Quality in a Warehouse – Reimagining the Process

Working DollarOver the last 20+ years in and out of warehouses, it never ceases to amaze and horrify the quality department operations and the waste of resources spent in either making up for failed quality or haphazardly running quality programs, thinking they are a waste of time.  Even those companies who focus resources on quality never seem to understand the trifecta of operational integrity (Product in, Quality, Product Ship) that quality could bring to an organization.  The reality is simple, quality is either your focus, your company is growing, or quality is a nothing burger, and your company will eventually be purchased or bankrupted.  There is no third option; we need to be clear on this point; quality is this important!

In quality and part of many compliance requirements are counting to ensure inventory is correct.  The counts break down into three types:

  • The Hunt – goes by many names but generally requires a person to count everything in a specific inventory location, e.g., shelf, rack, drawer, bin, etc.
  • Cleaning Inventory – is almost always called a cycle count, and its main job is to take the errors found in the hunt and clean them up, resolving specific issues.
  • Correcting Inventory – goes by many names but is generally used as a specific action where research is required, combining the hunt and the cleaning to find particular errors, lost product, and specific SKU issues.

If the counts were ordered by a financial institution instead of the quality department, the processes for clearing the errors might differ; the names often vary.  Yet the categories are pretty generalized to cross industries and remain applicable to a general discussion on operational improvement and excellence.  Specific companies will change names and processes, but I affirm the categories are sufficiently described to be practical and applicable.

Money

A fact of life, inventory is expensive, counting that inventory burns blue money, and those funds are generally not recoupable!  When speaking about money, colors of money are critical to a discussion.  Unfortunately, too many business leaders are either too concerned with green money or not cognizant sufficiently of the other colors to see how they all play roles on the bottom line’s performance.

  • Blue Money: Potential Money.  For example, buy a hammer with green money and invest $20.00.  But, in the hands of an experienced tradesperson, that hammer is worth thousands of times this amount of money over the life of the hammer.  The inverse is also true; in the hands of an inexperienced tradesperson, the potential for loss of money is incalculable!
  • Red Money:   Specifically, debt where interest is owed, on top of the principal, and other cash outlays.
  • Black Money: Dead Money!  Dead money cannot earn interest, cannot be spent due to fear, and cannot be used anywhere.  For example, drop a $10.00 bill into the sofa, and that money is as dead as yesterday’s fish!  Worse, once found that capital is usually in someone else’s hands.
  • Green Money: Cash!  Plain ol’ greenbacks.  Be those digital dollars, actual paper money, change, etc.; this is money that can still be invested, spent, and transferred for products.  Generally representing the bottom line.

While other colors exist, the focus is on these four types specifically.  Let’s use an analogy here for a moment.  A warehouse company hires a person to count inventory (green money outlay).  That inventory person invests time to count inventory (blue money) errors in stock could be red, black, green money errors, based upon how the inventory problems are resolved.  If no inventory problems exist, only the blue money was spent potentially finding the mistakes.  However, if errors were made and inventory errors exist but were not found by the inventory counter, more potential money has been lost than green money.  There is a blue, green, red, or black money loss on top of the original investment to have the inventory counted.

There is an axiom pertinent to quality in every industry, “Burn enough blue money, and green money evaporates with no trace.”  Hence, if the quality people are burning too much potential money to find defects in inventory, green money (cash) will disappear off the bottom line without anyone ever knowing or tracking the loss.  This brings the conversation back to types of counts and the problems in quality operations.

Fundamentals of Reconnaissance

Anyone who has ever conducted reconnaissance will know and understand the connection between quality and inventory in a warehouse and reconnaissance.  For those not familiar, here are the fundamentals of reconnaissance.  Reconnaissance is all about observations and reporting, communicating and making decisions about intentions, forecasting, and deciphering to make the best decisions while passing relevant information to leaders.  Guess what; The same is true of quality departments, especially in warehouse inventory.  The seven fundamentals of reconnaissance are:

  1. Ensure continuous reconnaissance occurs
  2. Do not keep reconnaissance assets in reserve
  3. Orient on the reconnaissance objective
  4. Report information rapidly and accurately
  5. Retain freedom of maneuver
  6. Gain and maintain enemy contact
  7. Develop the situation rapidly

