information for members of the loud and clear · information for members of the warehousing...

Information for Members of the Warehousing Education and Research Council

November / December 2009

In this issue...

NAFTA: Sixteen Years Later 6 The North American Free Trade Agreement has yet to deliver as promised.

Improving Inventory Record Accuracy 8 Cycle counting maintains greater inventory record accuracy.

At WERC 10 Member news and events.

2009 WERCSheet Article Index 11 A listing of all articles printed in WERCSheet during 2009.

Loud and ClearVoice technology continues to find new inroads to the logistics industry.

While the economy has taken its toll on the sales of most types of tech-nology serving the distribution industry, one has ridden out the storm fairly well—voice. For many companies looking to enter the technology arena, voice has offered the lower price point that allows them to do so.

Marceline Absil, vice president of marketing and sales at voice technol-ogy provider topVOX, based in Barrington, Ill., says that voice is an easy fix in an economic downturn. “For a small investment, companies can optimize operations,” she says. “We’ve seen a bit of a slowdown, but many companies are looking to put voice into their 2010 budget.”

Voice has made its way into a variety of verticals thanks to its easy imple-mentation, low cost of entry and rapid return on investment. In particular, the food and beverage industry has made it a favorite choice. “With such low margins, the food and beverage industry needs technology that gives them a big return,” says Absil. “If voice can save a company 10 seconds per order, that’s a big savings right there. It’s a great match for frozen and chilled environments also because it is hands-free.”

Picking is the first and most obvi-ous place to install voice, but many DCs are finding uses for the technol-ogy all throughout the facility. “Picking is the first place to install voice because you get the fastest and largest ROI there,” Absil explains. “But it also fits with putaway and many other applications.”

Safety Stock: How Much Is Too Much?Determining how much safety stock to keep on hand is always tricky business, but even more so during tough economic times.

One of the many results of the recession has been the drop in demand for products of all kinds. People are simply buying less in an effort to keep more money in their pockets. Store shelves require less replenishing, manufacturers are producing less and fewer raw materi-als are in demand.

Clearly, this has an impact on how much inventory companies need to carry. Safety stock, in particular, is often a tricky calculation, compounded by changing times.

In general, managing safety stock is not a strong point for many companies. A recent study conducted by Executive Inventory Management (EIM) for the National Association of Wholesale Distributors (NAWD) found that many companies fall far short in this arena due to poor forecasting skills.

According to Jon Schreibfeder, president of EIM, the study revealed the mean average forecast error rate to be 642 percent and the median forecast error was 380 per-cent. “It didn’t matter what size company, what industry

continued on page 2

continued on page 4

“Picking is the first place to install

voice because you get the fastest and largest roI there.”

Marceline Absil

www.werc.org

/ NOVEMBER-DECEMBER 200922

The right solutionODW Logistics, Inc., based in Columbus, Ohio, is

among those companies that have installed voice technology and is enjoying the benefits it offers. A $65 million 3PL, ODW originally considered voice as a tool to meet customer compliance, make operational enhancements, and improve bottom line results. “We’d heard a lot of good things about voice, so we researched its benefits,” says Jon Petticrew, vice president of opera-tions. “We found that it could be scalable and flexible for multiple channels, that it had an easy implementation and proven deliverables. We also learned that it could have a favorable payback.”

The company also liked the fact that voice could work with many different types of customers. “Voice was something that could work with our customers who use barcodes or with those who are still relatively low-tech,” Petticrew explains.

With the benefits of voice luring them in, ODW per-formed a due diligence process to learn more. “We researched the pros and cons, and conducted dialogue with the industry experts,” says Petticrew.

ODW also performed a variety of site visits, which included visits without vendors in tow to allow for unbi-ased feedback and performance. The company did thorough internal investigating and discussing as well.

In the end, ODW selected Inther as its system’s inte-grator and topVOX as its voice supplier, citing the companies’ proven installations and references, numer-ous on-site demos and cost of entry. “We were also their first U.S. install, which appealed to us because it offered a bit of the ‘glam’ factor for customers,” admits Petticrew.

With a partner determined, ODW set about defining its objectives with voice. These included:

Safety. The desire to improve current performance to zero incidents

Customer. To reach a shipping accuracy of 99.85% and an inventory accuracy of 99.9%

Operations. To use voice for various order types and to improve productivity by 20 percent

People. Shorten the training cycle

Execution. On time, within budget; with additional tasks assigned to voice

Like many other companies, ODW began its foray into voice with picking. “We were able to improve order processing at the line, order and case level,” says Petticrew. “Our order cycle time decreased and we were able to reduce training time.”

