What is in this article?:
- Inventory Accuracy Improves Performance on Logistics Metrics
- Getting That One Percent
Inventory accuracy is the variance between perpetual inventory and physical inventory. It is an important part of supply chain management because organizations that allow their inventory accuracy to drop run several risks. Misleading inventory levels may make it seem that these organizations have more inventory than they actually do, which leads the organizations to sell stock that is not there and can result in dissatisfied customers. Inaccurate inventory data may also mask inventory that is actually there, which can lead to stock remaining in a warehouse until it becomes obsolete.
A related issue is increased inventory carrying cost. To get a better idea of how much additional cost can be related to carrying inventory, APQC reviewed data from its Open Standards Benchmarking in logistics. The data shows a nearly 11 percent difference between top performing and bottom performing organizations regarding inventory value as a percentage of revenue:
- 16.0% -- Bottom performers
- 9.4% -- Median
- 5.2% -- Top performers
For an organization with $5 billion in revenue, this difference translates into $540 million in inventory carrying cost.
Aside from lower inventory carrying cost and more satisfied customers, higher inventory accuracy can lead to improved performance in other logistics processes. APQCs Open Standards Benchmarking database indicates that an increase in inventory accuracy from 98 percent to 99 percent is associated with an increase in supplier orders delivered on time, faster dock-to-stock cycle time, and an increase in the amount of sales orders delivered on time (Table 1).
Improvements in the metrics listed in Table 1 can affect the entire supply chain. When inbound deliveries to an organization arrive within the scheduled time frame and are quickly moved into the warehouse, those materials are available for customer orders sooner. Faster processing and delivery of products leads to satisfied customers and lower inventory carrying cost.