Data, Not Distractions

The construction, agricultural, transportation and mining industries have welcomed the idea of using a drone for multiple business applications. Image of iPhone, drone, airplane data collection methods.

Stockpile Reports has been to several conferences and events during the recent months, and have noticed how many new drone exhibitors are appearing. In fact, it is very difficult for anyone NOT to notice how the interest in using drones is rapidly expanding.

We enjoy seeing technology change, and grow. During these conferences, we often ask attendees how their companies currently measure stockpile inventory, and if there is a drone strategy in place.

Some businesses already have a drone, or are in the process of purchasing one.

A few have already tried to utilize a drone, but decided that it was not a good return on their investment, in terms of both the cash spent, and the time needed to obtain accurate stockpile reporting. So they stopped using a drone.

Distractions

Some companies and managers have told us that they don’t wish to make an investment in a drone just yet. A few reasons include:

  • Avoiding the need for instructional training
  • Don’t wish to make an investment in accompanying software
  • Their site location is not conducive to drones; such as being near an airport or in a windy area
  • Their stockpiles are messy: vegetation covers the piles, the pile materials touch, there are stackers and obstructions
  • They have multiple sites, spread out so far away from the other so travel becomes a factor
  • Not a clear, compelling ‘need’ to either purchase or lease a drone yet
  • Don’t want to buy more than one drone in case one becomes damaged or flies away
  • Not certain they will get a good ROI on a drone purchase in terms of labor savings vs. other survey methods over a period of time
  • Wary about FAA regulations

Generally, Stockpile Reports has found that the construction, transportation and mining industries prefer to avoid new investments that require massive training. Companies are interested in results that are accurate, safe, simple, legal, and of course, cost-effective.

Data

To drone or not to drone? We aren’t able to answer that question. Every company has different needs and concerns. Drones can be a very good way to gather data for stockpile volumetric reporting!

We can, however, authoritatively state that our clients really want answers. They want accurate perpetual inventory, and want to avoid write-offs.

Stockpile Reports has a patented platform that processes data gathered from a drone, from an airplane or via iPhone. It also doesn’t matter what type of drone is flown. Clients have the choice to use one image collection method, or all three!

In other words, BYOD. Bring your own drone, we’ll process the data. Don’t want to do that? No problem, we’ll provide the most cost effective flight survey solution in the market— we’ll fly your site and process the data. Or you can use an iPhone and we’ll process the data from your smartphone.

As you can see, it doesn’t matter what solution you choose. If you want to invest in a drone in the future, we’re here for you. Your company won’t need to also invest in a system to process the data, or to warehouse it. Our subscribers already receive those benefits. And even better— our clients receive accurate reports in hours with minimal training, no extra hidden fees, and no other distractions.

 

 

 

How a Client is Solving Write-Offs, Via Technology and Frequent Physical Inventory Counts

A multinational materials company that manufactures and distributes cement, ready-mix concrete, aggregates and materials including coal, recently approached Stockpile Reports. They were searching for a solution to reduce write-offs, time, and costs associated with inventory measurements across multiple sites.

Technological advances are now shrinking the time needed to perform company-wide physical inventory counts from 3-5 weeks down to 3-5 days. Measurement methods include the iPhone, drone, and airplane.
Technological advances are now shrinking the time needed to perform company-wide physical inventory counts from 3-5 weeks down to 3-5 days. Measurement methods include the iPhone, drone, and airplane.

The materials company had been performing inventory counts on multiple sites and regions. They’d hired an expensive third party survey team, who’d utilized a truck-mounted laser for measurements. Using a truck-mounted laser was accurate, but the costs associated with the surveys only allowed for physical inventory measurements to be performed once yearly.

During the rest of the year, team members kept a perpetual inventory by performing self-reported monthly estimates of material on hand. They estimated these amounts monthly, and sent the totals to the Finance Department.

As a result of not using current, accurate measurement data, the company had been experiencing major write-offs every year. This also corresponded with large financial swings.

Stockpile Reports was engaged to perform monthly physical inventory counts, utilizing a mix of measurement technologies. These included using iPhones, drones and planes. It was determined that using a combination of collection methods was the most appropriate solution. The location of material’s company sites are wide-spread across multiple states in the US. Each site also varied in material types, safety, stockpile placements and stockpile sizes.

The Solution for Write-Offs

Since the materials company has a company drone, a portion of one location is now measured monthly via drone for tall coal piles. This is in a high-traffic area, making it unsafe for ground measurements.

Bunkered material and smaller stockpiles are measured monthly with iPhones using internal labor. This is to spot-check incoming deliveries, and also ensure that outgoing deliveries meet production expectations.

A physical inventory count is conducted quarterly at all locations on the same day if weather permits, using Stockpile Reports’ flyover service. This is providing a running perpetual inventory for the company.

