Inventory Write-Off: Don’t Do it Without Investigating

It wasn’t long ago that I got a call from an associate in the warehouse for one of our nuclear plants expressing a concern about having to write-off $2 million dollars of inventory that was allegedly lost. Man oh man, what a way to go into “hump day.”  My response was quick and offered to help by going to see them that same day, saying as we concluded the conversation to “continue your search, but do not do a write-off yet.

As soon as I cleared security and arrived at the warehouse I saw a “bee hive” of activity; shirt tails were hanging out, hair was disheveled, and everyone was in a sweat.  The warehouse was in panic mode.

As I approached the office and the warehouse manager and his assistant I asked for a quick briefing and recap of all the efforts to date.  I was regaled with every imaginable scenario from their “to do” list and it certainly was impressive.

• Quantities and dates of latest receipts.
• Quantities and date of latest issues.
• Quantities and dates of all Quality rejects.
• Quantities in the reject area.
• Quantities of materials on open order.
• And on and on with the punch list…

I asked the manager and assistant for an escorted tour of the warehouse areas.  We walked up and down the aisles looking at all the details normally examined as well as the general housekeeping.  Everything appeared to be in order and under control.  There were no tell tale signs of mismanagement or lack of care and/or training, but there it was; some 50 SKU’s (stock keeping units) were missing.  So I sequestered myself in a conference room and began developing my plan and “focused interview questions.”

By the time the 2^nd shift came in I was ready to go.  I interviewed every stock keeper and administrator asking each the same questions that revolved around what they did in detail all week long.

I scheduled myself in early the next day and asked the 3^rd shift to say a bit later than normal going through the same sort of Q&A, focusing again on what they had done and what sort of activities and transactions were preformed.  A semi unusual occurrence was highlighted when it was recounted that an emergency maintenance situation arose and 2 of the 4 stock keepers got involved in supplying parts for the emergency shutdown.

After about 2 hours the stock keepers were able to return to the normal activities of relocating and rearranging stock.

However, by then we had a pretty good idea as to the cause and occurrences of the missing inventory.  The next morning the warehouse manager, the admin, and I sat in the conference room to discuss the issues and develop a plan to prove the theory.

We were able to split up, so the admin went to retrieve all the transaction records for the week while the warehouse manager and I went back into the stockroom.  We began searching for the SKU’s that were affected and located a few SKU’s a couple of aisles away.

Sure enough, we located all 50 SKU’s that were “missing.”  However, it seemed they were not missing just relocated without updating the stock location system because of the maintenance emergency.

The whole episode reminded me of a situation with a bank where my son-in-law cashed his pay check and the bank contacted him the next day saying that he received $450 dollars over his check amount in error.  He was uncontrollable and said I’d love to have your $450, but unfortunately I don’t.  They went around and around for 4 days until the cashier finally found the money in an extra deposit  bag under the counter.

So the point is, whether your dealing with $2 million or $450, you must pay attention to details, follow procedure, and do not just write-off inventory.

Your path to business success.