1st Conference of Industrial Technology ( CIT2017)

Inventory control & Improving Record Accuracy in

Production

Dr. Elbahlul M. Abogrean1, Tajedeen R. Own2, Sabri Akreem3

University of Al Jabal Al Gharbi,Faculty of Engineering – Ghiryan

1 2
[email protected] , [email protected] , [email protected]

Abstract - This Paper explores the systematic variation in Inventory accuracy means that the perpetual records shows
inventory record inaccuracy (IRI) within stores. Most the same quantity as it is actually in stock (on-hand
Traditional inventory models, do not account for the existence inventory), since it’s nearly impossible to keep 100%
of IRI and those that do treat record inaccuracy as random.
accurate data all the time, a tolerance percentage is
Examining inventory records from stores, we found a
considered based on materials being measured.[1]
significant amount of them to be inaccurate. The recorded
inventory quantity of an item fails to match the quantity In practice, keeping inventory is very important to satisfy
found in the store. This paper identifies factors associated customer needs, however, planning for keeping the right
with this inaccuracy that are stock keeping unit (SKU) and
amount and type of inventory is strongly dependent on
store-specific. SKU-specific factors which include item cost,
accurate inventory data whatever a manufacturing system
selling quantity, and method of distribution account for the
an organization adopts (Lean or MRP), inventory
observed variation in IRI within stores. Store-specific factors
which include the density and variety of inventory observed at
inaccuracies can and will lead to profit losses, customer

each store account for the variation in IRI across stores. dissatisfaction, and competitiveness disadvantages specially
Keywords - Inventory Record inaccuracy, Traditional for big organizations.
inventory models, Stock keeping unit.
This research gives an overview about Inventory Record
Accuracy (IRA), its importance, related articles,
measurements, and some tools and approaches to achieve
I. Introduction
and maintain high record accuracy[2].
One of the great concerns to any organization is their
inventory and distribution policies to ensure customer
satisfaction, however, it’s agreed that inventory records
measurement is important performance indicator of
inventory control, distribution center, and customer service
level, and it’s also important for effective and efficient
supply chain.

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II. The importance of record accuracy 1. What are we going to make?

2. What does it take to make it?
Accurate data is very valuable asset for any organization,
3. What do we have?
it’s as important as materials and considered as the core of
4. What do we have to get, and when?
any organization planning and scheduling of many areas
The last two questions directly related to inventory
like Causes of Inventory inaccuracy: accuracy, however, in practice answering question three is

Financial department need it to issue the financial not so easy and we can’t always have exact count value of

statement of the company. materials exists, that’s why we need to assign tolerance to
these items, in other words, if the count of an item falls in
Marketing and sales to help recognizing what customer
the range pre-assigned to it, it’s considered as accurate.
needs the most and plan accordingly.
New product planning to know when to introduce the There are many techniques to measure record accuracy
new product where the old one is fully depleted. based on the definition of accuracy and units of
measurement (dollar based or count based),[4] this depends
Procurement planning to know how much to order based
on the organization interests, for explanation see the
on how much is really on hand.
worked example below :-
Production planning where it helps company to utilize
Table 1. Worked Example of Inventory Accuracy
its resources better by minimizing shortages.[3]
Miss Hit Tolerance Inventory Physical P/N
There are several reasons to have inaccuracies, they might )%( record count

be: X 2± 100 94 1

X ±5 100 95 2
 Incorrectly manually adjusted by employees.
X 5± 100 96 3
 Products can be stolen X 2± 100 97 4

 Damaged or spoiled products, when not recorded X 2± 100 98 5

as such, X 2± 100 99 6

 Returned products that occasionally not accounted X 0± 100 100 7

 Store can receive mis-shipments from the X 0± 100 101 8

X 5± 100 102 9
distribution center
X 2± 100 103 10
 Cashier error
X 5± 100 104 11
III. Tolerances and measures of accuracy
X 5± 100 105 12

