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The Situation
This company's cycle counting program enjoyed initial
success but then stalled out. The situation was particularly
frustrating because the program's justification was based on the
elimination of the annual physical inventory and this could only
happen when accuracy reached the goal of 92%, i.e., anything less
seemed like complete failure. Here are the essential facts:
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The company had a large
jobbing machine
shop with over 10,000 products.
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An MRP system processed
thousands of transactions each day as
batches moved from one department to the next.
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Prior to cycle
counting, accuracy was on the order of 60%.
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The finance department had instigated a
cycle counting program with a goal of 92% accuracy.
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The intent of
of the cycle counting program was to
eliminate the annual physical inventory.
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The cycle counters and their
supervision worked for finance.
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Some attempts at determining
root error
causes had been made but these efforts were swamped by the massive
amounts of transaction activity.
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Most of the cycle counters and their supervisor
had received Six Sigma and process improvement training but
seemed unable to relate it to cycle counting.
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Inventory accuracy had risen from the
original 60% range to 86%.
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Accuracy had
been stuck at 86% for months and frustration was
growing.
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Root Causes
The immediate cause of this problem is that
errors are entering the system at about the
same rate that the cycle counters remove them. When the the
removal rate exceeds the input rate, IRA improves. But, the higher the
IRA, the fewer errors get removed by cycle counting.
The fundamental choice is to reduce the
entering errors or remove additional errors through more cycle counts.
Additional cycle counts
will be expensive and, as IRA improves, even less effective.
The best choice is to prevent new errors from entering
the system. The company had trained their
people in Six Sigma and process improvement but they were
unable to apply it to the problem of
transaction errors. This reflects several issues:
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The most difficult problem with any adult training is
the transfer of classroom theory to actual
practice. Classroom exercises did not exactly match the
problems at hand and the inexperienced personnel could not make the
transition. Action Learning
assists with this transition.
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Six Sigma often has so much
complexity-- so many tools and acronyms that
people get confused about which to use and
what to do. The reality is that 3-4 of the simplest tools,
borrowed from TQM and Work Simplification, will solve 90% of everyday
problems.
Perhaps a more fundamental
root cause was the fact that Finance had instigated, planned and
implemented the program without other involvement.
All parties operated from a mental model that considered
inventory accuracy Finance's responsibility and that the Finance
department received the primary benefit by elimination of the annual
physical inventory. In reality the biggest
benefits are not from the physical inventory elimination.
Moreover, Finance was not creating the new
errors. The errors are created in the warehouse, on the
factory floor, in sales, in scheduling and even in other
departments. Their participation in process improvement is
absolutely essential.
The Solution
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Transfer the cycle counting program and corresponding
responsibility to Operations.
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Utilize Finance in an auditing role to verify
accuracy metrics.
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Employ Kaizen and Action Learning workshops in
cross-functional process improvement teams.
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