FRANK MCDERMID

During his 55-YR Aerospace career with United launch Alliance , Boeing, McDonnell Douglas, and Douglas Aircraft, FRANK MCDERMID led several successful property management organizations and was considered an icon in the field. Frank was one of the original members of the National Property Management Association and held key positions as past President, National Chairman and Consulting Fellow. In memory of our colleague and friendFrank S. McDermidThe ULA Team

• Objective: - Provide various inventory methods andtechniques for Property Management professionals to Review.- Determine the appropriate or desired approach for conducting Physical Inventories.

• Purpose: - Present proven techniques that can be applied to

inventory processes that will enhance a site’s capabilityto improve location and records accuracy.

Treat Assets asif it were Money

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Take the time to secure property items and maintain location control

This presentation is designed to focus on different inventory Methods as part of the “Overall Property Management System”.

Resources

Various Methods for conducting the Physical Inventories

Automated or manual records system hard copy Ledgers /

Software

Maturity of the physical inventory system / process

Types of Property(equipment and materials)

to be inventoried

Cost of the property

Topics to Review

Inventory method selection / Procedures / Training

Note: Real Property is also an areaof consideration for Physical inventory

Physical Inventory methods are critical to various processes and to theoverall success of the Property Management System.

Generally, the Physical Inventory process should address the following areas:John and Kurt’s - 9 Basic Steps for a Physical Inventory Process.

• Review contract requirements / regulations - Compliance and reference documents

• Review the items to be Inventoried and processes

• Select the desired inventory method and data to review

• Review procedures / training

• Develop schedules / plans

• Establish a Team lead - Select an inventory team

• Review the records system for physical inventory compliance (e.g. P/N, S/N, Item name, etc..).

• Review with Management / Customers • Review reporting discrepancies

Contract Requirements:

• Compliance documents / regulations. - Contract / Program Requirements - Commercial Requirements - Federal, State and Local Requirements - Federal Acquisition Regulations (FAR 45), FAR Part 52 and others - Other Government Regulations (i.e. DCMA, DCAA, Guidebook, NASA Handbooks / Supplements, other government documents identified within contract) - http://www.dcma.mil/policy/ ‘Contract Property Management’ - Commercial Inventory processes generally subscribe to the “Generally Accepted Accounting Principles” (GAAP). However, many of the same processes are used in Government inventory methods.

Reviewing Requirements / Regulations

Contract Requirements:

Inventory Record Accuracy – Unleashing the Power of Cycle Counting & DCAA Contract Audit Manual (CAM) DCAAM 7640.1

Reviewing References

Reference documents (Note: Although these documents may not be compliant to your contract, reference documents are generally good sources of information for procedure writing and process reviews.)

Items to be Inventoried and Process Review

• Determine whether you will be performing a Material or Equipment physical inventory

• Obtain a master inventory list from the database or records systems. Establish a baseline (e.g. Tag no., part no., model no., serial no., locations, cost, point of contacts and property category (i.e. Material (MTL), Equipment (E) Special Test Equipment (STE), Special Tooling (ST), Agency Peculiar Property (APP - NASA and Older contracts without the alt. 1 clause), Commercial Capital and Expense)

• Review procedures to determine if the information matches your current method of performing the inventory.• Identify warehouses or building locations (Maps / Lay-outs)• Determine the inventory time frames• Assign a Physical Inventory Team Lead• Access / possible additional security training requirements

First Steps:

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• Pre-inventory Location Survey (PILS) – ensures storage areas are marked, locations numbered, labeled and identified.

• Wall-to-Wall (W-T-W) Inventories physically touches all assets. (Frozen or Unfrozen locations). Manually or electronically reviewed (e.g. Bar Code readers or RF readers).

The selected Physical Inventory process Generally requires management or

customer approval

Selecting the desired inventory approach is key to the overall success of the system (Type, Frequency and Procedures).

Desired Inventory Methods and Data Reviews

• Note: Wall-To-Wall (W-T-W ) inventories generally take a first and second counts process for materials inventories, quantity should not be reflected on the inventory sheets or scanners. Recommend second counts (two people) / reconciliation / found on site (FOS) assets. W-T-W inventories are also a good time to identify excess assets and in some cases review utilization.

• Random Samples or Spot inventories (Also include Judgmental sampling if required). Scheduled and/or unscheduled sample Inventories.

Desired Inventory Methods and Data Reviews

Continued

Types

• Inventory by Stratification (selected areas of asset review) - cost - categories of items (commodities) - locations - Flight / Non-Flight - Movement - other applicable categories

• Inventory by Exception Methods - Utilize Maintenance system records. - Custodial movement records/updates. - Personnel conducting inventories with scanners or inventory sheets (Blind Counts).

Desired Inventory Methods and Data Reviews Continued

• Manual process (work sheets) - To include electronic measurements • Bar Code scanned process

• Radio Frequency Identification (RFID) scanned process

• Location - Warehouse, Lots, Buildings, Custodial Accounts or Grid locations.

