In our previous Actionable Insights blog, we discussed the Equipment Analysis Action Center. Next, we will provide an overview of the Inventory Data Health Action Center as well as the associated key performance indicators (KPIs).
Most manufacturing companies are dependent on their ERP systems to ensure inventory balance and availability, as well as for providing product cost rollups to ensure they meet adequate margins when setting prices. But without accurate data to feed into an ERP system, the information it provides will not be exact—and that could lead to wrong decisions.
Item costs are a critical piece of data because they are necessary for cost rollups and pricing, but they may also affect inventory ordering or cycle count policies. For example, many companies have a rule of thumb that defines how much inventory to order based on the items’ ‘A-B-C’ class. A-B-C classes are often assigned to items based on their value and without a cost, an item may never be classified. As a result, critical items may be in short supply, or the company may overstock an expensive item. Costs and margins will be inaccurate; inventory valuations will be wrong; and financial statements will be based on incorrect source data.
Monitoring the company’s inventory data health is crucial to ensuring the company operates effectively. Companies should strive to eliminate all zero costs in current data, especially if an item has a quantity on hand.
KPIs for Effective Inventory Data Health Management
QAD Action Centers provide analytics to help both managers and users monitor metrics and KPIs. KPI highlights for the Inventory Data Health Action Center include:
Select Buyer Planner
Most companies assume the buyer or planner responsible for managing inventory should also be responsible for ensuring that all necessary data to describe the item are in the system. Most buyer planners review items under their control for accuracy and completeness at least once monthly, but during new product introductions or before the start of a new fiscal year, many people do it more often to ensure that downstream processes that rely on the data produce correct results.
Select Item Types
This graphic allows the user to limit the results to specific item types. This can be helpful to enable the user to limit results to a particular item type. The user may then be able to work with a single vendor or engineer to ensure that all information is available. Working this way can be very efficient by preventing the need to go back to an information source multiple times while working on the data review.
For companies that have differing data at each site, the ability to segregate results by site can enable the user to save time by eliminating items for which they bear no responsibility. This can also be helpful for plant managers or site managers to ensure that their data is clean before cost rollups or new product introductions.
Items with Inventory and Zero Cost by Buyer-Planner by Site
This graph shows the number of items at a site with zero costs, which can cause problems with cost rollups, pricing or inventory valuations. This is a useful metric for ensuring that buyer planners are keeping up with data health requirements and can also prevent pricing or valuation errors that affect financial reports.
Items with Inventory and Zero Cost by Item Type and Site
This graph shows items with zero cost by item type and site. In some companies, responsibility for data health may be assigned by item type, so this graph helps identify when specific item types need more attention. Like the graph above, ensuring that zero costs are corrected can improve the accuracy of product costs, helping to ensure healthy margins and reducing or eliminating overall inventory valuation errors.
The Importance of the Inventory Data Health Action Center
Missing cost information on an item will adversely affect the accuracy of cost rollups by missing the cost of items on a bill of materials (BOM). Companies need accurate product costs to set pricing that covers their costs and allows for healthy margins, but missing costs may cause the company to set prices too low.
In addition, with inventory on hand and no item cost, the overall value of inventory will be understated. If a low-level item is used in multiple finished goods, or if its parent product is high volume, the effect on inventory valuations can be substantial and result in inaccurate income statements and balance sheets.
While a few missing costs may seem like a trivial issue, the ramifications can be very damaging to the company. This is why inventory data health should be a priority for every manufacturer.
Today’s adaptive manufacturers must move quickly to satisfy customers, and this extends to frequent discounts or price changes and the need for accurate margin calculations. For these activities to be effective, the underlying data must be complete and accurate. Understanding and eliminating potential cost or valuation issues is crucial. QAD Adaptive ERP helps companies find and eliminate problems before they can interfere with results.
Which KPIs and metrics are most important to your organization? Learn more about QAD’s predefined Action Centers as well as best practices for each.