Learn how a simple process trick saved a million
Problem:
AAPL, a prominent retail company with five branches across Mumbai, prides itself on offering a diverse range of clothing for men, women, and children. Overseeing the efficient distribution of goods from its centralized warehouse is Venkat, the Warehouse Manager, while Shoba, the Procurement Manager, manages the crucial task of procurement and verification of received goods.
Despite AAPL’s efforts to maintain seamless operations, recurring inventory discrepancies were causing financial losses. Inventory shown in ERP did not match the physical stock count during audit. There is a 5% discrepancy, amounting to a loss of ₹1.5 million.
Cause:
Investigation revealed strong invoicing and transfer processes, minimizing errors in those areas. However, the receiving process was identified as weak. Due to the sheer volume of incoming items, the receiving team relied solely on the supplier’s invoice quantity for acceptance, neglecting physical counting. Physical inspection showed short receipts in three out of ten purchase invoices. But these were unidentified and GRNs were made for full invoice quantity and sent to accounts for full payment of invoice.
Constraints:
- Automating stock counting based on volume-weight matrices or implementing advanced systems like barcode-based GRN (Goods Received Note) for discrete items or weight-based SKUs (Stock Keeping Units) was not feasible due to budget constraints.
- Increasing manpower was not considered an effective solution since existing manpower is sufficient to count the current volume.
Solution:
To address the receiving process flaws, a new manual document called the “Datasheet” was introduced.
A data sheet is a manual document containing only the list of items supposed to be received from the supplier, without quantity or price, and with provisions to note the actual received quantity by store personnel. The data sheet is generated from the ERP using data stored in the PO
Datasheet Process:
- De-linking invoice & store: Upon receiving a delivery, security personnel at the gate collect all invoices and forward them directly to the data entry operator (DEO) reporting to procurement incharge.
- Datasheet Completion: Mr. Venkat fills out the Datasheet with supplier information (name, city), invoice/debit note number, and the actual received quantity and any damaged items. Since billed quantities are not provided, the team performs a blind physical count and updates the Datasheet accordingly.
- Data Verification and GRN Entry: The completed Datasheet goes to the DEO, who verifies the recorded data against the invoice. Any discrepancies in quantity or price are noted, and the DEO initiates a GRN entry in the ERP system.
- Discrepancy Management: For short deliveries, the DEO raises a debit note against the supplier.
- Authorization and Payment: The Procurement Incharge authorizes the Datasheet, triggering the payment process for the correct quantity and price.
Benefits:
This Datasheet process ensured payments were made for the exact quantity received at the agreed-upon price. Short deliveries and damaged items were promptly identified at the receiving stage itself, allowing for immediate communication with the supplier through debit notes.
Results:
By implementing this simple, cost-effective Datasheet process without modifying the ERP system, AAPL significantly reduced physical stock variances from 5% to 1% within a year, saving the company ₹1.5 million.