Essentially, in civilian speak, the fundamentals of reconnaissance boil down to initial observation, data collection, data analysis, response to data, and response assessment (evaluate actions with an eye to the improvement of response).  Repeating only for emphasis, every employee in a manufacturing or warehouse environment is part of the quality chain of events.  They need to know how their actions individually lead to group (business) success.  Case in point, a stock person stocks a bin with a product; if that bin is crammed full, the product is going to fall out, become damaged, and create problems for the next person to look at that inventory location.  If in a manufacturing environment, if stock feeding machines are not uniformly loaded into the machines, damage, injury, and death potential are maximized.Inventory Quotes Humor. QuotesGram

It is important to remember that this is part of the first step in reconnaissance, observing what is currently happening.  Observation is also part of the most basic type of count, the hunt.  Knowing what the inventory looks like, how to access that inventory, maneuvering on a production floor, personal safety, and equipment knowledge and safety are all part of properly observing, collecting, and reporting data.  A person I know once told me, “Keep throwing spaghetti at the wall until something sticks.”  What is not mentioned is the need to prepare the spaghetti so it will stick when thrown.  Observation is where preparation occurs, and the business skipping preparation will always fail to capture the data for analysis accurately.

Counting Inventory

The hunt represents the counts with the least return on investment and a need.  Hunting inventory errors is akin to hunting game only with a camera.  You might get good pictures, but hunting with a camera will not fill your belly if you are hungry.  Personally, I despise the hunt and have long advocated for these counts to be removed from the quality department’s count types or be redesigned to become more valuable.  Simply counting inventory for the sake of hoping to find an error is anathema to good business sense and propriety.Inventory Quotes Humor. QuotesGram

Remember, a paradox occurs when two items are compared, and at first glance, they are opposites, when in reality, and with consideration, the truth is revealed they are more closely related than they are opposing.  The same is true to counts that hunt for inventory defects and proper observation, providing why I despise the hunt counting.  Preparation is a prerequisite to revelation, knowing where the inventory is, how to maneuver in a warehouse, and reach the stock; all this and more are essential.  Yet, when counting inventory, I affirm there must be a better way than endlessly sending people out to count, hoping to find defects.

Some companies have mixed inventory hunting counts with shelf maintenance and bin cleaning defects.  Warehouse rash, trash, litter, dirt, and debris in a warehouse remain a significant safety issue and should be cleaned regularly.  However, if the stock person is not already cleaning and stocking bins and shelves properly, the quality assurance person sent out to hunt for defects will become demoralized and stop cleaning up after the stock handlers.  Whether those stock handlers are pickers, packers, pullers, stockers, etc., the title is less important than the role they play in quality for handling the inventory, keeping a steady strain on the cleanliness of the shelves, bins, and storage locations, and correctly placing the stock into the inventory locations.

Several colleagues who are part of the quality control group in warehouses express similar sentiments to the following: “My job in quality would be a lot easier if those stocking shelves and those pulling stock to ship would pay more attention to how they handle the stock and the inventory locations.”  To which my answer is always the same, “Are all your people aware of the role they play in quality?”  By the comments answering my question, it is fundamentally clear that there is a Grand Canyon-like chasm between those not officially in quality and those in other roles, and fixing the problem, and eliminating the useless hunt counts, is all part of bridging this chasm!The Crazy Work Related Moments (51 pics) - Izismile.com

Hunt counts do one thing valuably, they provide an innocuous way for quality people to learn the inventory and observe conditions generally, which sounds like two separate actions, but in reality, they are the same action.  That’s the entire value in hunt counts; these counts cannot clean inventory defects; they can only take a picture and report that picture to begin another warehouse process.  The frequency of errors in the inventory hunt process forms a view that reports how clean or dirty a warehouse’s inventory process is; but, this report can be related with greater accuracy without the hunt counts.  Unfortunately, because the data reported is shared in numerical values, individual bias in the statistical reporting tools can be manipulated and often is misrepresented by conscious or unconscious bias.

Hence, we can conclude that the hunt count by itself has little to no value (green money), is expensive (blue money), and will heavily influence the acquisition and maintenance of red, green, and black money.  What is a person to do?[2020's] Top 11 FAR CPA Exam Study Tips - Pass on Your 1st ...