An added, unexpected benefit is improved cycle counting. “We are able to establish thresholds on products and anytime they dip below that level, the system tells us to replenish,” Petticrew explains. “When it goes below that threshold, we ask it to give us a count and that information goes to the inventory coordinator.”

ODW has also moved to include voice in its putaway operations. The voice units direct associates to put products in the right locations. Other additions include UPC voice verification; and three confirmations for associates: one at aisle level, one at location level, and one at item level.

Next up are plans to add voice to the receiving oper-ations. “It’s giving us the chance to have one type of technology across all operations,” says Petticrew.

Keys to successThe voice implementation process was short for

ODW, just about 60 days. Petticrew says that the compa-ny’s associates picked up the technology quickly and easily. “We’ve been able to reduce training time with our associates significantly,” he says. “It used to take two weeks to get an employee 80 percent productive; now

Loud and Clear continued from page 1

WERCSheet® (USPS # 014998) is published bi-monthly by the Warehousing Education and Research Council, 1100 Jorie Blvd., Ste. 170, Oak Brook, IL 60523-3016. Phone: (630) 990-0001 Fax: (630) 990-0256 E-mail: [email protected] Website: www.werc.org

Annual membership dues are $275, including $80.00 for an annual subscription to WERCSheet. Periodicals postage rates paid at Oak Brook, IL (Vol. 32, No. 9)

POSTMASTER: Send address changes to WERCSheet, 1100 Jorie Blvd., Ste. 170, Oak Brook, IL 60523-3016. WERC assumes no responsibility for unsolicited manuscripts or other materials submitted for review.

Editor: Rita Coleman

Copyright © 2009 by the Warehousing Education and Research Council. All rights reserved.

Reproduction in whole or part without written permission is prohibited. Internet inquiries: www.werc.org.

Writers: Amanda Loudin and Joseph Mazel

S y S T E M S

“…prospective voice users need to

remember that voice is a tool, not a system.”

Jon Petticrew

/ NOVEMBER-DECEMBER 2009 33

it’s one week to become 100 percent productive. Within four hours of new employees beginning work here, they are picking up on the technology. ”

The strategic keys to success, according to Petticrew, included due diligence, setting objectives, dedicating resources, on-site demos and involving the entire team.

From a tactical standpoint, Petticrew says the keys to success are:

Ensure: – Process is stable before technology – Involve customer/client – Network backbone is compliant – Server has capacity – Dedicated project manager—both parties

Test, test, test – “Sandbox” with actual data—script it out – Actual environment

Keep vocabulary small Large enough signage Rotate check digits

It’s a tool While voice has worked well for ODW, Petticrew

points out that prospective voice users need to remem-ber that voice is a tool, not a system. “So by integrating it

with a WMS, there’s a lot you can do with it,” he explains. “We had our IT team and their IT team work together to ensure it would work smoothly and give us the most benefits.”

Petticrew says that voice has opened the ODW team’s eyes to many opportunities for improvement within the DC. “It’s been a cultural enabler for us,” he says. “It has pushed us a bit and opened up new horizons for us.”

For instance, Petticrew points to the cycle counting the company now gets while using voice in picking. “Voice has allowed us to look at areas that don’t generate revenue and either mitigate it or turn it into revenue generation,” he explains.

Petticrew attributes much of the success, however, to the fact that ODW did its due diligence before invest-ing in the technology. “you must understand your current status before adding voice,” he says. “What are your roadblocks? Voice only adds words—it can’t fix a broken system.”

So for those companies interested in putting a toe in the water when it comes to technology, voice just might be the right place to start—if the house is in order.

Copyright © 2009, WERC. All rights reserved. Marceline Absil, topVOX, www.top-vox.com Jon Petticrew, ODW, Inc., www.odwlogistics.com

Online learning

WERC’s online courses offer price-conscious trainingFrom archived Conference sessions to full-blown multi-lesson courses, WERC’s online learning center offers warehousing, management and basic skills topics. Online classes are a good way to get a lot of content for your training buck.

Advantages of online learning Can “attend” a course at anytime, from

anywhere that has internet access.

Offers student-centered teaching approaches.

Course material is accessible 24 hours a day 7 days a week.

Teaches skills in using the web.

Diversity of course material.

Low purchase costs.

No indirect costs like travel and lodging for an off-site learning event.

No extended “time out of the office.”

Partial list of courses offered:Cycle Counting Pallet Storage Systems

Management Skills Introduction Negotiating

Reverse Logistics: The Basics Project Management Series

Supervising in the Warehouse Warehousing & Distribution

Basics of Business Math Series Inventory Management

Purchasing and Procurement Communicating With Power

Dealing With Difficult People Customer Service

Time Management Fundamentals

Go to www.werc.org for complete details.


or what software they used, all of the respondents could improve their forecasting methods,” says Schreibfeder. “Companies who spend more time and effort in forecast-ing can reduce their safety stock and still maintain a high level of customer service.”