Accurate records was proven as an essential part of the X 0± 100 106 13

1300 1300 Total

manufacturing process, wrong records means wrong
decisions that will affect manufacturers, suppliers, and
The example shows inventory of 13 different parts
customers.
compared with its physical count, if tolerance was ignored,
For any manufacturing process there are four basic just one item out of 13 is matched to its on-hand inventory
questions have to be answered: that means the accuracy is approximately 8% in this
situation, however if to consider tolerance in this example,

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8 out of 13 is considered as accurate with an average for production managers it completely different, therefore,
accuracy of 62% approximately, the following formula is record accuracy measurement depends on interest of the
used to measure accuracy: company and its target of accuracy.[5]

Record accuracy = *100 While it’s not worth spending a lot of time setting tolerance
rather than fixing inaccuracies problems, organizations of
Another measure of accuracy is related to dollar value of
high record accuracy set tolerances depending on:
discrepancies between record and on-hand inventory and
calculate value of discrepancy by the formula:  Usage
 Dollar value
 Lead time
Value discrepancy = Unit stock value* (Quantity  Level in the bill of material

on record - Quantity in stock)  Criticality

 Method of handling
While production and inventory personnel interested in
 Combinations of the above
count discrepancies, financial managers also have interests
in accuracy as dollar value of discrepancy as shown below Table 3. Tolerance Percentage when using ABC

:-
Class Tolerance (%) Dollar value

Table 2. Inventory accuracy record A 1 80

B 2 15
P/N Physical Inventory Tolerance Discrepancy Unit Discrepancy
count record (%) % Cost value
($) C 5 5
1 94 100 ±2 -6 10 -64

2 95 100 ±5 -5 2 -11
This method has some limitations since it ignores the other

3 96 100 ±5 -4 6 -25
considerations of tolerance like lead time, also if a part in a

4 97 100 ±2 -3 13 -40
lower class has a low price but very high usage it may jump

5 98 100 ±2 -2 8 -16 to higher classes.

6 99 100 ±2 -1 14 -14
A. Methods for improving accuracy
7 100 100 ±0 0 7 0

8 101 100 ±0 1 17 17 Several methods is adopted to improve record accuracy and

9 102 100 ±5 2 16 31 eliminate errors occurred during transactions, there are
10 103 100 ±2 3 6 17 methods that focused on counting records and other
11 104 100 ±5 4 13 50 methods that focused on process improvement, a
12 105 100 ±5 5 9 43 combination of these methods was also conducted.[6]
13 106 100 ±0 6 2 11
B. Cycle counting
Total 1300 1300 8/13=0.615 0

Cycle counting-usually called perpetual inventory

The example shows a match between physical and record
checking- is a proven method to monitor and check
dollarized value, this would please financial managers, but
inventory accuracy on a continual basis, where a small

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number of items are physically counted, daily, on a random Using of statistical process control (SPC) also suggested to
basis. The physical count is compared to the inventory monitor accuracy alternating or accompany cycle counting
record.[7] When necessary, the records are corrected. technique, the application has been studied of statistical
process control technique on large departments.
Several methods are available to implement cycle counting,
for example they may depend on: C. Three phase approach to inventory record
accuracy
 Aisle to Aisle Counting
Each phase contain several tasks that if implanted correctly,
This is simple to organize, as counters start at one end of
an accuracy of 95% or better is granted, Phase I (design
the stores and gradually work along to the other, this
and preparation) is considered the most important phase
method requires large efforts and resources to be
since other phases depends on it, this phase usually takes 6-
implemented.
12 weeks to complete.
 ABC Cycle Counting
In (Phase II) records balance is established, on hand
This method uses Pareto principle where items are inventory is calibrated using any technique as long as it’s
classified based on their turnover value into three classes done accurately and quickly, this phase should take 3
(sometimes four, the fourth stands for non-movers), the A weeks maximum.
class will be cycle counted more often than other classes, A
The last phase (phase III) is ongoing process of measuring
class is normally the first 10%, B class is the next 20%, C
records accuracy using cycle counting where the source of
class is the remaining 70%, these value are not the same for
problems is found and corrected to maintain high accuracy
every organization, an example below shows how to
as long as process integration is achieved.
implement ABC analysis.[8]
.
Table 4. The summary of ABC analysis