Possible Solutions

Possible solutions are aptly named because no warehouse is exactly the same, no company is exactly the same, and the quality department mission will always differ from one business unit to another and between businesses that compete.  I admit I am heavily biased against hunt counts in the warehouse and manufacturing industries.  However, I am also heavily biased about removing something that works for something untried in the hopes it will replace a flawed system.  Thus, the solutions proposed remain possible solutions to initiate the spark to a future conversation and obtain input from smarter minds.

  1. Since the hunt counts are basic, and the roles of stockers and pullers are very similar to an initial role in quality where learning and observing inventory is a prerequisite, make the entry-level job for stockers/pullers/quality all the same position—cementing the need for everyone to play an active role in quality while also removing lines that separate.
  2. Fundamentally change the hunt count to focus not on inventory locations that appear clean but those in chaos. Chaos in an inventory location should be the primary focus for correction, not simply a mindset that everything will eventually be counted, so invest in useless counts to make work.  Hence a stocker or puller would approach an inventory location with problems and count that full location while cleaning and straightening that location and reporting that location as problematic for corrective remediation with the last person who visited that inventory location.
  3. Stocker/pullers will not be able to correct defective inventory; this is a Sarbanes-Oxley headache for compliance, but this is a good thing. A level two quality associate could then be dispatched to that newly cleaned, organized inventory location to perform inventory correcting actions, thus speeding the corrective inventory action and providing better data on associate activities.
  4. Part of reconnaissance is using data more wisely; this includes capturing data details, improving training, promoting quality as a mindset for every employee, and analyzing the data for specific corrective actions the business can initiate in inventory locations, shapes of packaging, and handling stock more efficiently to prevent damage. Follow the data path to root causes and act on correcting root causes.

Final Thoughts

Knowledge Check!Qualitative data is almost useless by itself.  Quantitative data is practically meaningless by itself.  Thus, operational reports must contain both types of data to provide a clear picture of events and be the most useful in improving decision-making.  More to the point, mixing both types of data individual bias and subconscious manipulation of the data is more difficult, thus mitigated.  Reconnaissance is all about communicating and capturing data for analysis.  Why should a business leader only have quantitative data to base decisions upon; hence the need to understand data and use data more wisely.  Never settle for only one type of data in a report, never settle for what has always worked in the past, and never allow business processes and procedures to live longer than 18 consecutive months without a full review and torture testing to check for better ways and means.  It cannot be emphasized enough, “If you do not try the impossible, you will never achieve the possible.”

© Copyright 2021 – M. Dave Salisbury
The author holds no claims for the art used herein, the pictures were obtained in the public domain, and the intellectual property belongs to those who created the images.  Quoted materials remain the property of the original author.

NO MORE BS: Understanding Money – Shifting the Paradigm on Money

LookDo you understand money?  Honestly, is how money is created, used, and tracked understandable or a complete mystery?  I have advocated for economics to be taught in high school to understand the actions of government since I was in high school.  I was forced to take a class to write checks, balance a checkbook, and other simple economic topics in US Army Basic Training.  I thought I knew how money worked after this class, but only later realized I knew enough to get into trouble with money, but not enough to fix the problems I had gotten myself into.  I was mid-way through my MBA when I finally took a class on money, economics, and how money works.

I have asked other adults and high school students what they think about money and remain aghast that basic economics is not taught in K-12 education.  There is no reason for fiscal illiteracy in America; yet, fiscal illiteracy is evident in the politicians elected, the lobbyists pushing agendas, and how American politicians of all levels understand money.  The following is a brief attempt to clear some of the confusion regarding money.

Green money is cash.

Dane-GeldGreen money is the dollars and cents in a bank account or your pocket and is quickly spent.  Green money is often called liquid money or liquid assets, liquid because the holder is presumed the owner, owns it, and can spend it freely any way he wishes.  Possession is nine-tenths of the law where liquid assets are concerned.  One of the first lessons most of us learned growing up was if you wanted to buy something and your pocket was empty, you went without.  Liquid assets are cash, green money and are available to be spent in any way the holder chooses.

Non-liquid assets are considered green money due to their sale; this is why a house, a car, a boat, and other such items are considered assets, investments, and opens the door to depreciation or money loss where an asset is concerned.  The sale of the asset provides the opportunity to turn a non-liquid asset into a liquid asset.  However, since the asset is often employed as collateral for a loan, the sale of that asset means the loan holder is paid first from the sale.  If the resale value is insufficient to cover the full loan owed, the loan, which is red money, can still be collected; this process is why red money is so important to understand.

