Problem:
Despite having a dedicated team for stocktaking, XYZ Electronics was facing issues with the physical quantities not aligning with NetSuite’s inventory levels. In particular, raw materials were showing as either overstocked or understocked in NetSuite, leading to:
- Excessive purchasing: The system showed a shortage of materials that weren’t actually needed.
- Production delays: Certain work orders could not be fulfilled on time because the system showed more stock than was physically available.
- Unnecessary stockouts: Some items, which appeared available in NetSuite, were actually missing in the warehouse.
The client had performed regular physical counts but was unable to reconcile the physical numbers with the NetSuite system.
Investigation and Root Cause:
- Inventory Adjustments Not Properly Posted:
- The first issue discovered was that inventory adjustments (such as adding or removing stock) were not properly posted into NetSuite after physical counts. Some manual adjustments had been made but not fully updated in the system, leading to discrepancies.
- For example, items that were found during physical counts or returned from production were not properly recorded in NetSuite, so the system reflected a lower quantity than what was physically available.
- Errors in Stocktaking Process:
- The physical counting process was inconsistent, with items being miscounted or not logged correctly. In some cases, workers would skip counting certain items or mistakenly count items in the wrong location.
- There was also confusion around items that were scrapped or damaged but still showed up in the physical count, affecting overall accuracy.
- Inventory Transfers Not Accounted For:
- There were multiple inventory transfers between different warehouse locations or production floors that had not been fully recorded in NetSuite. This caused discrepancies because stock that was physically moved between locations was not reflected in the system, leading to mismatches.
- Lot and Serial Number Tracking:
- Some items were tracked with lot numbers or serial numbers, and discrepancies arose when these were not properly assigned during stock movements. For instance, items that were physically in the warehouse but not properly assigned a serial number weren’t accounted for in the system.
- Open Work Orders and Sales Orders Impacting Physical Quantity:
- Some items were allocated to open work orders or sales orders, which were counted as “available” in NetSuite but were physically unavailable because they were being processed in production or packaged for shipment.
- In certain cases, NetSuite showed items that were technically “reserved” for future production or sales, but these weren’t physically available for use.
Solution Implemented:
- Conducting a Comprehensive Physical Count:
- A full physical inventory count was conducted to reset the system with accurate physical quantities. This count involved reconciling all inventory in the warehouse, including damaged, obsolete, and reserved items.
- A process was implemented to ensure that any items found during the count were either written off as waste or added to the inventory system where appropriate.
- Improving Inventory Adjustment Processes:
- The company implemented a more structured inventory adjustment procedure. All inventory adjustments (such as reclassification, returns, damage adjustments, and corrections) were reviewed and processed by the warehouse team in real time.
- They created a standard operating procedure (SOP) for adjusting quantities in NetSuite after physical counts were conducted, ensuring that the system reflected actual stock levels.
- Addressing Issues with Stocktaking Accuracy:
- The company introduced barcode scanning and RFID technology for inventory management to improve the accuracy of their stocktakes. Scanning products during inventory counts reduced human error and improved tracking precision.
- A more consistent training program was developed for warehouse employees to ensure correct counting methods and proper inventory logging.
- Fixing Inventory Transfers:
- All unprocessed inventory transfers were reviewed, and missing inventory movements were properly recorded in NetSuite. A process was implemented to ensure that any future transfers were entered into the system as soon as they occurred.
- They also introduced a system for tracking movements between warehouses or production areas, ensuring no transfer went unlogged.
- Addressing Lot and Serial Number Tracking:
- NetSuite’s lot and serial number tracking system was audited. The team ensured that all items that were lot or serial tracked were properly assigned in the system, and any unassigned items were reconciled in the physical inventory count.
- They set up a daily review to ensure that new lot-tracked items were accurately logged in the system.
- Adjusting Open Work Orders and Sales Orders:
- The team reviewed all open work orders and sales orders to ensure that items reserved for production or sales were properly accounted for.
- They created a policy to exclude allocated stock from being counted as available inventory until the work orders were fulfilled or canceled. This helped ensure that what was physically available matched what was displayed in the system.
Outcome:
- Corrected Inventory Levels in NetSuite:
- After the comprehensive inventory count and corrections, the physical quantities and NetSuite’s inventory levels were brought into alignment.
- Inventory discrepancies were resolved, and real-time visibility into available stock was restored.
- Improved Operational Efficiency:
- With more accurate inventory data, procurement was able to place more informed orders, production teams could rely on accurate stock levels, and the company avoided overstocking or stockouts.
- The warehouse team was able to fulfill orders without delays caused by inaccurate data, improving customer satisfaction.
- Better Decision-Making:
- Management was able to make better-informed decisions on resource allocation, production planning, and inventory purchasing because the physical inventory and NetSuite were in sync.
- Long-Term Process Improvements:
- The company set up a more robust process for maintaining inventory accuracy in the future, including daily checks on inventory transfers, regular stock audits, and more rigorous training for the warehouse staff.
- They also introduced automated inventory tracking using barcodes to reduce manual errors and keep the system up-to-date.