UK: Hands off stock control! (1 of 3)

UK: Hands off stock control! (1 of 3) - An automatic inventory system is at its most efficient when human intervention is kept to a minimum, says Anthony Lines.

Last Updated: 31 Aug 2010

An automatic inventory system is at its most efficient when human intervention is kept to a minimum, says Anthony Lines.

There are circumstances in which inventory holdings can be reduced - even, it is claimed, eliminated - by the application of fashionable techniques such as just-in-time (JIT) and materials resources planning (MRP). However, the usefulness of these methods, or rather philosophies, is often severely constrained by business practicalities. In a competitive world the need to give a quick and reliable service usually makes the carrying of a certain level of stocks essential to smooth and efficient operation. Doubts about what the customer might want in the future, and the impossibility of knowing in advance that a prompt and 100% reliable supply of materials and components will always be available, mean that any policy of holding negligible stocks is fraught with danger. In practice, therefore, inventory control continues to be essential to the management of supply and production in most companies.

Happily, it is now possible to design effective systems of inventory control which operate automatically. These systems differ from most other computer-based management systems in that they make decisions - about what to manufacture or purchase - rather than simply provide information on which management's decisions may be based. Indeed, for the most part they work best if left to run themselves: human intervention usually succeeds in reducing their efficiency.

Automatic inventory control can bring a quantum leap in performance. Its effectiveness is easily demonstrated by reference to actual cases. Alcatel Business Systems, of Romford, Essex, is one operation whose management had the courage to accept that technology has as much to offer to administration as to the more physical activities of manufacturing and distribution.

More than two years ago the business installed an inventory system designed to work automatically except where management is alerted by an exception report. This has so reduced the workload that one stock controller now manages the entire inventory of the after-sales division, which stocks 29,000 active parts and accessories; her only assistance, apart from the computer, being an hour-long discussion each week with the manager of the department.

In many businesses it would be customary to find a department of a dozen or more people doing this job. But a reduction in the head count is not the only benefit resulting from the new system. The number of customer orders which cannot immediately be filled from stock has been halved, yet the value of the stock carried has come down by 15%. Such improvements are by no means unusual: inventory reductions of the order of 15 to 40% are quite normal. However, where customer service is the key to the business, management may take the opportunity to improve the level of service rather than reduce the investment in inventory.

A properly designed and used system will often show a return, whether measured in terms of inventory reduction or profit contribution, sufficient to cover the entire cost of the installation in less than a year. However, many companies deny themselves the fruits of their investment in such systems (and indeed in computer systems generally) by their reluctance to abandon traditional methods of working. This resistance is understandable, at least, on the part of the stock controller, who might regard the system as putting him out of a job. But it frequently permeates a company from top to bottom. Thus operating departments are set objectives and required to follow procedures which totally ignore the needs and potential of the new system. Computers, it seems, can be trusted to control machine tools in the workshop; computer control of inventory is another matter.

Reluctance to let the computer do more than provide information generally appears whenever a new system is being devised. Some larger companies, in particular, have had computer-based inventory control systems for 20 years or more, and may lately have decided that the time has come to renew or update their systems, taking advantage of developments in technology. The project team charged with this task will provide for the latest thinking to be incorporated. Yet, typically, in deference to established practice, many features of the old system will be retained. This applies, above all, to the screenfuls of information on which the stock controller previously based his decisions. Some newly designed systems, therefore, actually allow the stock controller the alternative of accepting a computer-recommended order quantity or of reaching a decision on the basis of information on the screen, as he has been accustomed to.

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