As data collection devices grow smaller, their reach grows farther. Data capture (bar code) technology has long been used to fine-tune inventory control, but typically within the four walls of the warehouse.
That's all changed. Thanks to the effects of E-commerce, companies are dealing with increased order volumes and higher customer service expectations. These pressures are forcing manufacturers to augment their inventory systems to accommodate real-time access to data that enables them to meet growing customer demands.
Integrating bar code technology with larger systems such as enterprise resource planning (ERP) makes collecting, communicating and managing that information an edict for many warehouse and manufacturing managers.
"Corporate executives see inventory as evil," says Chris Newton, senior analyst, Supply Chain Strategies, AMR Research, Boston. "Many of them come to this conclusion because of just-in-time, efficient customer response and quick response initiatives. Advocates of these concepts predict the demise and eventual elimination of warehousing facilities because they see no need to store large amounts of inventory to meet customer demands."
On the maintenance side, where safety stock is critical to uptime, inventory accuracy is paramount. For plants with many locations, fusing data capture technologies with ERP helps replace a silo approach to automated data collection systems with an integrated approach to inventory management. This enables plants to communicate and collaborate on stock levels, vendors and scheduling.
Accuracy a benefit
One of the most important benefits of integrating data collection with enterprise systems is an increase in inventory accuracy, notes Thomas Freese, principal with Freese and Associates, a Cleveland-based consulting firm. Freese suggests using the analogy of a bank when looking at inventory.
"A bank's inventory is money and by nature a very accurate inventory management process by definition," says Freese. "But in a manufacturing environment, you're dealing with a commodity that is not often looked at with the same level of accuracy. Inventory accuracy is particularly important in manufacturing — especially maintenance — because it's the lifeblood of any and all plant systems."
If you go to a location to withdraw inventory to make a finished product and it's not there, you potentially shut down the whole product line, Freese points out. "On the other hand, if you anticipate having 10 units of inventory and in reality you have 20 units, you've created an equally disastrous situation because you've ordered more than you need and it's additional cost imposed on everything associated with that."
Inventory accuracy is not defined as accuracy by a particular SKU; rather, it's a particular SKU by location. It's a matter of going to a specific location to obtain a specific part and a specific quantity. "By using an ERP system, you have access to real-time information. If it includes a good planning component, you can expect to operate with nothing less than 98 to 99% inventory accuracy," says Freese.
This high accuracy is the result of being able to track the SKU and its location, explains Freese. "You typically multiply that figure by the number of SKUs (which likely amount to thousands). The key is to count the thousands of locations where that inventory could be located. Without multiplying these together, inventory accuracy can drop from 99 to 80% very, very quickly."
Real-time inventory visibility
Access to real-time information gives manufacturers — in one plant or many — the knowledge they need to make decisions about replenishment, retrieval, picking/packing and procurement. Without accurate data, manufacturers face productivity losses. For example, every time a worker goes to a location to withdraw a piece of inventory and it's not there, inefficiencies may include deadheading, production downtime and potentially shortened production runs. The manufacturer may try to regroup by stocking higher levels of raw material or higher safety stocks, this increases inventory carrying costs as well as the purchasing activity. Once additional space requirements and additional deployed assets — both in the handling and storage and control of inventory — are considered, the manufacturer has seen production levels drop drastically.
"When you go to a scanning-type of concept, you can get 100% confirmation of inventory," notes Freese. "You're not going to get 100% accuracy, but you will get 100% confirmation. For instance, if I scan that SKU and then I scan the location that I put it in, I've got a check and a double check. So now with reasonable cycle counting, I can increase my inventory accuracy in excess of 99%."
Data collection performance depends on real-time inventory visibility into and outside the warehouse's four walls, notes AMR's Newton. "To be truly effective, [warehouse managers] must have access to the current status of orders, inbound freight, outbound shipments and carrier pickups."
And as companies move toward e-fulfillment and other e-commerce initiatives, integrating inventory control with call center activities bridges silos that prevent a company from meeting customer expectations. Inventory management — as a subset of an ERP system — enables companies to view the status of raw materials, parts and components in in real-time to commit to production and shipment deadlines.
For plants with many locations, fusing data capture technologies with ERP helps replace a silo approach to automated data collection systems with an integrated approach to inventory management.