The upsideWhile the recession has changed the demand land-

scape for many companies, the smart ones are taking advantage of the opportunity that pres-ents. “I think businesses have always been cognizant of safety stock as an important part of their inventory management strat-egy, but certainly a recession is going to change some priorities,” says Dave Piasecki, owner/operator of Inventory Operations Consulting, LLC and author of two books on inventory management. “During peri-ods of growth the emphasis is generally on having enough safety stock to maintain

fill-rate targets. In a recession—when money is tight and the future far less certain—the emphasis shifts a little more towards having the absolute least amount of inven-tory possible. This doesn’t mean companies are no longer concerned about fill rates, or that during better times they weren’t concerned about inventory levels, only that the priorities have shifted a bit.”

Schreibfeder sees the economic downturn as an opportunity for many companies. “People are trying to minimize inventory levels and keep their customer service levels up,” he says. “So they’re paying closer attention to safety stock, much more so than when times are good.”

That’s a natural reaction, he points out. “Right now, companies are hard pressed to improve sales, so they must do what they can to improve their businesses,” he says. “One area to make those improvements is safety stock.”

But managing safety stock isn’t an easy task. Doing so requires grasping statistics and formulas that can sometimes be a bit complicated. But both Piasecki and Schreibfeder see it as a worthwhile investment of time.

Why safety stockTo determine safety stock needs, go back to why you

need it in the first place, according to Schreibfeder. “The first reason is unpredictable, inconsistent lead times,” he explains. “The more inconsistent your lead times, the more safety stock you need. If your lead times are consistent and dependable, then you don’t need much safety stock.”

The second reason for safety stock is the variability of demand or inaccurate forecasting. “If the forecast is accu-

“The more inconsistent your

lead times, the more safety stock

you need.” Jon Schreibfeder

rate, you won’t need much safety stock,” says Schreibfeder. “These days, the opportunity is there to not need much safety stock, provided you are forecasting correctly, because the odds are that demand is consistently down.”

Piasecki agrees that now is a time when you should be able to carry less safety stock. “Less frequent inbound orders means you have larger relative order quantities relative to sales,” he explains. “Therefore, during most of your order cycle you generally have more inventory on hand than you need to meet your near-term demand. Therefore your need for safety stock is diminished during these periods of time.”

Schreibfeder gives the example of how safety stock fits into the overall inventory picture: A company knows that customers will order 10 pieces of a certain product each day, and knows it will take seven days to get the shipment from the vendor. “you should be able to reor-der the product when there are 70 pieces of product on the shelf,” he says. “This quantity is appropriately called the ‘order point.’ But the order point formula contains one more element: safety stock, which provides protection against running out of stock during the time it takes to replenish inventory.”

Demand is a prediction based on past history, trend factors and/or known future usage of a product, according to Schreibfeder. Safety stock is “insurance” to help fulfill orders during the time needed to replenish inventory.

In addition, he explains, the anticipated lead time is also a prediction, usually based on lead times from the last several stock receipts. “Sometimes that lead time will be greater than what was projected,” Schreibfeder explains. “Safety stock provides protection from stock outs when the time it takes to receive a replenishment shipment exceeds the projected lead time.”

Piasecki reminds that many variables are at play. “Lower demand generally means you will need less safety stock since overall variability in units will likely be less,” he points out. “However, lower demand generally results in higher relative variability relative to sales, therefore your safety stock levels relative to sales will need to increase to cover this variability. So effectively, if your demand is cut in half you will probably be able to reduce your safety stock, but it won’t be by half.”

Making assessmentsThere are numerous methods to determine safe stock

needs—Piasecki classifies them into “keep-it-simple” methods, oversimplified use of statistical methods or appropriate use of statistical methods. He is a fan of the latter. “There is no quickie simple calculation that can

Safety Stock continued from page 1

M E T R I C S


effectively calculate safety stock,” he says. “When we look at what we are trying to do with safety stock, we see that we are trying to quantify variability and then calculate the likelihood that certain levels of variability will occur during our lead-time period, and then integrate that with other factors that affect our fill rates. If that sounds a little complicated, it’s because it is.”

Schreibfeder says that of the most common meth-ods, he recommends basing calculations on the average deviation of the forecast, as well as the deviation of antic-ipated lead time and actual lead time. “The greater the variation in demand and/or lead time, the more safety stock will be maintained for the item,” he explains.

