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You Might Have a Bad Warehouse If…Your Inventory Count Is Too Good

By Kate Vitasek | 01/23/2012 | 5:00 AM

This bad warehouse item from Gary King, founding partner and chief consultant at Business Fit Associates, tells us that when the inventory accuracy rate is always at 99.9 percent, it’s probably time to investigate.

As Gary explains it there was a 3PL that was known for bragging about a 99.9 percent inventory accuracy rate. “Me being one who is always in search of best practices, I inquired to the operations manager as to how they were able to maintain such a high accuracy rate month after month, year after year.” The man replied that it was a “trade secret” that allowed them to remain competitive and although many had inquired, he was sworn to secrecy. Cyclecount

Later in his audit, Gary came across a standard operating procedure that pertained to the 3PL’s petty cash process and noticed that "they kept an unusually high dollar amount in their petty cash."

When he asked the administrative assistant responsible for administering the petty cash why such a high amount was needed, “without hesitation she answered that 'when we come up short with our cycle counts, our cycle counters can run to COSTCO or wherever they need to go to buy product that were missing.'” Whoops! “And she added, ‘You should see how much money I have to give out when we do a complete inventory. That’s when my job gets really crazy!’”

She had no idea she had revealed the company’s big trade secret, along with a really awful inventory control practice.

That’s a SOP you won’t find listed in the WERC Best Practices Guide. An inventory control system must have well-documented and well-defined processes, and cycle counts are supposed to determine inventory accuracy and identify problems that need attention.

As the guide says, inventory is money and “you should keep track of inventory as you would money.” The reverse of that is just wrong – you should never use money to keep track of inventory by gaming the cycle count process to inflate accuracy rates.

I really love your feedback - and love your contributions to share those bad warehouse stories to help educate the profession on what NOT to do, and maybe what to do if you’re not doing it.

If you've got an example of a bad warehouse practice, send me your story and photo(s) to [email protected]. If I feature your example in one of my blogs, WERC will send you a free copy of the WERC Warehousing & Fulfillment Process Benchmark & Best Practices Guide (a $160 value).

Your submission can be anonymous if you like so you don't get your boss or company in trouble! I'll be collecting examples all year and the winner will receive a free WERC Warehouse Certification Assessment by Supply Chain Visions, a $10,000 value. The runner up will win a free conference registration to the WERC conference (a $1,375 value).”

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About Kate Vitasek

Kate Vitasek

Kate Vitasek is a nationally recognized innovator in the practice of supply chain management. Vitasek is founder of Supply Chain Visions—a boutique consulting firm specializing in supply chain management. She is also a faculty member at the University of Tennessee's Center for Executive Education. A prolific writer, Vitasek has authored the Council of Supply Chain Management Professionals' best-selling mini-book series, Supply Chain Process Standards, and has contributed to other management books as well. Along with Karl Manrodt of Georgia Southern University, she co-leads WERC's popular annual benchmarking study.

About Steve Murray

Steve Murray

Steve Murray is a Principal Consultant and Chief of Research for Supply Chain Visions, a boutique consulting firm specializing in supply chain management. Prior to joining Supply Chain Visions he held a variety of functional and management roles in the distribution and manufacturing sectors, including 15 year managing an IT consulting firm. Steve has been instrumental in development of the Council of Supply Chain Management Professional's "Supply Chain Management Process Standards", the Warehousing Education and Research Council's Warehousing & Fulfillment Process Benchmarking & Best Practice Guide" and the WERC "Warehouse Certification Program". He is lead auditor for the WERC's Certification Program.


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