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The most common concern supply chain management experts struggle with is accurately identifying the causes of inventory inconsistencies. If a discrepancy is identified when users pick an item or perform a count, an inventory correction needs to be performed.
Every inventory issue has a specific method that can be adopted to resolve it. Start by determining the most likely or easiest-to-identify possibilities and either proving them or eliminating them from the list of root causes. This part of the process first requires confirming the calculations. Perform a recount of the inventory in question, preferably by someone who was not involved in the initial count.
There are several cycle counting approaches available in OptiProERP, but the ABC classification method is most common. ABC analysis strategy is used to classify data into three categories based on the values of the target measured in descending order.
This strategy is used to classify products based on a particular measure (such as value or lead time). It is based on an assumption that inventories of an organization are not of equal value, and can be grouped into three categories (A, B, and C) by their estimated value/importance. “A” items are very important for an organization, “B” items are of medium importance and “C” items are of the least importance.
An example of ABC classification is as follows:
“A” items are also generally those with a long purchase lead time, “B” items have an average lead time, “C” items are readily available.
You are not restricted to just three groups. You can have more, but too many will complicate your analysis and cycle counting routines.
OptiProERP’s manufacturing ERP has a number of dashboards and tools to perform the analysis of your inventory to define the appropriate ABC classifications for you.
Once the items are classified as “A”, “B” and “C”, the cycle counts need to be established for these groups of items. In OptiProERP, an effective cycle counting program deploying the ABC method contains two critical drivers:
Now, take a step back from the most basic guidelines, and consider the following questions:
Before you can fully understand your inventory and initiate measures to optimize your business, you may have to do some digging. Only then can you implement the right cycle counting program to maximize your company’s bottom line.
What do you do when your ERP system indicates that you have less on-hand than your physical count?
Essentially, you are looking for a transaction in your ERP system that doesn’t belong. This is one of the easier problems to identify. A more challenging issue is identifying a transaction that was never created earlier. This is when you have more inventory in your ERP system than you physically have on-hand. There should have been a transaction, but there wasn’t.
Here are some options available to you if you have more inventory in your ERP system than you physically have on-hand:
A good place to start looking where errors potentially could have occurred is in the inventory report. Here you can drill down to the transactions for any item. The other fields are filled with data once you expand any item in the grid.
After having performed the cycle count and sorting out the inventory inconsistencies, let us get to the ABC analysis. ABC analysis is not a process to maintain accuracy; it is designed to discover methods to optimize the inventory. And the best possible method to identify these inventory levels is to slice and dice the inventory data by analyzing it in different charts and views. With OptiProERP, you get to present the ABC analysis data in various chart types. This makes the analysis all the more meaningful and accurate.
You can drill down into any or all groups to obtain a clear picture of what is happening with each.
We believe, your ERP system simulates your manufacturing environment. The more accurate information you give it, the better the simulation. When the simulation is out of sync with reality, inconsistencies occur. The further you are in distance and time between something happening and recording it, the more opportunity for error you have.
Finally, whatever the cause of an inventory discrepancy, make sure to close the loop by notifying the appropriate person so the problem is corrected. Once an organization has been made aware of the issue, keep monitoring the inventory to ensure that the corrective action is effective. Over time, this will have a powerful impact on the bottom-line of your business.
Streamlined accounting and warehouse management software offer better insights from connected systems and reporting that is easy to create and analyze.
Connect with us to explore how OptiProERP can improve your business today and help you achieve your ambitions for tomorrow, contact us now!
The post ABC Analysis of Inventory: Optimize Business Bottom Line appeared first on ERP for Manufacturers | Manufacturing Software | OptiProERP.
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