This method involves many steps. “This is a more involved way of calculating safety stock than conven-tional methods,” he says. “But it reflects the variations in market conditions and therefore better predicts if a particular product needs more or less safety stock.”

He adds that if your computer calculates your replen-ishment parameters, your job is a bit easier because you won’t need to worry about performing the calculations. “However,” he points out, “you will have to properly assign deviation multiples to each item, in each ware-house, in order to meet your overall customer service level goals.”

Piasecki prefers to use what he calls the appropriate use of statistical methods. In his book, Inventory Manage-ment Explained, Piasecki says that “statistics are used to interpret and explain data, but more importantly for our purposes, statistics can be used to assign probability based on a sampling of data. Since what we want to do is use our historical demand to help us determine how much inventory it would take to compensate for demand variability, it would seem that the use of statistics would be a perfect fit.”

Piasecki’s method is very thorough and complex—too complex for the length of one article. It involves

many elements, including standard deviations of popu-lation and sample, the forecast, lead time, order cycle, and relative history, seasonality and trend. It also incor-porates the relationship of service level to fill rates. While he focuses his methodology around the normal distribu-tion model, Piasecki believes that the key to an effective safety stock calculation lies in modifying the base statis-tical model to best account for the additional variables present in your specific business environment.

How oftenNo matter which method you use

for calculating safety stock, timing those calculations right is also important. How often companies assess their safety stock needs is very individual.

“It depends on your demand pat-terns and how they are changing,” says Piasecki. “Just about everyone has been affected by the current reces-sion, so if you have not yet reevaluated your safety stock needs, you certainly should do so as quickly as possible.”

Schreibfeder agrees that the timing will vary by industry and company. “you should at least evaluate it each month to determine where to reduce and where to increase as needed,” he says. “Some industries need to do it more often, such as food and mass merchandise. In these cases, a weekly evaluation might be needed.”

In the end, both Schreibfeder and Piasecki agree that most companies could stand to improve their methods of safety stock calculation. “Most companies appreciate the importance of safety stock, but their appreciation for the importance doesn’t always translate into appropriate actions,” Piasecki says. “In my experience, most busi-nesses do a rather poor job of calculating safety stock.”

And that’s a mistake, he adds. “Improving your safety stock calculation means you can get better fill-rate performance from less inventory,” he says. “Why would anyone not want to explore this further? And while effectively calculating safety stock is not simple, it’s not an insurmountable challenge either.”

Copyright © 2009, WERC. All rights reserved. Jon Schreibfeder, EIM, www.effectiveinventory.com Dave Piasecki, Inventory Operations Consulting, www.inventoryops.com

“If that sounds a little complicated, it’s because it is.” Dave Piasecki

DC Measures 2009 defined Inventory Days of Supply as “measure of quantity of inventory-on-hand, in relation to number of days for which usage which will be covered. Total gross value of inventory at standard cost before reserves for excess and obsolescence.; Only includes inventory on company books, future liabilities should not be included.” Below are the quintile metrics for days of supply.

Major Opportunity Disadvantage Typical Advantage Best in Class MEDIAN

Inventory Days of SupplyGreater than

90 Days >= 50 and < 90 >= 30 and < 50 >= 22 and < 30 < 22 Days 45 Days

RESOuRCESBoth Jon Schreibfeder and Dave Piasecki have robust websites where you can find resources on all things inventory. Check them out at www.effectiveinventory.com and www.inventoryops.com


W hen it was initially passed back in 1993, the North American Free Trade Agreement (NAFTA)

was hailed as the answer to seamless trade operations between the United States, Canada and Mexico. While the program has worked for the U.S. and Canada, Mexico remains a bit of an outsider, still trying to garner the full benefits of the deal.

The big issue is the fact that Mexican trucks are still not permitted to travel beyond U.S. commercial zones of

approximately 25 miles along the bor-der. Under the terms of NAFTA, both Canadian and Mexican truckers were supposed to have full and free access to U.S. highways.

This provision was initially slated to go into effect Jan. 1, 2000. Just two years after NAFTA was passed, however, then President Clinton put the provision on hold as it pertained to Mexican truck-

ers, citing safety concerns. Canadian truckers, however, were given the freedom to move freely throughout the United States.

Amazingly, in 2009 this topic is still an issue the government needs to settle. Unfortunately, while the debate continues, the success of NAFTA remains a big question mark.

Years of mishandlingThe NAFTA story was passed on from the Clinton

administration to the Bush administration, where it con-tinued to cause controversy. In 2001, Congress passed legislation that required different U.S. government agencies to meet a list of 20-some safety requirements before Mexican truckers could travel beyond commercial zones. By 2002, those agencies claimed to have met the requirements. However, a series of legal challenges then tied the program up until 2004, at which time the Supreme Court ruled in favor of the Mexican truckers’ right to travel U.S. roads.