The Savings

The client recognized immediate costs-savings. There is no third-party labor needed to implement Stockpile Reports’ solution. The time-savings enables the company to perform company-wide measurements regularly. For example, the average time required using internal labor and Stockpile Reports’ flyover service was only 20 minutes per each site. Internal labor used for piloting a drone for site measurements averaged about 45 minutes per site. The average measurement by iPhone was 3-5 minutes per stockpile and bunker.

The materials company has successfully accelerated physical inventory counts, and are now performing monthly measurements. Measuring often, regularly, and accurately is the key to inventory control. They are making data-driven material handling decisions, and are greatly reducing financial write offs.

This blog post is a continuation of  “The Case for More Frequent Physical Inventory Counts” and last week’s entry “Controlling Swings in Inventory with New Technologies.

We are always happy to share our success stories. Contact us for more details about how we can assist your company and reduce write-offs.

 

 

 

Controlling Swings in Inventory with New Technologies

Monthly Physical Inventory Counts are the First Step to Controlling Swings in Inventory

Companies that achieve a more accurate perpetual inventory through monthly or quarterly physical inventory counts receive several positive business benefits:Image of New Technologies in Stockpile Inventory Measurement

  • Reduced financial write-offs
  • Reduced stock outs by ensuring there is adequate material on hand to support the business needs
  • Better business decisions (i.e. investment in resources or equipment) and the ability to set more realistic performance goals (i.e. incentives) based on productivity or cost-per-ton metrics
  • Meet and exceed audit requirements

Accelerate the Speed, and Reduce the Cost of Physical Inventory Counts Through New Technologies

Technological advances are now shrinking the time needed to perform company-wide physical inventory counts from 3-5 weeks down to 3-5 days. The costs to perform multiple quarterly, or monthly counts are now comparable to the historical price of one annual count. Significant advances in image processing, Software as a Service, drones, and phones make this possible.

Manual photogrammetric processes of the past are now fully automated thanks to advances in image processing and computer vision. High quality cameras embedded in drones, attached to planes, and built into cell phones are more highly available and easier to use than traditionally higher cost GPS and Laser based measurement technologies. The combination of high-quality low cost cameras, combined with advanced image processing enable rapid low-cost 3D modeling from imagery. Volumetric measurements generated from imagery are now an accepted form of aerial survey.

Software as a Service (or SaaS) is a way of delivering applications over the Internet, as a service. Instead of installing and maintaining software, companies simply access it via the Internet, freeing themselves from complex software and hardware management. SaaS companies leverage cloud computing to cost effectively scale operations to meet customer demand.

Leveraging SaaS, image processing, airplanes, drones, and phones makes it possible to accelerate the speed, and reduce the cost of physical inventory counts. The time to perform an inventory count is now only limited by how fast the imagery of stockpiles can be collected. Airplanes can be used to quickly take aerial imagery of hundreds of sites across geographically dispersed operations. Drones utilized by trained professionals – internal staff or external service providers – can be used to obtain aerial imagery at localized sites. And now even your phone can be used.

Using a combination of SaaS and image capture methods makes it possible to complete a company wide inventory in 3-5 days. Thousands of stockpile measurements can be generated from millions of images in just 24 hours. Finance and operations employees quickly review and approve data via a common website, with no need to manual enter or transfer data.

Visit us next week for the final post of this series about Inventory Management for companies with stockpiles: Putting it All Together.

(This blog is a continuation of last week’s post. Read: The Case for More Frequent Physical inventory Counts )

 

 

 

 

The Case for More Frequent Physical Inventory Counts

How many hammers and screwdrivers are currently on the shelves at your local hardware store on any given day of the year? The store’s management has a very accurate count of every product type. Products arrive in neat, countable boxes tagged with codes or RFID devices, and are subsequently sold using bar code scanners. The on-going perpetual inventory of those items is highly accurate, due to the traceability or measurability of the products. Accurate perpetual inventory enables stores to make data driven decisions Image of man looking at a row of shoeboxed inventory and a row of bunkers.that improve business operations, and reduce financial write-offs.

Unfortunately, accurate perpetual inventory is much harder to realize in the mining, construction and aggregates industry. That’s because our products don’t arrive neatly in boxes nor get tagged with barcodes. It’s hard to perform an inventory count, as our products are stored in all shapes, sizes, and environments. Our products also change weight, based on moisture and compaction. Our products can be “lost” through erosion and floor loss. We try our best to maintain and manage conversation factors for converting yards to tons. We also produce and sell in tons, yet we inventory in cubic yards or meters. And don’t forget the safety challenges!

Significant Inventory Errors

We have all become accustomed to significant error in our day-to-day perpetual inventories– and the end of year write-off. It is very common to hear a story of a massive, multi-million dollar write-off that a CEO and CFO had to explain to investors and shareholders. Everyone’s site or production manager has had to stand in front of an executive at one point in their career to explain how an error happened– and promise that inventory will be better managed going forward.

Companies in our industry strive to achieve and maintain an inventory +/-5%. However, the actual variation might realistically skew over/under in the range of 20-30% vs.actual. For national or global companies with multiple sites and locations, any variation could easily multiply into the tens, or hundreds of millions of dollars.