Methods

Desired Inventory Methods and Data ReviewsContinued

• Review Cycles - Annually W-T-W - Biennially W-T-W - Triennially W-T-W - Combination of reviews cycles with samples of out year assets / locations - Samples with pass or fail criteria (W-T-W required if sample fails)

- Stratification review (combination of cycles) - Exception Methods (combination of cycles) • Remember to design the inventory processes to the confidence level and/or desired accuracy.

Frequency

Desired Inventory Methods and Data Reviews Continued

• Develop or obtain written physical inventory procedures with checklists that document the process and policies (i.e. process should include: Inventory team, schedules, first counts, second counts, reconciliations, loss reporting, inventory adjustments, records updates and inventory results reporting). • Determine the accountable functions for the assets – The Office of Primary Responsibility (OPR).

• Ensure procedures correspond to the selected inventory approach and frequency.

• Obtain knowledgeable personnel (Note: Establish an inventory Lead or Supervisor).

• (If required) Provide training to personnel per the procedures along with checklists for quick reference.

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Procedures / Training Developed

• Develop schedules to determine time frames and resource requirements.

• Schedules should include first count and second counts along with reconciliation of records.

- Develop formula’s for estimated count times (Sample: 5 mins. First counts times (X) the number of line items = XX minutes). - Load resources from formula’s (number of people required).

Note: First counts generally require less time to perform. Second counts or discrepant items requires up to 10 times longer.

•

Schedules / Plans

• Physical Inventory plans should include forms, scanners, training information, checklists and daily communications.

• Material inventory list should include information such as: Unit of issue information (PK, RL, EA, FT, etc...), packaging requirements, segregation of items, labeling, part numbers or model numbers, serial numbers, location, blanks for physical counts and a comment block.

Schedules / PlansContinued

• Establish Physical Inventory Team Lead / Supervisor

- (If Possible) Select and maintain the Physical Inventory Team members throughout the physical inventory for continuity purposes. - The physical inventory Team Lead should be knowledgeable of the processes.

- Inventory team members may require training and oversight as the inventory progresses.

- Recommend reviewing the initial counts for errors or misunderstanding of the process before the physical count is well into the inventory. - Daily communications is essential to maintain counts and inventory data. Include progress reports to upper level management for support.

Conducting the Inventory

• One key to a good records system is the physical inventory information.

- Timely processing of inventory data.

- Ensure there is a baseline inventory established (e.g. as of date). - Measuring the results and calculating the accuracy (Metrics).

- Electronic or manual records (e.g. keep dated inventory copies with names of personnel who performed the inventory).

- Daily data inputs to the records is recommended.

- Update losses or inventory adjustments within the records system.

- Maintain physical inventory data (electronic or hard copy) for audit files.

Records System Compliance

• Obtaining Management support throughout the Physical Inventory process is essential in maintaining the priority and sponsorship.

• Customer communications is also essential in providing confidence in the system and overall acceptance of the process being used.

Excellent

Fair

Good

Excellent

Poor

Management / Customer Support

Reporting Discrepancies• Basic Type Discrepancy Reporting

- For Material - Inventory adjustment reports are used for “Debits and Credits” of quantities with explanations of the adjustments. If adjustments are within a company or government provided standard, sometimes no corrective actions are required.

- For Equipment and Materials - Loss, Theft, Damage or Destruction reports identify the assets; and also provides an explanation of the circumstances and corrective actions.

Note: If the Inventory Team Lead or Management determines the amount of losses or adjustments are above Company or Government standardsthe following is recommended: - Develop corrective action plans to prevent re-occurrence - Provide additional training to personnel - Update Procedures (if required)

• Final action would include a letter to the Government Property Administrator (GPA) or Management on the inventories final results (Records match the physical inventory results).

ConclusionIt is important to establish effective and efficient physical inventory methods. Having good physical inventory processes are vital to the overall success of the total Property Management System.

Maintaining an effective Inventory Management System for either government or commercial programs does reduce cost, saves time, improves records data and data dissemination. This also allows for both tangible and intangible savings on many other Property Management processes.

Using the John and Kurt Basic 9 Step Physical Inventory Review Process will help you achieve better accuracy and maintain a reliable Physical Inventory Management Process.

Questions

Kurt John

References

“Federal Acquisition Regulation”, March 2005, Volume 1 to 51, General Services Administration Department of Defense, National Aeronautics and Space Administration, URL; yahoo, http://www.arnet.gov/far/loadmainre.html

Bergeron, M; Wagner, Don, August 2006, “Inventory Management Program as Part of a Property Management System”, The National Property Management Association, National Education Seminar, Copyright 2006, book, Dunnedin, Florida.

GAO Executive Guide, GAO-02-447G, 2002

NPR 4100.1D NASA Materials Inventory Management Manual (Revalidated 2/9/06)

References

NPD 4200.1B Equipment Management - NASA (Revalidated 01/23/06)

http://www.dcma.mil/policy/ Contract Property Management Feb. 01/2013

DCAA Contract Audit Manual (CAM) Jan. 2013

Inventory Record Accuracy – Unleashing the Power of Cycle Counting - By Roger B. Brooks & Larry W. Wilson