While it would seem that this would be the end of the story, it wasn’t. It took another three years for any action, but in 2007, the Department of Transportation (DOT) developed a pilot program to allow certain

Mexican carriers to make deliveries beyond the U.S. commercial zones. Participants had to pass a U.S. safety audit, as well as undergo a complete review of vehicle inspection records, driver records and drug and alcohol testing results.

As established, the U.S. allowed some 100 Mexican trucking firms to transport international cargo beyond the commercial zones. Mexico, in return, allowed up to 100 U.S. trucking firms to do the same. The program, originally designed to run for one year, was extended for another two years in 2008.

Several related organizations, including the Sierra Club, the Teamsters, and the Owner-Operator Indepen-dent Drivers Association, all challenged the program. The groups cited concerns over safety, security and environmental issues and continue to this day to put pressure on the government to keep Mexican trucks off American roads.

Still, the pilot went forward until this past March, when the Obama administration cut off funding for the program.

In the past, Mexico took the bumps in the road without too much protest. This latest blow to the agree-ment, however, was enough to send the country into action. Mexico is now charging the United States tariffs

T R A N S P O R T A T I O N

6

NAFTA: Sixteen Years LaterThe North American Free Trade Agreement has yet to deliver as promised.

Unfortunately, while the debate

continues, the success of NAFTA

remains a big question mark.


on over $2.4 billion worth of imports. From produce to consumer goods, the U.S. is paying a high price on some 89 imports for years of inaction on NAFTA. In addition, a Mexican trucking group, Canacar, has filed a $6 billion claim against the U.S. government for its failure to com-ply with NAFTA.

A high price to payThe U.S. Chamber of Commerce has spoken out

against the failure of the United States to comply with NAFTA and allow Mexican trucks onto our highways. The Chamber has assembled a report on the subject and attached dollar values to the cost of the failure.

According to the Chamber, since funding for the trucking pilot program was cut off last March, U.S. com-panies and consumers have been shouldering the costs of drayage associated with transferring cargo from Mexi-can trucks to U.S. trucks. The Chamber puts this number at $739 million. In addition, U.S. exporters are bearing the costs of the Mexican tariffs, which the Chamber puts at an additional $421 million.

The Chamber of Commerce claims that these costs are being passed along to the U.S. consumers in the form of higher costs. It also points to the potential for nega-tive impacts on U.S. production for export and the related impact on U.S. jobs.

According to the business group’s report, the net negative impact of the continuation of drayage and Mexican retaliation will cause U.S. exports to decline by $2.6 billion. Additionally, the Chamber estimates that a

77

S I D E B A R

NAFTA Surface Trade Down

I n spite of the fact that NAFTA has been in place for more than a decade, surface trans-

portation trade among the United States and its trading partners Canada and Mexico is on a downward slope. About 90 percent of U.S. trade among NAFTA partners is over land. A recent report in “Transport Topics Online” revealed that summer-time values were down significantly.

According to the report, the downturn last July hit 28 percent and was the seventh straight year-over-year monthly decline of at least 27 percent among NAFTA partners. Some of the numbers:

Total truck imports to the United States fell 21.4 percent to $18.1 billion, while exports fell 20.8 percent to $18.8 billion.

Rail imports plunged 39.3 percent to $4.2 billion, while exports fell 41.7 percent to $2.7 billion. Pipeline imports fell 50.6 percent to $4.2 billion, while exports declined 57.7 percent to $259 million.

U.S.-Canada trade fell 33.8 percent to $31 billion. The value of truck imports to the U.S. fell 29 percent and the value of truck exports fell 24.3 percent.

U.S.-Mexico trade fell 17.1 percent to $20.5 billion. The value of truck imports fell 13.7 percent and the value of truck exports fell 14.7 percent.

The one bright spot—Trade did rise in July from June, by 1.6 percent.

NAFTA’s full story has yet to be written, but the statistics are not encouraging.

potential 25,600 jobs could be lost as a result.In spite of it all, the government’s plans for a resolu-

tion remain murky. The Federal Motor Carrier Safety Administration (FMCSA) recently stated only that it was hopeful that a solution would be developed in the com-ing months.

Copyright © 2009, WERC. All rights reserved.


Inventory remains an important part of the manufacturing, distribu-tion, and retail infrastructure. “More isn’t always better, nor is less,” notes Roger B. Brooks, senior principal, Oli-ver Wight Americas, Portland, Ore. “However, knowing how much you have and need to operate your busi-ness is always better. A company needs accurate inventory records for many reasons, the most basic of which is to create valid management plans,” he explains.