Red money is debt.

Government Largess 3Historically, if a debt could not be paid, the debtor’s blood was allowed to be spilled; hence debt is red money.  Red money always comes with a penalty called interest.  Interest is green money turned red to return the profit to those who lent the initial funds or principle.  That debt, be it a loan, a credit card, or another debt model, remains a burden to the borrower, continues to accumulate interest, and can be called due at any moment in time.  While some laws protect the borrower from excessive interest rates, it remains essential to know about and be cognizant of the interest rate trap.  The legalese on a contract to launch a debt is important to understand, especially where prepayment penalties, late payments, and the ability to call the note due are concerned.

The interest rate trap comes in several forms.  While in the US Navy, stationed in Norfolk, Virginia, a sailor buddy bought a beautiful car for $4000 with a 45% interest rate.  He put $1500 in green money down, so the full loan amount, principal, and interest, for 60-months were $7805.49, including the sales tax.  Later that month, when the car was stolen, the insurance company valued the vehicle at only $1000, leaving the sailor to pay $6805.49 immediately.  This is one type of interest rate trap; another comes from Payday Loans.  Borrow your next paycheck today, get the money today, and pay your paycheck back during the next 36-months at an interest rate between 30-60%.  By the time the payday loan is paid off, more than four separate paychecks will have been paid to cover a single paycheck loan, provided all the payments have been made on time and as quickly as possible.

Welfare State BeginsWhile paying off this loan, you lose your job.  You can lose your car because your car is sometimes used as collateral for your payday loan.  If the resale value is insufficient, you lose your car, you lost your job, and now you still owe a considerable sum that gains interest.  Red money is dangerous; like Damocles’ sword, the danger hangs by a tiny thread above the borrower; one wrong move and the sword falls.  Debt, red money can be helpful; but, careful planning and budgeting are required before entering into debt obligations.  Always it is better to save and budget green money or obtain investors before contemplating debt.

Black money is dead money.

Consider the person who takes green money and places those dollars and cents under a mattress or coffee can in their home.  The cash is out of circulation, is not valuable enough to collect, and no one is benefiting from the money through interest.  Black money can be created in other ways that will be explored later in this article.

Potential Money – Blue Money

blue-moneyThe next type of money is blue money, also referred to as potential money.  Consider a hammer. The hammer might cost $20.00 in green money to buy and bring home.  In the hands of a trained construction worker, a $20.00 hammer, over the course of the hammer’s useful working life, has the potential to earn thousands of dollars in green money for the construction worker.  In the hands of an inexperienced worker, the hammer has the potential to cost thousands of dollars in green money through waste, destruction, and learning.  Training a person to improve their performance might cost $300 in green money; but, if that employee can improve his performance on the job, potentially millions of dollars can come into the company because of the training provided.

Money is created when it is borrowed, and interest is paid on the loan.  For example, Jack has an extra $500 (green money).  He gives this money to his friend Joe in the form of a loan (red money).  Joe takes the loan, adds to his business potential (blue money), and through increased profits, can pay Jack his $500 loan plus the interest of $300.  Hence, $300 (green money) is created as profits for Jack.  While a simple analogy, do the types of money become more apparent?

Welfare State EndsJoe’s loan to Jack showed on Joe’s books as red money until the loan and interest were paid.  During this time, Joe was also making green money, or profits sufficient to pay his workforce, his other obligations, and still retain adequate to pay himself.  Small business owners are not paid until everyone else is paid.  It is not uncommon for small business owners to be scraping by on the smallest margins because all their non-liquid assets are locked up in loans to keep the business afloat.  When poor business practices begin risking inventory and equipment and shareholder investments are added into the equation, is it any wonder why small businesses struggle.

quote-mans-inhumanityMoney is also created when saved in the various saving tools offered by banks.  The diligent saver can save $40 a week until he or she is 65 years of age and potentially have millions in the bank for retirement.  Why, because the bank will pay interest to the saver from the interest collected on the loans the bank makes with the green money invested from the savings account.  Many different savings tools can be considered non-liquid assets because of the agreements made between the saver and the bank.  Generally, the longer the bank’s contract to hold the savings money, the higher the interest rate paid as the bank can schedule payments and loan the same dollars more efficiently when the saver’s funds are expected to be in the bank for a more extended period.

