By Lee Schwartz
Does your company sell widgets of some sort? From apparel to electronics to tools, if your business physically handles and stores tangible product, then the concept of inventory accuracy is a very familiar refrain. Profitability, customer retention, operational productivity all hinge on reliable inventory numbers.
Whether an organization employs a computer system for easily accessible perpetual inventory or uses Excel spreadsheets or relies upon old fashioned manually recorded inventory cards . . . or some hybrid along this spectrum . . . the benefits of accuracy are enormous. Just think of the implications:
- Accuracy allows the buying staff make appropriate replenishment decisions, reducing stock-outs
- Sales reps can write customer orders knowing that what they promise to be shipped is what the customer will receive
- Warehouse labor is not wasted scouring the distribution center in search of phantom inventory
- Critical cash is available for capital improvements, opportunistic purchases, investments, etc. rather than being tied up in unnecessary inventory
The benefits of maintaining an accurate inventory are by and large obvious. But there’s one advantage that may not be so readily apparent. Proper management of inventory in a warehouse or in a business can dramatically reduce employee theft. Items in storage or on retail shelves can be stolen without the knowledge of the business owner if inventory is not properly tracked.
Reducing employee theft can be achieved by any number of inventory oversight initiatives. Many companies take a physical inventory once a year. That may satisfy the controllers and CPAs but has little likelihood of discouraging your internal thieves from walking product out the door. But cycle counting, a prescribed, regularly scheduled regiment of inventory management can deter the ill intended sticky fingers.
Here are some considerations when developing a cycle counting program:
- Frequency. The greatest benefit comes from a more repeated regimen. The more time that passes between a physical count and reconciliation the less likely one is to spot a theft problem.
- What to count. Higher dollar value items that are small enough to place in a pocket, shove up a sleeve or slide in a sock might warrant more attention. Consider those products that have more street appeal. When I ran a wholesale distribution company some of the primary theft targets where high end, attractive flashlights. For purposes of theft prevention, think like a thief to determine what to count.
- Where to count. Dark, less accessible areas of the warehouse are prime areas from which product will disappear. Same goes for inventory near exit doors. Staging areas for both incoming and outgoing shipments may be too close to the dock doors. If no one is around to keep an eye out, it would be easy to take something and put it in a truck.
While cycle counting as an inventory management method is one form of theft deterrent, there are other steps to take that reduce vulnerability in your organization. Don’t underestimate the resolve of a thief. They will find creative schemes to shuttle inventory outside the four walls. They thrive on chaos and deception.
Product will be dropped in the trash. After the contents of that inside trash can are tossed in the outside container, an accomplice will rummage through the rubbish collecting the pilfered goods. Returned orders typically fall under the radar once returned. They’re sometimes carelessly set aside until the mound of boxes become unsightly or until customers scream for credits. By the time attention is paid to the returned order, somehow it’s gone.
Employee theft is an epidemic that directly reduces bottom line profitability. A 2007 report stated that Wal-Mart’s employee theft outpaced loss from shoplifting by a whopping 50%.
Are you vulnerable? Very likely, yes. Even the use of physical prevention techniques such as security cameras and fenced/ gated storage areas are no guarantees.
What can you do? In addition to some or all of what’s been described above, conduct a security survey/ audit performed by a security and/or inventory management expert who will evaluate your operations to identify any security weaknesses. Options abound. The only option you should never consider is to do nothing at all.
About the Author
Lee Schwartz is Principal of The Schwartz Profitability Group. After a successful 20+ year career leading Southern California based manufacturing and distribution companies, Mr. Schwartz formed his consulting practice in 2001. Mr. Schwartz helps small to middle-market manufacturing and distribution companies eliminate bottlenecks on the plant floor or in the distribution center by creating more efficient operational and supply chain processes. Mr. Schwartz is a member of the Council of Supply Chain Management Professionals, the Institute of Management Professionals and a group leader of the ProVisors Distribution and Manufacturing (D.A.M.) Affinity Group.
Contact Patricia Kotze at firstname.lastname@example.org or 800.810.9500 for more information about Mr. Schwartz.