“Inventory accuracy is a critical and highly sensitive area affecting firms,” says Robert E. Murray, chairman, REM Associates, Princeton, NJ. “When inventory is located correctly and ware-house pickers do not have to search for items, produc-tivity is increased. Customer service increases due to more accurate stock information, less backordering, and fewer stock-outs,” he shares.

The quest for greater inventory record accuracy is leading many to consider/re-consider the cycle counting process. “Cycle counting is the process of counting inventory items throughout the year on a schedule so that all items are counted at least once a year,” explains Murray. “The primary focus is on items that move more frequently, with less attention given to items that move less frequently.”

Cycle counting vs. physical inventory

Cycle counting is much more efficient—and accu-rate—than a physical inventory. “Physical inventory counts are a business disruption,” according to Anne Haberkorn, director, Lean Performance Center, Fox Valley Technical College, Oshkosh, Wisc. “Tremendous amounts of money, talent and time are wasted to conduct the counts. Instead of operating the business to ship product and deliver services, resources are used to physically

count product, a non-value-added activity.”“Cycle counting is much quicker and more accurate

than fully counting the total population at one time,” says Brooks. “Additionally, cycle counting is done continu-ously and is much less disruptive.”

“In many cases, people unfamiliar to the product and distribution process are contracted to perform the physi-cal count,” notes Haberkorn, a former inventory control manager for a major clothing retailer. “This practice invites error and increases the odds that inventory accu-racy will be negatively effected.”

“When cycle counting, one of the rules is to have individuals who are very familiar with the warehouse, who know the products and who understand the num-bering systems,” Murray insists. His recommendation is to use your order pickers, putaway staff and restocking people to do the job. “These are the most qualified peo-ple you have for cycle counting as they are all very familiar with the products and inventory,” he states.

“Cycle counting is actually an inspection process on the sample,” according to Brooks. How you select the sample and how you count the items in the sample must be well understood by the cycle counters. “Many compa-nies assign cycle counting to their entry level personnel,” he observes. This is exactly the opposite of what most successful companies do.

“We must remember that counting is the easy part of cycle counting,” he explains. “The difficult part is deter-mining and fixing the error causes. Entry-level personnel do not have these skills,” Brooks insists.

The physical inventory is really done for financial rea-sons, says Haberkorn. “It’s to verify the inventory asset on a balance sheet.” Cycle counting is done for operational reasons: “to assure a high-level of accuracy throughout the year rather than just once,” she explains.

Error cause removalWhen a count is outside of the tolerance level, there

should be an examination to understand the root cause so that the source of the error can be eliminated, explains Murray. “Under the physical inventory this type of inves-tigation is impossible, and process errors are never repaired,” he explains.

“Cycle counting’s highest value may be in finding errors and, from those errors, their causes,” Brooks explains. “It is unacceptable to simply use cycle counting

S T R A T E G I E S

“When cycle counting, one of the rules is to have individuals who are very familiar with the warehouse, who know the products and who understand the numbering systems.” Robert E. Murray

Improving Inventory Record Accuracy Cycle counting maintains and sustains greater inventory record accuracy.


to find and correct errors. Finding erroneous records, sleuthing their causes, and correcting these causes is the power base of cycle counting,” he maintains.

“Without root cause problem-solving you might just adjust the system and never find that ‘diamond in the rough’ that’s out there,” maintains Haberkorn. “Meanwhile your operations are struggling with filling orders on time and explaining to customers why their orders are late, and experiencing all of the problems associated with stockouts and backorders. All of that can be avoided by root cause problem solving.”

“Finding errors during a cycle count identifies the process-driven causes that account for errors throughout the materials movement process, so repairing the errors for a single item has a cascading effect on all SKUs,” says Murray. Among the causes of inventory errors that a good cycle counting procedure can discover:

Poor training of people in materials management Bad units of measure Item identification problems Inadequate storage space Locator system problems Absence of timely reporting of transactions

Successful cycle counting“It’s important to understand all of the integration

and collaboration that has to happen between opera-tions and finance,” says Haberkorn. Every time inventory is adjusted there is a correlated dollar adjustment on the general ledger.

“Going to a cycle counting process means that the financial area of a company is placing their faith in opera-tions, that they are going to be doing the right thing,” maintains Haberkorn. “Therefore, operations has an obli-gation to understand what the impact of any adjustments they make in the inventory records will have on the financial end of the business.”

Another recommendation is to phase-in the process. “Train the initial team and then take a certain group of items or a certain section of the warehouse to start,” Murray explains. “When you move onto the next depart-ment or set of products, you train the new cycle counters, plus you take some of the experienced ones to conduct on-the-job training and work with the new team. Intro-duce cycle counting in waves until you have the entire facility up and running,” Murray advises.

