Inventory Health - Important factors to be considered to avoid Inventory Mismatch

Any inventory of raw materials or finished goods runs into thousands of SKU items. Especially in case of Raw Material Inventory as well as Spare Parts Inventory these numbers could be much higher when compared to Finished Goods. Even in Finished Goods some products like clothes, grocery etc could run into thousands of SKUs across the entire range.

Every unit of Inventory has an economic value in the books of the company. Therefore as an asset one needs to have a control over the inventory and ensure that the books stock matches with the physical stock. By book stock essentially we mean system stock.

Inventory management on one hand consists of managing the inventory transactions and data in the system and on the other it involves physical processes on the ground. Both these have to work in tandem to ensure that all transactions are closed and completed both in the system as well as on the shop floor.

In a warehouse a typical day operations begin with receiving materials from different vendors, which are unloaded, counted and updated in the system. The system then issues a GRN and directs the location to which the material should be stored. Accordingly the material is then moved to the storage location and a confirmation back in the system closes the entire transaction. At the same time, parallel processes for shipment delivery will be under process where the system releases pick orders on the warehouse. Operations staff picks up the materials as per pick list and confirm back to the system, which then releases a packing order and an invoice for shipment. Amidst these multiple transactions there would be quite a few operational transactions like bin to bin transfers, kitting etc which are again transacted in the system followed by physical process and re confirmation to the system.

In such situation where multiple transactions both in system as well as physical operations are going on and the tasks are interdependent, any process deviation in any one of the transactions is bound to occur resulting in differences between system transactions and physical inventory.

Current trend in the industries is to outsource the warehousing operations to third party service providers, in which case the transactions increase manifold because of the introduction of additional system at the warehouse end, which belongs to the third party vendor. The principle customer maintains his inventory in his ERP, which transacts with the third party vendors WMS - Warehouse Management System and the Physical transactions on the shop floor, which have to run concurrently with the system.

  1. Systems Issues

    Normally the ERP system and the WMS are interfaced using standard interfaces. Both systems exchange standard interface files updating the transactions carried out in each of the systems and are downloaded at both the ends in periodic batch frequencies of half hour or one hour. Thus all receipts received physically at the warehouse in one hour get updated in warehouse WMS which then sends out the GRN information to Client’s ERP for updating. Client’s ERP similarly processes the orders based on the inventory available in its system and issues sales orders which are sent across to WMS. WMS then generates pick waves which when confirmed lead to releasing of packing list and invoice. These transactions are again completed physically and WMS is updated. WMS further sends out the information of dispatch to ERP for further updation. For these transactions to happen smoothly both ERP as well as WMS should match perfectly in terms of inventory and transaction information.

    When in case of day-to-day operations, hundreds of transactions are being processes at both the ends concurrently; the system updates may not happen on real time basis and can lead to inventory discrepancies. Therefore it becomes necessary to have daily reconciliation of all transactions between both systems as well as operations.

  2. System discipline required

    Such transaction based systems call for strict discipline on the part of system users to ensure they complete all processes without deviation and regularly update the masters and reconcile on daily basis. Any lack of discipline can effect not only the inventory but effect transactions as well. For Example, if for any reason a particular SKU or consignment is blocked at the warehouse and is not to be dispatched, the inventory block should not only happen in WMS which controls floor operations but in ERP also. Otherwise in the ERP the blocked inventory may be showing as open inventory and get allocated for a sales order.

  3. Master Data Up-dation is a MUSTM

    SKU code numbers in any inventory are subject to frequent changes. You can also have the same description and same item being supplied by different vendors. Every time a new SKU is created at the Customer’s ERP, one must ensure that the same new SKUs are created in the WMS too. WMS master data with regard to SKU Code, description and other SKU Master Data and Vendor Master information should mirror that of the ERP. If by oversight or careless ness this co-ordination is found lacking the inventory gets mixed up or does not get uploaded into the system.

  4. System Inventory should match with Physical Inventory

    The inventory that is setup and maintained in the ERP as well as WMS should correspond to the inventory on the shop floor. For example the inventory shown in ERP and WMS with details of each location as to where, how much is stored in which location should match exactly with the physical reality. On the shop floor the physical location should have the same SKU, Exact quantity as per System entry. Any mismatch on the floor location resulting out of mistake from the operations staff of keeping inventory in wrong location will create havoc in both system as well as operations.


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