Physical Inventory - Beyond Scanning and Checking the Box

By Marla Williams, CPPMPresident, Integrated Asset Management, Inc.

President, Federal Center Chapter

Today we will cover:

• Best Practices and ASTM Standards related to physical inventories

• Types of Inventories and Frequency• Types of Assets – Capitalized, Accountable or

Controlled and Sensitive Items

• Automated Identification Techniques – linear bar codes, RFID, UID

• Trends towards Inventory by Exception and how you can begin to transition

• Basic Metrics and Investigation of Losses• Ideas for Improving your processes

What is a Best Practice?

a technique or methodology that, through experience and research, has reliably led to a desired or optimum result

Where do I find best practices for property?

• ASTM International, a Voluntary Consensus Standards Development Organization– Wide base of users– Vote to • Develop• Amend• Maintain

ASTM Committee E53• NPMA and ASTM formed E53 in June, 2000.• Develops criteria for the management and

administration of durable and movable assets, including:– Performance standards – Practices– Metrics – Methods of effectiveness

• Currently 25 Standards have been developed

E2132-01(2007) Standard Practice for Physical Inventory of Durable, Moveable

Property• Visit the ASTM.com web site to join.• Basic Individual Membership with on-line access to

the current standards for $75.00 per year. • Sign up for Volume 4.12• Participate in E53 Committee

Other Sources for Best Practices

• Join NPMA• Attend your local Chapter’s Monthly Meetings• Join the NPMA Special Interest Group (SIG)– Property Inventory Management SIG

• Never miss the National Education Seminar

What is a Physical Inventory?• Verify that your records match the actual

physical conditions• Includes:– Identifying property that is not currently in the

system– Identifying assets that are no longer needed by

the organization.

Types of Inventories• Inventory by Exception (Cyclical)• Statistical Sampling• Wall to Wall

Inventory by Exception• Every time item is touched, it counts as

“inventoried”– Receiving, Transfers, Repairs, Retirements

• Inventory Period Specified– Every year or two years

• Items not “touched” are inventoried at the end of the period

Statistical Sampling• Based upon the laws of probability• A small portion of the assets are inventoried and the

results are used to assess the entire inventory– If results are favorable, you assume that the balance of your

assets are accurate. – If results are unfavorable, a 100% inventory may be required.

• The smaller the sample, the higher the risk.

Wall to Wall Inventory

• Most common type of inventory • Requires:– All locations are visited– All items are inventoried

• Most expensive type

What is inventoried?

• Capital Assets• Accountable or Controlled Assets–Sensitive Assets

Capital Assets

• Useful Life of Over One Year (sometimes two)• Acquisition Cost Greater Than Threshold– $500, $5,000, or $300,000 or higher, depending on size

of organization (see financial statement definition)• Definitions, Additions and Changes Reported on

Financial Statement • Ultimate responsibility of the Chief Financial Officer.

Accountable/Controlled or Sensitive Assets

• Items that may be vulnerable to theft• Computers or PDA’s with personal or sensitive

information• Hazardous material• Weapons

ASTM Standards

• ASTM E2608 Standard – Physical Inventory of Durable, Moveable Property provides Equipment Control Matrix

• ASTM E2131 Standard – Reporting Loss, Damage or Destruction of Tangible Property provides acceptable LDD rates

ASTM Equipment Control Level 1• Continuous Control

– 0% Acceptable LDD Rate • Highest Standard of Sensitivity • Consequences of loss of control is a societal safety/security

impact• Examples

– Firearms (duty or training)– Munitions or Explosives– Destructive Devices

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ASTM Equipment Control Level 2 • Control While Mobile– 0.5% Acceptable LDD Rate

• Moderate Standard of Sensitivity• Consequences of loss of control is a personal

safety/security impact• Examples might include:– Vehicles– Secure Communications, Radios– Stun Guns, Tasers

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ASTM Equipment Control Level 3• Control by Event (e.g. Receive, Maintain, Transfer, Dispose)

– 1% Acceptable LDD Rate• Minimal Standard of Sensitivity• Consequences of loss of control is operational safety/security impact• Examples:

– Software (Compliance, Inadvertent Piracy, Fines, Bad Press)– Desktop/Laptops and Equipment with Retainable Memory not encrypted

like PDA, Blackberry, Cameras, Thumb Drives?– Portable, Easily Converted to Private-use and/or High Potential for Theft like

Tools, Satellite Phones, Televisions, VCR/DVD, Projectors, Small Office Machines

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ASTM Equipment Control Level 4• Containment– 3% Acceptable LDD Rate

• Consequences of loss of control is a compliance safety/security impact

• Example:– End of Life Control for monitors, copiers, fax, scanner,

printer and other peripherals where improper disposal could result in hazardous materials being released into the environment.

