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.