Many of us have tried to manage perpetual inventory better by using scales to better manage production and sales. Scales are working well for tracking sales – but still generate variances due to moisture. Scales are being used for tracking critical production, but are challenging to implement for all production, due to cost and maintenance. Therefore, more frequent inventory counts are the most viable solution to addressing perpetual inventory accuracy.

Unlike retailers and manufacturing companies who perform physical inventory counts once or twice per year, materials companies must perform more frequent counts to reduce errors that build up over time. Historically, companies have performed annual inventory counts with quarterly or monthly estimates to help manage write-off risk. Some companies have now advanced to twice-yearly, or even quarterly counts.

The majority of CFOs and controllers would perform more frequent physical inventory counts if time and cost allowed. CFOs and controllers report that the major costs included in conducting a physical inventory count are attributed to management oversight, planning, measuring, reviewing and reconciling data, and updating financial systems. Add to this, the costs of labor and of time, to perform a count using internal or external resources. Every one of these labor and time costs are magnified by the range of a company’s geographic distribution.

Next week’s continuation of this blog post will be: Monthly Physical Inventory Counts are the First Step to Controlling Swings in Inventory

 

 

Aggregates Production and Physical Inventory

Rock Products recently published the news: Aggregates Production Rises in Second Quarter, stating “An estimated 607 million metric tons (Mt) of total construction aggregates was produced and shipped for consumption in the United States in the second quarter of 2015, an increase of 3 percent compared with that of the second quarter of 2014, according to the U.S. Geological Survey (USGS).”

However, further down into the article was some less-than-good news: “The estimated production for consumption of construction sand and gravel in the second quarter of 2015 decreased in five of the nine geographic divisions compared with that sold or used in the second quarter of 2014. The largest decreases in percentages were recorded in the West South Central and the Mountain divisions.”Sales Meeting Cartoon

Notice that the word used to describe both the positive and negative production measurements is “estimated“.

How many aggregates producers do you think estimate their production and sales every quarter? How many do you think were either pleasantly, or unpleasantly surprised when they recorded inventory numbers?

Aggregate Research states that the 2015 Q2 production numbers were gained by the USGS via state surveys, with the USGS Mineral Industry Surveys providing more detail.

Estimation and surprises (good and bad) are not new in the aggregates industry. Tracking the quantity of goods on hand has traditionally been difficult to do in dynamic or remote quarries and sites.

There are two types of inventory methods: a periodic inventory method, and a perpetual inventory system.

In a periodic, or physical inventory method, there is no cost of goods sold in an accounting period until there is a physical count.

Challenges with this method include:

  • Estimation errors. You must estimate the cost of goods sold during interim periods, which will likely result in a significant adjustment to the actual cost of goods whenever you eventually complete a physical inventory count.
  • Large adjustments. There is no way to adjust for obsolete inventory or scrap losses during interim periods, so there tends to be a significant (and expensive) adjustment for these issues when a physical inventory count is eventually completed.

If your company physically measures stockpiles weekly, monthly, quarterly, every six months, or by year, you use the periodic (or physical) inventory method. The more often you measure, and record the results, the more accurate your accounting will be.

Discrepancies or errors in accounting are difficult to investigate, if physical measurements are not completed often and accurately, as there are not enough physical inventory records to track through. Write-offs happen. Less accurate record-keeping makes it extremely difficult to set future performance expectations.

Aggregate producers assume degrees of  inaccuracy in measurements (such as density variations and belt calibrations.) For enterprises with multiple sites and locations, any variation could multiply into the millions of dollars.

Walmart knows exactly what is on their shoe shelves. McDonalds knows how many Big Macs a store sells every day, and management at Target has accurate numbers as to how many candy bars are available for events such as Halloween. They know this by constant physical inventory methods.

Perpetual inventory enables site owners and businesses to obtain real-time knowledge and confidence about existing inventory on hand, if measurements are made and recorded often and regularly.

Frequent, accurate measurements provides feedback into the success of production modes, and helps Senior Management team evaluate performance. The results are highly auditable too, because there are continual updates to either the general ledger or inventory journal.

Every stockpile is cash sitting on the ground.

Survey costs, production downtime, labor costs, tool accuracy, site locations and turn-around times have been barriers to achieving a state of accurate inventory.

Isn’t it time for Aggregates producers to finally update measurement processes to enable rapid physical inventory?

Stockpile Reports is the only measurement platform enabling large enterprises to have accurate inventory. We have the lowest costs, our results are highly auditable and available in hours, giving companies the fastest accurate physical inventory measurements available. Getting those measurements performed often, regularly, and accurately is the key to inventory control.

Think about it: if your inventory numbers were better, would it change your business? How would if affect decision-making?

Contact our team for more details about how we are currently solving accurate inventory problems for enterprises, and how we can help you.

 

*From AccountingTools.com