Classification Percentage of Percentage of Value per class

items value

A 10.0 66.8 4764

B 20.0 23.2 1655

C 70.0 10.0 712

Total 100.0 100 7131

Although this method is widely accepted, it has some flaws,

for instance, if the number of items increased, more
counters and resources are needed to complete the count, it
also ignore the impact of other factors on materials like Figure 1. Phases of Inventory accuracy
lead time and focuses only on financial impact.[9]

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Some of the quality tools used to analyze and find causes of operations, and products produced in the equipment
record inaccuracies is the fish-bone diagram and Pareto between processes to give precise measures.
chart, other problem solving techniques can be used to
solve accuracy problems like brainstorming.

D. Accuracy through information technology III. Conclusion

The basic requirement of any inventory control system to Inventory record accuracy problems can lead to severe

have accurate records is: losses in supply chain and impact the competitive position
of organizations, IRA is an essential factor for adopting any
• Multi location options on the stock record
manufacturing systems, managers are under great pressure
• allocation options for optimizing their inventory and keep high level of
accuracy and data integrity.
• transfers between locations
Although measuring inventory accuracy depends on
• ABC classification
company’ interests, care should be taken with financial
• Real-time operation. measurements of accuracy since they can give wrong
indication of records accuracy if implemented separately.
Information technology techniques has many applications
in manufacturing to facilitate the processes of transactions Among the strategies used to improve record accuracy the
and recording. cycle counting is proved to be A powerful technique, it
enables more frequent auditing of records and detect
 Bar coding
inaccuracies on a regular basis, identifying causes of

It’s a common technique used to label products and trace it discrepancies and take actions to ensure continuous

using bar coding system, the system has many languages improvement of records.

available according to industry standards, implementing

Another approach of responding to inaccuracies is to take
barcoding technique can be cheap and fast way of
preventive actions, that is ensuring process integrity and
recording accurately.
robustness, implementing the information technology can

 Weigh counting also improve accuracy significantly and contribute to

supply chain improvement.
It’s a convenient way of counting inventory that can be
implemented in any stage of manufacturing process,
however care should be taken especially from human
manipulation that will affect data accuracy.

 Monitoring manufacturing work in progress

by automatic recording devices

It is used in manufacturing in stages that has continuous

flow of materials, it can detect number of product,

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References [6] Tersine, R., “Principles of Inventory and Materials

Management”, 4th edition, Prentice Hall: Englewood
[1] Brooks, R.B. and Wilson, L.W. “Inventory Record
Cliffs, New Jersey, 1994.
Accuracy – Unleashing the Power of Cycle
Counting”, John-Wiley & Sons, 2007. [7] Kyle Huschka, “Using Statistical Process Control to
monitor inventory accuracy”, M.Sc. Thesis, Kansas
[2] Wild, T., “Improving Inventory Record Accuracy-
State University, Manhattan, Kansas, 2009.
Getting your stock information right”, Elsevier
Butterworth-Heinemann, 2004. [8] Aberdeen Group, “Warehouse Management Software:
five key capabilities for every distribution center”,
[3] DeHoratius, N., & Raman, A., “Inventory record
December 2007.
inaccuracy: An empirical analysis”, University of
Chicago Graduate School of Business, 2008. [9] Bill C. Hardgrave, John Aloysius and Sandeep Goyal,
“Does RFID improve inventory accuracy? A
[4] Kang, Y., & Gershwin, S.B., “Information inaccuracy
preliminary analysis”, Information Technology
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Research Institute, Sam M. Walton College of
Transactions, 2007.
Business, University of Arkansas, 2008.
[5] Raman, A., DeHoratius, N., Ton, Z., “The missing
link in retail operations. California Management”,
2001.