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ASTM Equipment Control Level 5• No Tracking• Non-Accountable• Consequences of loss of control is not

discernible, which is characterized by having no visible or recognizable impact on the organization.

• Example:– Stapler, Desktop Calculator

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Who Should Do the Inventory?

• Inventory is an audit• Needs to be performed by individuals who

have no vested interest in the outcome. • Use:– third party vendor– headquarters personnel– teams from another location

What Tools Should You Use?• Over 1,000 assets, should justify automated

inventory tools:– Commercial Off-the-Shelf (COTS) Single Workstation

System with one HandHeld Computer <$10,000– COTS Web-based and Multiple Workstation System

over a network with two HandHeld Computers $20,000-$25,000

– Oracle or SQL-based system with customized screens and interfaces to suit your specific needs $250,000+

Handheld Computers• Old handhelds had proprietary operating

systems and limited memory• New handhelds are portable computers

running Windows Mobile or CE operating systems:– Can read RFID, UID codes or bar codes– Allow multiple configurations or prompts – Run multiple applications (e.g. work orders,

preventative maintenance, etc.)

Automated Identification• Linear Bar Codes– Most common and affordable

• UID – DOD Program for Equipment over $5,000– 2d matrix codes and/or linear bar codes assign unique

identification numbers to serialized equipment– Purchase Information is sent to a National Registry – Benefit to non-DOD. . .

Automated Identification• RFID

– Tags can be passive (wait to be scanned) or active (send constantly)– Inventory with Handhelds or Fixed Station Scanners– Fixed Scanning at Loading Dock, Entrances, and Hallways makes collection

automatic but can be expensive– Consider for server rooms or areas that contain sensitive or hazardous materials

that move– Not a “real” security measure unless hidden inside equipment– Cost Effective for High Volume Supply Chain Management Applications like Wal

Mart. . . Not common for asset management yet. . .

Trends• To reduce costs, consider moving towards

Inventory by Exception Techniques:– Use IT’s existing auto-discovery technology to

inventory network equipment and help desk systems to record movement

– Use state inspection certificates or fleet management fueling data to inventory vehicles

Trends

• Look at other existing systems and interfaces that could supplement inventory data:– Work Orders used by Facilities or Maintenance

staff– Human Resource systems that track new hires,

department information, contact data and terminations

Get creative!!

• Strategies for Laptops, PDA’s, Cellphones– Create “Missed You” Flyer for inventory team to

leave when employee not present– Host doughnut stations at elevator banks – got to

bring your equipment in to get a doughnut.– Create Mail In Packages (Hand Receipts) for

Remote users

Basic Metrics• Measure annual overage or loss rates by overall

number(count) and dollar value• Also make these calculations for each Organization or

Department – share the information, recognize leaders who care!

• Also calculate these values by category of equipment• Compare new information to previous losses/gains

for trend

Investigate

Generally, if your loss rate is in excess of 3% (refer to ASTM Standards) or you have an Organization with losses in excess of that rate, further investigation is required.

Independent Review• Form a temporary committee• At least three people without responsibility for property under

review• May individually or collectively examine property and/or records.

• Determine the circumstances of a specific instance involving,

loss, damage, destruction or similar matters • Results may indicate failure to observe procedures,

discrepancies, premature or excessive wear or requests for early disposal

Possible Improvements• Too many assets not tagged:

– Consider requiring assets to be tagged and identified in your property system before contractors are paid.

– Consider centralized receiving– Look at credit card purchases and monthly reconciliations

• IT assets missing:– Consider putting scanners in the hands of IT Technicians and

provide asset data to their Help Desk system.– Consider linking to auto-discovery tools

• Key to Success– Get those assets tagged and identified when they arrive. . .

Now its up to you!You can just rely on the physical inventory

to maintain accuracy and continue to get the same results, or worse,

oryou can look at the physical inventory as an

opportunity to make improvements in the property management process

Questions?Marla Williams, CPPMPresidentIntegrated Asset Management, Inc.marla@weinventoryassets.com(800) 731-9569Severna Park, Maryland

President, Federal Center Chapter