It’s more than likely even during your off-season that your greenhouses and high tunnels are never empty. If you run a garden center, merchandise is always being checked in and sold out. To keep track of everything, it’s important to think about perpetual inventory.
Gary Cortes, a partner of FlowVision LLC, has 30 years of Lean Flow Manufacturing experience and has been focusing more on the green industry over the past 15 years. At the recent Cultivate’23, he delved into the topic of managing perpetual inventory.
“You need to keep track of inventory, even if it’s just an Excel spreadsheet or even consistently updated pen and paper,” Cortes said. “Tribal knowledge” – any unwritten knowledge within a company that is not widely known – “is bad for business practices.”
What is perpetual inventory? Cortes explained that in business and accounting, a perpetual inventory system describes a system where information on quantity and availability is updated on a continuous/real-time basis as a regular function of doing business. Generally, this is accomplished by connecting the inventory system with order entry and, in retail, the point of sale system. In this case, he said, book inventory would be the same (or almost the same) as the real inventory.
“Updating your inventory once a week really doesn’t work,” he stated. “You want something as real-time as possible.” Ideally, that would mean inventory quantities are adjusted after each transaction.
The concept means knowing exactly how many items were produced or purchased, and exactly how many items were shipped or scrapped/dumped. Therefore, we would know how many items are left over.
“Think of it like a checking account, with deposits and withdrawals,” he said. “It shouldn’t be that difficult, right? It’s simple in theory, but we have so many people with lots of touches.”
If you don’t already have one, you need an inventory management system. Cortes said you want one that’s able to track inventory growth by location; is capable of tracking first in, first out (FIFO), especially because of the staggered nature of plantings; and that has the ability to prioritize multiple batches and locations (because plants aren’t widgets – they all grow differently).
Inventory often goes awry due to employee error, not system error. Sometimes a product is moved from one location to another and no transaction is recorded. Or a product is pulled from a location that was not assigned. Or a product is dumped but never recorded. (Find out why a product was dumped and assign a reason code – ordering issue, irrigation, pests, etc. – because you’re never going to fix the problem if you don’t know why you’re dumping product.)
You also need to know the difference between available to ship (ATS) and available to promise (ATP). The former means you can sell it or ship it; the latter means you have it but it’s not ready to be sold or ship yet (it’s just been planted, for example). Cortes said knowing what percentage of your crop is ready is key here.
Everyone in the operation should be involved in inventory. Key inventory team responsibilities include managing the inventory system and advising production teams on consolidated open space. “Grow space is critical – know what space is available,” Cortes advised. “You want multiple turns for each space.”
The team should also be providing prompt solutions for inventory adjustments and operating using either a cycle count method or a physical count.
Cortes explained that a cycle count is a “random” count each week of certain areas vs. counting every single item with a physical count. Figuring out which count to use is important, because when things are being counted, nothing is being produced and nothing is being sold.
Which count should you use? Cycle counting is more regular, more efficient and can occur during work hours, Cortes said, and high-running products will still be spot counted. Cycle counts help to quickly identify inventory issues. Physical counts require more time and labor, and usually only discover variances after a few weeks since you may not be doing them very often – and they must be done outside of normal business hours.
But keeping track of everything is only one side of inventory; you also want to be able to analyze the data being collected with a perpetual inventory system. “Analytics are measured in units or dollars,” Cortes said. “Measure what you want managed.”
Share relevant data with your staff as well. Cortes you should try to be perfect – but ideally, aim so that your margin of error is less than 10%.
Like any other system, there are pros and cons to the perpetual inventory system. Cortes listed the pros as access to real time data, the sales ability to upsell, efficiencies in shipping and production and the ability to quickly turn growing space. The cons include requiring discipline, being technology dependent and a margin of error to contend with.
“You need to tie the inventory data in with your daily and weekly walks,” Cortes said. What you see with your eyes needs to be linked with what’s “in the system.”
by Courtney Llewellyn