Another essential element for a cycle counting pro-gram, according to Brooks, is an “inventorying process” that is capable of creating and maintaining accurate inventory records. “An inventorying process includes the

receiving, putaway, retrieval, issuing, and shipment of inventory items and keeping records of these,” he explains. “If the inventorying process is not capable of creating and maintaining accurate inventory records, then all cycle counting will tell you is to make it capable.”

Having the systems capability to maintain item count by individual stocking location is a key factor in creating and maintain-ing accurate inventory records and greatly simplifies cycle counting, Brooks explains. “By having an individual stocking location (ISL), each and every count by ISL can stand by itself with respect to record accuracy.” When this capability is not employed, a cycle count of an item can-not be determined ‘accurate’ or ‘not accurate’ until all of the possible locations where the item might be located are examined.

Inaccurate inventory recordsThere are built-in inefficiencies and hidden costs

related to inaccurate inventory records, according to Murray. He lists them as:

Excess inventory levels. When inventory records are inaccurate, additional purchases will oversupply the warehouse. This excess inventory increases annual carrying cost and the chance for product obsoles-cence.

Lower productivity levels. Warehouse productivity levels can be decreased substantially when pickers have to search for products. When records are inaccu-rate, shortages occur. Therefore, inventory is not where warehouse-tracking systems think it should be.

Expediting orders. When inventory records are not accurate, product transit needs to be expedited so that sales are not missed. This process takes a consid-erable amount of time for purchasers, receivers, and supervisors to update records, order and receive prod-uct. These types of orders are very expensive on both ends of the supply chain.

Lost sales. The promised stock for customers may not be available at all or order shortages may occur. Cus-tomers will either have to wait for an order to come in or get the product from a competitor, resulting in lost sales and potential loss of accounts.

Copyright © 2009, WERC. All rights reserved. Roger B. Brooks, Oliver Wight Americas, www.oliverwight-americas.com Robert E. Murray, REM Associates, www.remassociates.com Anne Haberkorn, Fox Valley Technical College, www.fvtc.edu

Finding erroneous records, sleuthing their causes, and correcting these causes is the power base of cycle counting.” Roger B. Brooks


At WERCHere are some things to keep you up-to-date on what’s happening at WERC

stories important to the warehousing industry. Each edition of WERCWatch contains articles gathered from an expansive list of sources, including news from the association and leading industry publications. WERCWatch is a great way to keep informed. The elec-tronic publication can be easily read in your office, home, or via your mobile phone or PDA.

Advertising opportunities are also available. Contact Waco Zerbe at MultiBriefs, 469.420.2620, wzerbe@multi briefs.com.

To contribute news to the WERCWatch, contact Tom Crist, Content Editor, 469.420.2695

SEMINAR:

Maximizing Warehouse Space: The Key to Productivity November 10-11, 2009

Facility layout drives daily decisions about product loca-tion, picking paths and methods, flow-through, put-away, receiving and shipping. What can you do to get the balance of productivity and throughput that will best serve your customer needs? Learn key rules of thumb to help maximize warehouse layout and improve produc-tivity. Go to www.werc.org for complete details.

WERC’s has the book on piece picking

Piece-pick operations are the most complex and labor intensive activities within the warehouse. There are literally hundreds of combinations of processes, systems, infrastructure and labor deployment strategies to con-

sider when designing a piece-pick operation. Now WERC is proud to offer the publication that is a complete guide to this important topic.

Pick This! A Compendium of Piece-Pick Process Alter-natives outlines the elements of a piece-pick system, explains equipment choices and possible picking methods and provides a step-by-step approach to determine the

best option for your application. The Guide is rich with photos, illustrations, explanations and detailed pros and cons and pricing ranges and written by a team of experi-enced operations design consultants and engineers from OPSdesign Consulting®.

WERC members may receive the first copy of this book at NO CHARGE. Email [email protected] or call the office at 630.990.0001 to request your copy if you haven’t already done so.

Re-Introducing WERCWatchWERC has partnered with MultiBriefs to create the

new WERCWatch, a free, opt-in e-mail resource providing comprehensive weekly news briefings of interesting

PS Form 3526: Statement of Ownership, Management, and Circulation

Publication title: WERCsheet; publication number 014-998; filing date 9-28-09; issue frequency: bi-monthly; number of issues published annually: 6; annual subscription price: $80.00. Name and address of publisher: Warehousing Education and Research Council, 1100 Jorie Blvd., Ste. 170, Oak Brook, IL 60523-4413; editor: Rita Coleman. Owner: Warehousing Education and Research Council. Tax Status: The purpose, function, and nonprofit status of this organization and the exempt status for federal income tax purposes has not changed during preceding 12 months.

