Luxury goods manufacturer in Tampa, FL
25+ employees, 12+ years in business
The challenge: Resolve chronic inventory inaccuracies that had been plaguing the client for years, wasting a substantial amount of time and frustrating the Sales staff, and causing customer dissatisfaction.
The solution: By fostering communications between departments that traditionally did not interact, FLEX process improvement experts identified multiple out-of-date operational procedures that no longer met the company’s needs. New procedures were created to control the flow of inventory from Production to Warehousing. Three separate labeling processes were replaced by a single process that also integrated bar code management. And a new label design featuring multiple visual cues was created to easily differentiation between near-identical product packages.
The result: Inventory accuracy was immediately improved from 45% to over 95% and remained so a year later, in two years the Sales department was able to produce a 58% increase in gross sales without adding any new members, and customer satisfaction increased dramatically.
The full story:
The client’s concern was the inaccuracy of inventory for finished goods and assembly parts, an issue which negatively impacted Sales on a daily basis. Due to the large number of inaccuracies in the inventory management software (over 55% of inventory was inaccurate), products were regularly sold that actually were not in stock. Errors required considerable work to fix: re-contacting the customer, adjusting sales orders with substitute items (which sometimes also were not in stock), re-submitting all paperwork due to differences in invoice amounts etc. The Sales department reported that up to half of every day was taken up with fixing these problems.
Also, the assembly parts inventory was equally inaccurate, sometimes causing situations where top-selling finished goods could not be manufactured because key parts were not in stock, some with long lead times.
The client was performing weekly inventory audits on commonly sold finished goods and high consumption assembly parts. At the end of each audit, adjustments were made to the inventory management software (IMS). However, at each audit inventory counts frequently deviated from the IMS, sometimes by a large number and with no explanation of what had gone wrong.
While meeting with members of Sales and the Warehouse over the next few days, we uncovered a few culprits as the likely suspects causing many of the issues. For instance, sales orders were not being fulfilled in consecutive order. Thus sales order 513, which was placed early in the morning for customer AB that required shipment, was fulfilled long after sales order 555 for customer BC to pick up in person. The inventory had been in stock when sales order 513 was placed, but was instead used to fulfill the later sales order 555. Customer AB does not get their product and the problem is blamed on inventory inaccuracies. Another common issue was product placed in the wrong location. The weekly spot audits only counted specific locations. Thus incorrectly placed products might never be found. Yet another common issue was incorrectly labeled products.
All these initial issues we could remedy. However, nothing was found to explain how a weekly inventory audit could produce large deviations. On arrival we had asked the client to perform a daily morning and evening count of their top selling product, so now there were a few days logged. It turns out that every day saw a large discrepancy, of differing magnitudes, and plus or minus. One particular day the logs actually indicated the day starting with six cases missing, and ending with those six cases amazingly returned along with an additional seven cases that Production stubbornly insisted that they did not manufacture that day. From six cases missing to seven extra cases of product in nine hours.
We dug into the product transaction logs for the past few days and tabulated: manufacturing logs from Production, Sales transactions, returns, shipments and pick-ups. The solution was there. Production was not logging the completion of new inventory in the IMS. And it wasn’t their job duty to do so. Instead Production kept a daily log on paper of products manufactured. Usually first thing the next morning, but sometimes much later, that paper was brought to the General Manager’s assistant who was instructed to enter the data the same day, but sometimes it was left for the next day. At any given time the IMS could be up to 48 hours out of date with respect to the actual inventory. Additionally, since manufacturing was tracked on paper in handwriting, the simple issue of poor handwriting causing transcription errors caused even more damage to inventory accuracy.
After learning the standard flow and rhythm of the workplace, the FLEX team wrote new standard operating procedures that smoothly integrated into the daily tasks of the employees. Production was trained to log manufacturing activities directly on the IMS, and also added product label checking to their Q&A process. Manufactured products were staged in a neutral area and the Warehouse staff was tasked with verifying product counts. Warehouse staff was also trained to receive into the IMS all newly manufactured products. Additionally, a full inventory was completed in which every case was opened, every product identified, every label corrected, and everything put in its proper place.
Two years later, the client is still reporting astounding results. Virtually eliminating inventory errors had also eliminated a substantial amount of: owner anxiety, employee frustration, customer dissatisfaction, and wasted time. So much time was saved that, even with a 58% increase in gross sales, it had not been necessary to add a single new person to the Sales department.