It was a hot April afternoon when I got a call from the CFO of a client company telling me that they couldn’t account for about 400 freezers, 412 to be precise.
The Client was into manufacturing commercial Freezers.
The reported issue was regarding one of their manufacturing facility where the products made on the Conveyor line are shifted to the Finished Goods Warehouse, via another conveyor line called FG conveyor.
At an average price of Rs. 25,000, the CFO was staring at the possibility of an eye-watering Rs. 1 Cr. being wiped off the bottom line.
The CFO had ordered a physical stock-taking of the Finished goods warehouse at the factory during the Financial year that had ended in March and discovered the discrepancy.
The company was running an expensive proprietary ERP at that time.
We were requested to look into the issue and solve it.
A few days later we were parachuted into ground zero.
First, we met the Warehouse charge: Mr. Mahender.
Mahender tells us that the manufacturing guys often do not hand over the manufactured freezers to the warehouse.
His own theory was that since the manufacturing guys were incentivised on the number of units manufactured they would inflate the numbers manufactured, without actually making.
Then we met the Manufacturing Head: Mr. Srinivas.
Srinivas said that Mahender was a liar and a thief. He alleged that Mahender had colluded with the security and the Logistics Companies to steal freezers.
When asked about the practice of inflating the manufactured numbers, he shrugged his shoulders.
The Head of Security obviously claimed that there was no way a 100 Kg freezer could be stolen out of the factory. Considering that he was rotating the guards randomly, collusion was not possible.
We looked at the ERP more closely and found that no controls were defined that could prevent this.
We worked with the ERP implementation partner and linked manufacturing in the ERP to receipts of Freezers at the Finished Goods Warehouse, such that, within 30 minutes of manufacturing in the ERP, if the freezers were not receipted in the ERP at the Finished goods warehouse, the ERP would not allow the next unit to be manufactured.
A few days later I got a call from the head of security that manufacturing had stopped and Srinivas, the Manufacturing head was seen frantically looking for a manufactured freezer that had not been scanned at the Finished goods Warehouse.
The same Srinivas who had shrugged his shoulders when asked about 400 missing freezers, was now running like a man on fire to find the one missing freezer.
He found the freezer and personally made sure it was scanned at the Finished Goods Warehouse, only then did the ERP allow the next freezer to be manufactured.
It’s been more than 2 years since that day, and the difference in stock today is ZERO.
He was a changed man. The same Srinivas who I thought was incorrigible had now become super responsible and was even awarded as an employee of the month, a few months later.
Following were my learnings:
It’s not about the size of the Tool: Just because a company has invested in SAP or Oracles of the world, it does not guarantee desired results.
To change behaviour, change the System: The same Srinivas who would shrug his shoulders when asked about Rs. 1 Cr. worth of inventory was now a changed man, he would not allow a casual approach towards Finished Goods, as that would mean a stoppage of his production.
Do you have an Expensive Software running and still suffer with:
Non Existent or In-effective Inventory Controls
Zero or Low Level of Automation
Heavy Dependence on External tools like emails and Spreadsheets
People dependant Processes
Data Inconsistencies
If your answer to any of the above is yes, you may be a victim of the “Missing Freezer Syndrome” ping us at manish@saksham-india.com, and we can help.
Note: Names above have been changed for obvious reasons.