Management + Systems

Across almost all aspects of manufacturing, businesses are eliminating paperwork to boost efficiencies. In this article, Kiran Soni, managing director of inventory management specialist RGIS, explains how to calculate the hidden costs of an in-house stocktake, as well as the challenges companies may face when relying on pen and paper inventory management.

The annual stocktake is often a source of workforce grumbling, viewed as a necessary chore. But it also might be costing a lot more than realised. As with any other aspect of manufacturing, we need to fully understand this issue before we can make an informed decision on how to address it. Questions to consider include how much human resource it requires and whether it diverts resources from other areas of the business.

When calculating the hidden costs of an in-house stock take, it is important to account for all factors. The first question to consider is, how much human resource is required? This will vary significantly depending on the size and complexity of the warehouse.

For example, a small operation might only have a few hundred Stock Keeping Units (SKUs), whereas a more complex or larger company can easily keep more than 10,000 SKUs on the shelves. To complete an inventory check successfully, people are needed to manually count parts and collate the information, as well as someone to compare the findings with inventory records.

Often, the warehouse team cannot manage a full stocktake on their own, meaning people are brought in from the production cells or assembly lines; or office staff from departments such as purchasing and accounts. If considering this approach, there are two ways these costs can be measured. 

Firstly, how much does it cost to pay a production or office worker to carry out an inventory check? Secondly, what impact does diverting these people away from their day jobs have on productivity and efficiency – even on sales targets? Even if a stocktake is scheduled to coincide with an annual shutdown, there is still a cost involved. Workers are being paid to come in while the rest of their colleagues are on annual leave.

The third question is harder to quantify but is equally important. Are those workers taking part in the stock take capable and motivated? Disgruntled colleagues from the assembly lines will be less effective, taking longer to complete tasks. Similarly, those with little experience of inventory checks have a higher risk of making mistakes which will impact the accuracy of results. For example, not everyone in the stocktake team may have the expertise to identify a damaged or mislabelled part.

Many manufacturing facilities still rely on pen and paper inventory management. Of course, they keep digital records of inventory, such as spreadsheets; but the stock take itself is still recorded the old fashioned way. This presents a further risk of inaccurate results, as written records of stocktakes are open to human error during the count as well as transposing the data into a digital format. 

Above all, manually recording the data requires a significant amount of resources. It can lead to inefficient counting techniques, meaning the actual counting of SKUs takes a lot longer. Working out the size, scale and location of discrepancies between the count and the inventory records can be a laborious exercise that is also at risk of the same human errors. In addition, you can only understand issues on variances after the fact. In a pen and paper stocktake, there is no mechanism by which management can gain oversight and insight until the entire process is complete. 

One way to ensure better results is to implement a barcode system. These are of course common in retail but less so in manufacturing and while introducing barcodes for all SKUs can significantly improve the speed and accuracy of a stock take, there are significant downsides. 

Rolling out a barcode system across the entire warehouse requires a huge investment in time and money. It requires the diversion from day jobs described above, along with all the inherent risks from using inexperienced or unmotivated workers and requires a pause in production that comes at a price.

There is a way to avoid all these costs and challenges – outsourcing the annual stocktake to a third party. Inventory management specialists such as RGIS can help companies make significant savings on stock takes. Put simply, trained, experienced auditors work faster, meaning it can complete a stock check in far fewer days. 

In addition, breakthroughs in technology mean that some providers can now offer the speed and accuracy of a stocktake using a barcode system without the cost and hassle of implementing barcodes. RGIS Vision is an advanced industrial solution that goes beyond barcode scanning to speed up stocktaking and inventory checks by eliminating paperwork and manual data entry. It can scan part numbers, product codes and barcodes, enabling auditors to achieve faster and more accurate results than a manual in-house stocktake.

In the past, managers could only complete the variance checks once they had collated all the paperwork from a stocktake. Using RGIS Vision means auditors can send management a line-by-line variance report as it completes the count on each parts bin. This saves a significant amount of administrative time after the stocktake and provides companies with much quicker insights.