Missing and “lost” materials cost you. Here’s what to do.

Call it WIPlash.

When production workers cannot locate expected raw materials or partial assemblies—or you’re out of something your inventory system says you have—many unproductive things happen:

  • One or more workers and managers spends time looking for what should have been easily located.
  • Materials are taken from another job, often without being recorded, setting up another production disruption.
  • A new assembly is made, even though the intended one is somewhere in your facility.
  • Production for the job stops, possibly until new materials can arrive.

Inventory shrinkage seems too polite a term given the impact—confusion, delays, increased costs, lower productivity and missed deadlines.

Why does inventory become inaccurate?

I’ve seen the following causes of inaccurate inventory. Add any you’ve encountered:

  • Inaccurate BOMs released to the shop
  • Production runs out of material and swaps parts
  • Building with old specifications which include the wrong parts
  • Not documenting damaged raw materials, re-work and remakes
  • Not labeling in-process jobs
  • Not labeling raw inventory
  • Not recording the location of finished goods prior to staging
  • Employee theft

The key to recovery

How can you restore order to production inventory? Track the job and materials throughout the process manually or by barcoding.

Many areas in your plant will benefit from labeling or tracking. Start with the method that will produce the most benefit. Implementation will take additional effort, but it will give you visibility of each job’s location and status.

What’s needed to reduce shrinkage? Here’s where the effort makes the most sense:

  • Raw material management – Receiving, transfers and returns
  • WIP management – Location of the job and needed materials and components
  • Finished goods management – Locating the product for loading the truck or customer pickup

#1 – Raw Material Issues

Can you find your raw materials without delay? Are they easy to cycle count? Do products have a long shelf-life? Under these conditions, implementing tracking systems for bin management may not be the best use of your resources.

What if you struggle to locate raw materials, cycle counting takes days, or you often discard volatile raw materials because of shelf-life expiration? Then raw materials management should be investigated as a source of inventory shrinkage. Symptoms revealed by cycle counts are frequently adjusting upward for additional found materials or downward for missing or expired materials.

You might also experience fluctuations from inaccurate counts. One time the counters can’t find the material, the next time the team finds extra material. This results in becoming unexpectedly short of material or overstocking with the additional costs and risk of throwing away expired materials.

If raw materials management is your issue, what might be your solution?

First, label raw materials during the receiving process.

Second, determine the right bin management method for your business. If space is not an issue, assign dedicated physical locations for material. If space is an issue, implement methods to know which bin inventory is placed.

When implementing bin management, I always caution managers to consider the dedication required to keep your systems current on inventory movements.

Depending on the number of SKUs, the solution and effort to execute varies.

That said, I’ve seen a company achieve a 30 percent raw inventory decrease just by labeling and assigning dedicated bins. Cycle counts became consistent and were done less frequently.

#2 – Job in Process Tracking

Know the location of every job in your facility? Who touched it? Or is your operation more like this:

CSR: “Where is job XYZ? The customer is coming to get it.”

Production supervisor: “I know we started it, but we can’t find it. We’ll rush remake it so the customer has it today.”

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Getting their order on time makes the customer happy. You,the owner, or the manager? Not so much. You’ve paid labor and materials for a lost product. And was the material (and production time) for the remake taken from another job? Will that job be delayed? Once the job is located, can you still sell it or is the job so specific it’s now scrap?

Knowing where jobs are in your shop at any time is key to eliminating a source of inventory shrinkage. But if production hides the problem, you can’t see how often this happens except when cycle counts show less raw inventory than expected month after month.

“Lose” jobs more than once a week?

If your team experiences lost work in process or finished products once a week or more, it might be time to implement manual or barcoding tracking methods.

Fortunately, job tracking is relatively simple to put in place and will almost certainly eliminate this issue.

If you plan to add job tracking, the first step is to determine how detailed it needs to be. Employee level? Work center? Work group Production line? Evaluate what matters and works in your operation.

Start with broader areas and then get more specific as needed. Scanning does take time; try to determine whether scanning at the production line enables you to quickly find a job or if you need to implement this at the employee level.

I recommend fewer scanning points first. Add more granular data collection points / scanning stations as needed.


Decrease downtime with Industry 4.0 Initiatives

Downtime is the amount of time a machine could be running but is not during a scheduled shift. Unplanned downtime is a costly disruption.

Recording your downtime is the first step in understanding how to reduce it. Understanding each machine’s downtime provides you information so you can make changes to increase the throughput within your plant.

Planning for scheduled downtime also allows you to schedule only possible work and reduce mid-stream backlogs.

Can you schedule predictive maintenance tasks? Plan for tooling changeovers per product in your production schedule? Release enough production to reduce bottlenecks?

Q2S ERP with Production Workflow provides you with all these capabilities.

For busier operations, you’ll want to consider using spreadsheets or software systems to automate the data collection. It can be done as part of your ERP system.

The advantage to tracking jobs throughout the process includes eliminating remakes for something already started or finished merely because production can’t find it.

#3 – Track finished goods location

Can you quickly find all finished goods? Or, are you discarding or selling finished product at a discount because production could not find it and made an extra to get it on the truck?

If it’s quicker for production to make a new item than it is to find it in the finished goods staging area, it may be time to implement location tracking.

I’ve seen large staging areas with so many jobs that it takes one or more hours to find items. At least once a week something can’t be located, even when jobs are marked with a Sharpie or labeled.

When a finished good remake is created but not recorded, that’s inventory shrinkage. Meanwhile, the finished goods staging area keeps getting fuller. Another side effect is that raw materials are consumed faster than anticipated, which is not discovered until the next cycle count—or production runs out.

Tracking and staging finished goods eliminates time looking for completed work. It also allows, with the right system, storing a finished job in multiple locations yet ensuring complete shipments with no missing items.

Next Steps

Walk the shop, look around and test your team.

  • Are raw materials bins mixed or dedicated to specific products?
  • Time how long it takes for production to tell you the location of a current job. Add to that the time it takes to get back to work from the distraction.
  • Grab a packing slip for a multi-line item and quantity job scheduled for shipping or pick up today and see how quickly production can find it for you. How long does it take them to ensure it’s the right product and quantity? Are jobs staged together or in multiple locations?

Tracking systems save time and money. They also improve customer service because you can give accurate delivery estimates and quickly confirm whether things are on schedule.

Recognizing the root causes of raw inventory shrinkage will help you determine where to put your efforts and provide the best ROI at your facility.