quote-mans-inhumanity-2Often Federal treasury departments of governments create money by printing more or larger bills.  The problem with printing more money is one of surplus, which begins to increase interest rates and decrease the value of the green money held by citizens participating in the economy.  Consider that if the only way to create money is to work money through lending, improving business, etc., and then printing only makes it harder to put money to work.  Too much money on the market creates negatives; negatives include lower dollar value, which makes items cost more and increases interest rates, making borrowing costs rise, and inflation begins to increase prices for goods in the economy.  More importantly, except for necessities, producers’ willingness to spend money stops; these are typical cause-and-effect actions.  A long enough period of decreased desire to spend money and an economic downturn is initiated.

Blue Money BurningState, City, County, Town, municipal governments are even more pernicious with their plots and plans.  On the local government level, money cannot be printed.  Hence, debt is entered into, and municipal bonds are sold to create money in the private sector, which is then paid to the government in increased taxes, but the money lent to the local government was already spent.  One truth discovered about government, when taxes are increased, money is asked of the voters to borrow.  The truth is, the government body asking for more has already spent the increase, spent the budget, and usually spent twice as much as they are asking the voters to allocate.  Consider special elections for increasing taxes; the money being asked for has been spent, the budget was spent, and now the voters are asked to pay for the special election cost to decide if the local government can spend some more money.  The increase being asked very often has been spent three to four times before the election is considered to ask for permission to enter larger amounts of debt in the public’s name.

Poor fiscal planning increases debt by decreasing the value of the original municipal bonds.  The government has to borrow more to get relatively close to the value of the first municipal bond sold.  Note, municipal bonds are considered a debt to the local government and as green money non-liquid assets to the purchaser; municipal bonds can be bought and sold on the private market.  Government focuses upon the holder of the most bonds; because elected leaders are focused upon the holders of the most bonds, citizens bear no weight in being heard.  Money talks!

Detective 4In several different locales, municipal bonds can be held as unseen debt or black money, also referred to as unfunded liabilities, kept on other books, not currently open to the public.  The monies owed are not considered red money because there is no plan by those in power to pay these debts; thus, the city’s debt could be significantly higher than reported.  Unfunded liabilities never have a plan for repayment by those in power.  Unfunded liabilities can be a mixture of many different debts (employee retirement, some municipal bond types, unpaid bills to local service providers, etc.).  The common denominator remains, there is no plan or money to repay this debt.  Thus, black money is created because there are no plans or money to meet these obligations.  The taxpayer remains on the hook for the principal and the interest of those unfunded liabilities.  Unfunded liabilities are hopes of current politicians on future prosperity, and sometimes, depending upon laws, unfunded liabilities are part of the government’s credit rating. Low credit ratings by the government increase taxes, the risk increases, making borrowing money more expensive, and the taxpayer generally has no idea how poor their municipal government’s credit rating.  Never forget, municipal government, many times includes the local school board.

ToolsWhile this explanation is elementary, the lessons contained are sufficient to protect the bottom-line, improve knowledge, and provide an opportunity for improving circumstances.  When bottom lines fail, before anything else, look to lost blue money as the cause.  When blue money is disregarded long enough, red money increases exponentially, and green money evaporates; this formula is set in stone.  Potential blue money is not elusive, but it takes keen observation to protect and grow.  Grow enough blue money, and green money multiplies exponentially.

Americans must start demanding fiscal literacy in the politicians running for office.  Americans must begin understanding the captivity they are in where the government spending is concerned.  Ask yourself, would your bank honor a post-dated check?  Why should the government be allowed to write a check the bank won’t allow you to write?  Can you spend 8-15 times your salary between paychecks and maintain your house, car, and other assets?  Of course not, so why should the government be allowed to do this on your tax dollars?

DutyFiscal literacy improves freedom and liberty.  Fiscal literacy is required to maintain the US Constitution and US Bill of Rights.  Budgets are not bad things for government to live on; in fact, the government should be the first exemplar of budgetary soundness and fiscally literate action.  A Liberty FIRST Culture will require fiscal sanity and fiscal restraints, a reduction in debt, and a payment plan for all unfunded liabilities.

© 2021 M. Dave Salisbury
All Rights Reserved
The images used herein were obtained in the public domain; this author holds no copyright to the images displayed.