INVENTORY MANAGEMENT SYSTEMS:  Is Your Warehouse a “Where? House?”

Why implementing an efficient Inventory Management System can increase profits.

Success starts with a vision, and visions are realized through effective planning. Effective plans are what separate the winners from the rest of the pack (called competitive edge) and having a solid plan will make operations run smoother, eliminating profit-eroding errors. 

The benefits for you may be significant. Successful Inventory Management Systems can reduce warehouse operating expenses by 10 to 35%, or up to 1.0% point to the bottom line (assuming warehouse operations expense is equal to 2.0 to 3.0 of sales). Imagine what a 10 to 35% reduction in inventory carrying costs would translate into $$$ savings!

Maintaining an accurate count of the products in your warehouse by quantity and location will allow you to monitor and regulate storage at the SKU level, as well as, the corresponding shipping and receiving traffic. Keeping the “where?” out of your warehouse will make your business more profitable, while lowering stress levels for you, your customers and employees.

Are inventory transactions (i.e. internal movement, decrements, receipts, etc.), that can make major differences to your financial results, being accurately tracked? Have you evaluated your inventory tracking system lately? Is it as efficient as it needs to be? If not, what have you done to improve?

How to Improve your Inventory Management Program

Our “vision” of inventory is somewhat different than the norm. We see inventory as stacks of crisp $100.00 bills neatly stacked & stretch wrapped on a pallet. After all it is money; you paid for the product, you pay to store it, you pay to handle it and it depreciates in value. Don’t you want to know where your money is? And what’s happening to it?

We realize change is not easy; developing a plan, documenting it and training employees takes time and can be frustrating. But it is a very attractive option to the profit-eroding alternative! When putting together a winning formula you have to build from the ground up and that process starts with the basics…efficient material flow paths, organized storage and process mapping. Most inventory inefficiency is created by smaller underlying deficiencies, either in the physical layout or information flow. It’s important when implementing a new Inventory Management plan, or revamping an old one, to start simple and stick to the basics.

Most people think of automated data transactions like bar coding & scanning when thinking of upgrading warehouse/inventory control operations, and yes they are very effective tools for recording inventory transactions. However, most ignore “The Basics” and set themselves up for failure even if scanning is implemented. Improving the performance of your Inventory Management System can be simpler, and far less expensive, than you think.

• Start by mapping the physical movement of product from pre-receipt to shipping confirmation
• Review the corresponding documentation
• Determine appropriate data collection points based on physical movement
• Initiate a continuous cycle counting program
• Have a storage location for all items and all items stored in the appropriate location (sometimes easier said than done, but try it, it works!)
• Review the “flow” of information, where it goes, to who & why & what is done with it
• Review inventory reports for timeliness and accuracy
• Streamline the flow of information

In business and in life, attitude is everything. Sustaining inventory accuracy should be an integral aspect of your business. It is a mentality that must be promoted from the top and be instilled through every employee.

Additionally, when developing your Inventory Management plan of action, you should seize opportunities to eliminate, or at least reduce, the potential for errors. Taking into account all the scenarios is challenging, so involve key internal personnel whenever possible and utilize external resources to supplement your internal Team when necessary.

Once your plan of action is defined, it must be documented and effectively communicated to all employees. Training is an essential step to promoting inventory control, quality assurance, enhanced productivity, improved safety and reducing overall inventory carrying costs.

Documented studies clearly emphasize that employee training results in better procedure execution, reduced stress, and a clearer understanding of the corporate vision. Proper identification of products and their respective storage locations will dramatically decrease the labor time required to find items, pick orders and perform put-away functions.

Another simple way to improve Inventory Management is to maintain good housekeeping. A clean work environment will reduce “touch labor”, allow quick access to the desired SKU and will increase productivity. The elimination of “reconnaissance missions” (looking for the desired product that is somewhere?? in the "wherehouse") will save valuable time, most likely overtime dollars, and improve Customer Service. Most importantly, aisles free of impediments and temporarily stored product will allow unobstructed access to your inventory. It’s similar to how your car always runs better after it’s washed, but good housekeeping always increases the amount of space in your warehouse.

An effective Inventory Management System starts with an efficient storage system; one designed to support order fulfillment and Customer requirements. It is also important to remember the correlation of Inventory Management to your Supply Chain initiatives and the overall impact on your business objectives relative to Sales & Marketing.

Start with the basics and have a plan to work yourself up to real-time inventory transaction reporting. Accurate Inventory Management requires effort, time, discipline and attention to detail, but the Payback can be huge!

Note - I wrote this as a White Paper for a client a few years ago and it still holds true.

Good as Gold!

Make quality a priority in every facet of your business.

Most of us know the book Think and Grow Rich by Napoleon Hill.  In the first chapter of this classic, Hill tells the story of R.U. Darby who gives up on his dream of becoming rich by prospecting for gold, a mere three feet before striking a major gold vein.  In most businesses, we give up in the “last three feet” before making major strides in building in quality as a competitive advantage and a profit center.  Let’s examine 5 simple ways to go the final three feet in making quality a priority.

1.       First, give your products or services a checkup.

Are you giving customers the best you can at the price point you set? Is there anything you can do to increase the quality without incurring a higher cost — for example, get a new vendor for parts or product or spend more time and effort on one aspect of a job versus another? A good example here is rework, is it better to deal with the rework as it occurs or is time better spent finding what is causing the rework?  Is the best service you can provide the customer turning the job over to another company or associate more qualified than you to meet a unique demand?  Have you even thought about a check up?

2.       Set quality standards of for your work.

In order to improve the quality in your business, you have to start by defining what you consider to be quality work.  You also need to carefully consider comments and feedback from your customers. How valuable is your product or service in the eyes of your customer? What outcomes do your customers expect from each job or sale, service provided, or product’s performance? Put your standards in writing and post them where every employee can see them. If measures of your quality standards can be gathered with reasonable effort, do it! Post the weekly or monthly results and trends in a visible place. If you can foster positive competition with separate measurement by group or individual, by all means try it!

3.       Involve everyone.

To make quality a priority throughout your business, you need to involve everyone who works with or for you. The people that build and sell the products and provide the services to your customers usually have valuable ideas on how to improve quality. Employees who are part of the plan are more likely to feel a sense of ownership and pride and to think up and more quickly implement new ideas for improvement.  Plan, manage, lead, and staff to achieve better quality results and great customer experiences.

4.       Show your commitment to quality.

Showing employees that ownership and management are personally committed to quality sets the tone and provides a setting in which they can achieve their best. Train your work force to perform well and to make improvements. Praise and reward employees when their actions lead to quality results and customer satisfaction.

5.        Set quality standards for every operation of your business.

Focus on “getting things done right” the first time to eliminate customer problems as well as waste of product or time. Identify operational practices that impede quality. Your processes should provide proper support for your business, of course, but they should also facilitate quick response to customers’ needs. “Standard procedures”  should not stand in the way of customer satisfaction. Analyze your systems and work with staff to make improvements that allow your quality to shine through in everything you do.

Sometimes our greatest achievements and successes are closer than we think.  In today’s global landscape, it is our responsibility to continue the quest for quality no matter how hard the challenge.  With each step, you will grow stronger, more skilled and more successful.  The Darby's quit because of the struggle and lack of commitment to finding the opportunity.  Find your opportunity, struggle to be the best.