurate. Again this is not a hardware or software problem, but a people or procedural problem.
Now looking back, could I have given the craftsmen hand held computers to fix the problem? Yeah, and it might have worked too because of the procedural discipline which technology imposes. But I submit my "non technology" strategy was a more balanced, simple and elegant solution long term.
So maybe you can insightfully "connect the dots" and also understand why I'm writing about this particular case study, where I was prohibited from modifying the hardware and software: With most strategic IT projects stalled/suspended for economic reasons, I believe with all my heart there are massive productivity gains and profits to be harvested by optimizing the non-technology components.
My belief is that just because you don't have IT money budgeted is no reason in my book to play a "waiting game". You have lots, if not tons of opportunities. Plus, the conceptual tools I have just given you, give you a very flexible platform to be able to engineer/optimize any business system.
Try it, ok? Just pick-up something small and rather inconsequential area to test my ideas. If/When they perform for you, you can get more aggressive, more expansive, more creative and more deliberate in your approach.
I wish you the best of success in your systems and optimization endeavors. See you next week...
© 2002 Rick Duris. All Rights Reserved.
For Additional information or to get Rick working with your company call Rainmakers at 847/251-3327