Extent and Nature of Circulation: average no. copies each issue during preceding 12 months; total: 2,625; paid or requested mail distribution: 2,441; nonrequested mail distribution: 13; nonrequested distribution outside mail: 122; total distribution: 2,576; not distributed: 49; percent paid and/or requested circulation: 94.8. No. copies of single issue published nearest to filing date; total number of copies: 1,800; total paid and/or requested distribution: 1,677; nonrequested distribution by mail: 10; nonrequested distribution outside mail: 70; not distributed: 43; total distribution: 1,800; percent paid and/or requested circulation: 95.4.

Upcoming WERCouncil Events PHILADELPHIA/ November 12 DELAWARE AmerisourceBergen Dinner/Tour

ATLANTA November 18 Lunch & Tour of National Distributing Company


IssUe PAge

EQuIPMENT

Will That Be Wood or Plastic? May 1 The type of pallet you choose could have a big impact on your sustainability plans.

Green Machines Mar 6 Fuel cell technology may be the wave of the future in lift trucks.

Robots on the Move Feb 10

GREEN

Sustainability Is Just Good Business Jun 10 Exel’s focus on sustainability ties in nicely with its core value system.

How Green Are Your Operations? May 7

METRICS

Riding Out the Storm Sept/Oct 6 The 20th annual “State of Logistics Report” paints a grim picture.

PEOPLE

Checking Cards Sept/Oct 1 The Employee Free Choice Act stands to shake things up in your DC.

Operation Loss Prevention Sept/Oct 1 Proactive strategy drives new initiatives to stem rising incidence of employee theft.

Flex Time: May 1 Developing a more flexible workforce to avoid lay-offs can result in future benefits.

Broaden Your Horizons Apr 1 When it comes to networking, it pays to stretch your limits.

Talent Management Revisited Mar 8 Education and training remains critical during a down business cycle.

Making a Difference Feb 1 Humanitarian logistics offers a way to give back.

Career Change: Look Before You Leap Dec/Jan 1 When you’re in the market for a new career, there’s much to consider.

PROCESSES

Safety Stock: How Much is Too Much? Nov/Dec 1 Determining how much safety stock to keep on hand.

Taking a DC’s “Pulse” Jul/Aug 6 Operations audits help to define profiles of potential improvement opportunities

RELATIONSHIPS

Tooting Your Own Horn June 9 Marketing may not be the strong suit of the industry, but it is important.

IssUe PAge

STRATEGIES

NAFTA: Sixteen Years Later Nov/Dec 6 The North American Free Trade Agreement has yet to deliver as promised.

Going “Lean” June 6 Productivity, efficiency and service move to higher plane with adoption of Lean concept.

Crawl, Walk, Run Apr 6 With the right approach to managing assets, every DC has the opportunity to evolve.

Change is in the Air Mar 1 With a bad economy and a new President, how will the landscape change for the logistics industry?

The Best Laid Plans Mar 1 Strategic planning provides the roadmap for future success.

A Broken System Feb 1 The nation’s infrastructure is in trouble. Where do we go from here?

Distribution Networks under Review Dec/Jan 8

SYSTEMS

Loud and Clear Nov/Dec 1 Voice technology continues to find new inroads to the logistics industry.

RFID: What’s In Store? Jul/Aug 10 The technology has had its ups and downs— where is it really headed?

SaaS: The “Other” Option May 8 On demand software solutions get a “look-see” as SaaS attributes become better known.

Dealing with the Downturn Feb 8 In these hard economic times, companies find a variety of ways to cope.

New 10 + 2 Rule Feb 6 New security filings required by importers look to be a sure thing.

TRANSPORTATION

Intermodal Freight Accelerating Apr 1 Economics, environment, energy spur greater interest in intermodal shipments.

Is It Enough? Apr 5 President Obama’s economic stimulus package includes allocations for transportation projects.

VALuE-ADD SERVICES

The Importance of Returns Sept/Oct 10 Take a good look at your reverse logistics process.

WERC

Advice From the Top Jul/Aug 1 WERC’s annual conference delivered the expertise attendees wanted.

Time Well Spent June 1 WERC’s conference delivered just what attendees needed to thrive in these challenging times.

2009 Article IndexArticles are presented chronologically by topic.

PERIODICALS

Go to www.werc.org for up-to-date information

Join thought leaders and practitioners in sharing operational and strategic insights in 70+ sessions on industry-specific topics.

information for members of the loud and clear · information for members of the warehousing...

Documents