Did you know 80% of all small and mid-sized manufacturing organizations in the USA still track their inventory and production operations manually?
Just because a system or process is “how you’ve always done it” doesn’t mean it is still the best way to tackle a big job. Especially when it comes to technological advances that can save you money, time, and reduce errors. After all, errors = time + money.
Sure, pencils and paper are not a big expense in this day and age. Excel spreadsheets are easy to use. A new software program and implementing a new system requires training. These upfront costs can seem daunting if you aren’t looking at the big picture. Studies and research have shown that one area businesses can really increase productivity is switching from a paper-based system to a barcode system.
What can go wrong with a manual inventory process?
- Substantial delays. Hours or even days can lapse between when data is recorded onto a paper form and when it is available in electronic format. Result: Employees have outdated information about the status of inventory and production operations. This can cause lost tracking, late orders, and running out of inventory.
- No error detection. Using paper to track info does not provide any feedback as to whether they are making data collection
or operational mistakes. Result: Mistakes can be made when entering info into Excel spreadsheets or other systems resulting in inventory errors as well as errors in capturing cost and materials traceability data.
- Lost information. Often the data on the paper forms are not converted into electronic format, where it can be quickly recalled and shared with other people. Result: Inability to easily retrieve proper info to solve problems.
- Labor time. Filling out paper forms and then manually entering the data into Excel spreadsheets or an ERP or accounting system can take a lot of time. Result: Wasted time finding and correcting mistakes, can often be the equivalent of one or more people, at a loaded labor cost of $50,000 per year each.
The Actual Cost of Using Paper Systems
This use of paper forms may cost a typical mid-sized manufacturing or industrial distribution organization:
- $50.000 to $150,000 a year in unnecessary labor writing down information onto paper and manually keying in information, and then
chasing and correcting resultant mistakes.
- Tens or hundreds of thousand dollars a year in unnecessary overtime to make sure orders get shipped on time. This is usually caused by the processing of customer orders being scheduled in the wrong order due to a lack of real-time visibility.
- Tens of thousands of dollars per year in expedited shipping costs to make sure that orders are delivered on time.
- Hundreds of thousands or millions of dollars a year in lost customer revenue due to customers not reordering due to a previous late delivery.
- Hundreds of thousands of dollars in excess inventory due to not having real-time visibility of this inventory. Also, this can result in late delivery of customer orders due to stock-outs.
- Millions of dollars or even bankruptcy caused by having to perform an overly broad recall of potentially defective products due to not having good electronic traceability records.
Why are most organizations still using paper forms and manual keyboard data entry?
Why it is so hard to make the switch despite the overwhelming evidence? Companies can inexpensively solve these problems by switching to the use of barcode tracking to track and collect their data in real-time.
Some of the reasons that have been discovered are:
- Inertia. “We have been tracking our operations the same way for the past 20 years and are still in business. So why change?”
- Cost. These systems are very expensive and we cannot afford them. TRUTH: This may have been true at one time, with tracking systems costing several hundred thousand dollars. Now barcode inventory and production tracking systems can be used in the Cloud for under $1,000 per month and mobile computers with integral barcode scanners and available for a few hundred dollars each.
- Complexity. “We will have to hire someone to implement this system.” TRUTH: Again, that used to be true. But now most systems can be used in the Cloud without needing any on-site IT support or the need for an IT person to manage the system. Technical support, when needed, can be provided quickly and inexpensively using remote online meeting technology.
- Learning Curve. “Many of our operators and material handlers have poor computer literacy skills and so will not be able to use a barcode tracking system.” TRUTH: This is the exact opposite of the truth. It is much easier to train these people to scan a few barcodes as part of their regular job than it is to train them to write down complex information on paper forms.
- Seamless Integration. The barcode tracking system has to seamlessly exchange data with our accounting or ERP system otherwise we will have to do duplicate data entry (which is what they are doing now with the use of paper forms). TRUTH: Today barcode tracking systems come with interfaces that can be configured to automatically exchange data with a wide range of ERP, accounting, and computer-aided design systems.
The Reality of Doing Business in a Modern Tech World
The reality is, industrial organizations do not implement barcode tracking systems based on all the money they will save based on a Return on Investment (ROI) analysis. Instead, some event occurs which overcomes the organizational inertia.
- Late shipment of a critical customer order due to losing track of the customer order or the needed inventory. This can lead to late delivery penalties, cancellation of the order, loss of the customer, and expensive lawsuits.
- Someone making a critical mistake, such as using the wrong materials to make a product that results in scrapping large amounts of expensive products.
- Making a mistake in shipping the wrong product or a mislabeled product or shipping the right product to the wrong customer. All these can lead to an unhappy or lost customer, expedited shipping costs for replacement products, or late or missed delivery penalties
that can often exceed the planned profit on the order.
- Having to recall potentially defective products and finding that a broad and very expensive recall is required due to not having good materials traceability records.
- One or more customers request Advanced Shipment Notice (ASN) data to be sent to them with shipping pallets or other containers being labeled with GS1 barcodes so that these materials can be automatically received by simply scanning the SSCC barcode on each
- Customers demand that the industrial organization keep electronic materials traceability records, and automatically send these to the customer, as a condition of awarding contracts.
Don’t Wait Until You Feel the Pain
Once a company experiences many of these pain points, then and only then, do they wake up and implements a barcode tracking system. As a result, the barcode tracking system has to be implemented in a rush, at an increased cost over what would have been possible, if management had been proactive rather than reactive.
Dr. Peter Green’s conclusions from his experience in this field and gathering data for this white paper concluded the following:
- Even thinking about implementing a barcode tracking system is scary for managers of industrial organizations.
- This is because of all the things these managers believe they have to know about barcode equipment, labels, and how to set up and use barcode tracking software.
- Most managers are already running flat-out just getting products out of the door. Taking on a project that involves learning about a whole new technology and its implementation methods is just too much.
- Fortunately, there are organizations like PaladinId that can provide the needed expertise to get these systems up and
running quickly and inexpensively (relative to the resultant cost savings) without requiring operations managers to devote large amounts of their valuable time to a successful implementation.
Are you ready to make the switch?
If you have questions or would like to discuss switching from your current paper-based system to a much more efficient and affordable barcode tracking system, please give me a call at 888.972.5234 or send me an Email. You will be glad you did.
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