Several years ago, I accepted a materials manager's job at a company experiencing distressingly large inventory write-downs. The bills of materials were accurate and production reporting was timely, so backflushing worked just fine. Scrap reporting was done conscientiously, and the entire receiving and shipping functions were under control. The finger of suspicion pointed to the accuracy of the production counts turned in each day. The fact that the hourly work force was paid via piece rate based on unverified counts they turned in themselves did little to quell my suspicions.

I had never before worked in an environment where the factory work force was paid via piece rate, but exposure to APICS principles taught me that such systems must include procedures to verify the production counts upon which the pay is based. Certainly, this company's violation of the norm had been pointed out over the years by my predecessors, so I decided not to burst into the president's office suggesting changes to the pay systems. He had undoubtedly ignored such advice many times — advice from managers no longer employed there. Instead, I decided to instigate a cycle counting program.

After a few months, the results showed an accuracy rate of 8 percent, with nearly all the variances being negative ones. The cycle count results provided a powerful argument for changing the piece rate honor system.

My presentation to the president of the company regarding my findings was excellent. My results were impressive, the statistical inferences were impeccable, and my personal demeanor was calm and professional. Imagine my surprise when he proved to be totally immune to my brilliance. He leaned back in his chair and stared out the window for a long moment before speaking. "I'm disappointed you would think people would lie for mere money," he said. "Perhaps you should re-examine your personal relationship with Jesus to determine why you so distrust your fellow man."

Although I am blessed with a quick mind and cursed with an equally quick tongue, only extraordinary self control prevented me from blurting out, "Perhaps you should re-examine your personal relationship with reality!"

He graciously allowed that I had fallen into the same trap as the others before me; that the existence of a piece rate pay system colored my judgment and caused me to search for evidence to support a predetermined conclusion. And he was certain that someone as smart as me could discover the real reasons for the inventory inaccuracies as soon as I stopped focusing on piece rate pay. By this time, I had regained my composure and no longer expected any reasoned response. But I remained curious.

"You are certainly correct about the piece rate pay system being an obvious target," I said. "But how is it you determined that it is not the cause of the problems?"

The president brightened at the opportunity to explain. "You see, this area is a kind of Bible Belt, and we only hire God-fearing Christians. Our people would not lie on their time sheets to put more money in their pockets. So the problem must lie elsewhere."

Now, I had been around more factories than the president, who had spent 25 plus years at this same company, and it certainly seemed to me that our factory work force was no more or less pious than any of the others I had worked with.

Because I could not free myself from the conviction that the piece rate honor system was the source of our inventory problems, the president was not surprised when I could not make inventories right. Eventually, the parent company fired him and sent in a replacement from another division. The new guy made some changes, but still did not address the piece rate pay system. Several months later, we learned his real agenda was to polish the surface to make the company attractive to prospective buyers. A competitor bought the place and allowed everyone in the factory to keep their jobs if they were willing to work for a straight hourly wage plus benefits — no more piece rates.

While I was certain all along that the piece rate pay system was the source of our inventory problems, it was reassuring to have such strong supporting evidence in the form of 60 days worth of cycle count results.

And I did not ignore the president's advice to search my heart for the religious/moral implications of my convictions. The people in our factory were indeed honest people. But there is a line in the Lord's Prayer that requests, "Lead me not into temptation." It acknowledges that it is easier for honest people to remain honest if they are not continually tempted. Piece rate pay systems administered via an honor system lead honest people into temptation and are, therefore, contrary to good inventory management.

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