How Human Error Effects Manual Inventory Management

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People make mistakes. It happens because we are all human. However, when inventory management errors continuously occur across your operations, they will cost you significantly in the long run. In some businesses it can mean loss of inventory and profits; in the case of healthcare or pharmaceuticals, it could even cost lives.

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As a small business owner, it’s your job to ensure the likelihood of errors are reduced or even eliminated.

So why do you put so much confidence in Excel spreadsheets when you track your inventory?  Just because it’s a computer software program doesn’t make it fool proof. Excel still entails users to manually key data into spreadsheets, and even the best typist will make one error for every 300 keystrokes.  Over time, those seemingly simple mistakes cause a negative ripple effect, from the initial request to the time an order ships.

Proof That Spreadsheets Don’t “Excel” In Business Processes

Ray Panko, from the College of Business Administration at the University of Hawaii, noticed overconfidence in the use of Excel spreadsheets within businesses. So he decided to test his theory. He asked groups of his undergraduate management information students to perform various simple spreadsheet tasks, like building a pro forma income statement from a textual description. Panko assigned some students to work alone, while some worked in a group of three. After the spreadsheets were done, he asked the students to estimate the probability that they or their group had made an error while building the spreadsheet.


Related Article: MANAGING INVENTORY IN EXCEL CAN RESULT IN DISASTER

  • Students who worked alone estimated their error rate to be 18%. Their actual error rate was 86%.
  • Groups predicted a 13% error rate, but in reality it was 27%.

It’s interesting to note that the groups had considerably less errors. The research showed that the only way to get around spreadsheet errors was to engage in multiple reviews of each formula cell by a person who wasn’t involved in creating the spreadsheet. They assumed for a 1000 cell spreadsheet, there would be a 2% error rate (or 20 incorrect cells). However, after three critical reviews of the spreadsheet, there were still two errors left.

Inventory Control & Tracking Systems

These results are not unlike those in a workplace. Does your small business have the time and manpower to do such in-depth checks of your important spreadsheets? Probably not. Panko’s studies consistently show that the majority of spreadsheets used in business are materially incorrect.

Elements That Play Into Inventory Management Errors and Other Errors in the Workplace

Nobody means to make a mistake.  However, there are many different factors, both individual and environmental, that influence an employee’s performance during the course of their workday:

  1. Fatigue: Your employee could just be tired for whatever reason. Fatigue can negatively affect a worker’s performance to the same degree as if he or she was under the influence of alcohol, which in turn impairs judgment and concentration.
  2. Multitasking: Employees wear a lot of hats in a small business. That’s just the way it is. What if your customer service rep is keying in orders, while trying to fill in for the receptionist’s lunch break? The extra job could interrupt her focus and can cause her to key SKU numbers incorrectly.  Or a healthcare worker carries multiple patients’ medicines on his rounds to save time and ends up administering the wrong drug to a patient. Needless to say, each mistake can be costly, or even life threatening.
  3. Emotional Stress: Perhaps an employee had a disagreement with a co-worker or took a call from a disgruntled customer earlier in the day. Even if they try to control their emotions, it’s still upsetting to them and could take their mind off of work.
  4. A Noisy Environment: Noise is hard to prevent, especially in a warehouse. The brain does have a more difficult time focusing on tasks when there’s a lot of outside noise.
  5. Skeleton crews: When you are operating with a small team or are short staffed due to call-ins or weekend shifts, there’s simply a lot of work to get done and not enough people to do it effectively and efficiently.  This, in turn puts the quality of your work on the line if workers cut corners to get things done on time.

You can only control so much. The point is that your employees will always have some sort of distraction that could cause them to make mistakes. The one thing you can control is what tools are available to help their do their jobs better. When you implement an automated inventory management system, the use of barcodes and scanners not only eliminate the need for data entry, but will increase accuracy to nearly 100%. It also will save time, so a smaller crew can focus on growth strategies for your company.

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“Small” Mistakes Cost Big Time

Businesses, large and small, have had their fair share of struggles with Excel. Banking giant JP Morgan was no exception, according to Tim Worstall, tech contributor for Forbes. The company’s chief investment office in London needed a new value-at-risk model created for a synthetic credit portfolio. The developer created it using a series of Excel spreadsheets. This model had to be “completed manually, by a process of copying and pasting data from one spreadsheet to another,” according to JP Morgan’s report.  Yes, the researchers shifted around tens of billions of dollars using these spreadsheets, with no automation or review processes in place.

One of the equations ended up being incorrect, and the bank lost several billion dollars as a result.

Worstall chided “…as we can see getting it wrong can be painfully expensive.”

In another case, Precision Drilling’s Niksu support center near Edmonton, Alberta had relied on Excel spreadsheets to manage $2 million in repair and service parts inventory. Lee Letawsky, parts technician and purchaser, manually updated item counts and had to physically locate pieces in the warehouse. Not to mention, there was no accessible record of a component’s age, usage history, or availability. The inefficiencies caused the company to lose money from unnecessary shipping, inventory, and labor costs.

It was literally a mess, with parts piled everywhere. Workers were wasting valuable time looking for things or ordering things that were already in stock, but they simply couldn’t find. After doing some research, they chose Wasp Barcode’s InventoryControl Pro, a WDT3200 mobile computer, and a Wasp WPL305 barcode printer.

“Previously, it was often faster to order a new part because we couldn’t locate it in our supply room in a timely fashion,” Letawsky said. ”Or, we had to rush one of the components because we missed sending it initially. Now, we know what we have and where it’s located and can get all the necessary parts to the field the first time.”

Accurate inventory management has given the company better insights into their stock so they don’t needlessly order extra parts. Since Precision’s repair parts cost $5 thousand to $6 thousand a piece, inventory management has had a positive impact to its business profitability.

How have mistakes from using Excel impacted your business?

For a free inventory management demonstration from Wasp Barcode Technologies, click here.

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Brian Sutter

Brian Sutter

Director of Marketing at Wasp Barcode
Brian Sutter is the Director of Marketing at Wasp, responsible for the development and execution of the company’s marketing strategy. His role encompasses brand management, direct and channel marketing, public relations, advertising, and social media. He also writes and speaks on topics related to helping small business owners grow their business and improve operational efficiency.
Brian Sutter
Brian Sutter