Distributors know the importance of effective inventory management to meet customer demand and prevent dissatisfaction. As businesses grow, order volumes increase, and multiple warehouses emerge, inventory control becomes more difficult. If you are one of those managers who have to extract data from your accounting software into spreadsheets to manage your inventory, you need to consider upgrading to a platform. If you don’t have tools that provide the kinds of answers listed below, you may want to consider a change.
Dashboards for Key Performance Indicators
The days of management by reviewing voluminous reports has ended. Key Performance Indicators (KPIs) should provide insight on what to look for and exception reports should speed up your analysis. Most modern ERP’s provide graphical tools to see trends and drill down into the details.
For example, SAP Business One has a very cool widget in the cockpit that provides information on shortages, excess inventory, fast and slow moving inventory for cross sections of your inventory. From your overview you can drill into detail supporting the initial graphic.
Real time inventory
I am constantly amazed when new customers tell me that the system must allow for negative inventory. Always record inventory movements in your ERP in real time and you never have this problem. The excuse of “we don’t have time” to enter our receipts as they come in is only true if you do not have good tools. Unit of measure conversion, ability to record lots or serial after receipt and other common features have typically rendered this excuse as some form of cow manure. Real time entry requires some discipline, but if you sell a product before it’s been properly recorded, things are going to get a whole lot uglier. Real time entry provides one version of the truth for not only your warehouse personnel, but your procurement and sales teams as well!
Physical inventory counts provide a baseline for what you have in your warehouse. If you accurately record all transactions in real time, the need for inventory counts diminishes. However, most companies use people who are human and create discrepancies within the warehouse. This could be a rogue salesperson grabbing samples for a high value customer, shrinkage or unreported damage to avoid losing face.
Performing a full inventory count of your warehouse is not necessary every time! Instead, organize your products up into groups for cycle counts. There are a number of ways you can categorize your products, but three characteristics are commonly used:
- High $$$: High value inventory have the potential impact on your valuation.
- High Risk: Products that often have discrepancies during inventory counts, such as fragile items or can easily be removed from the warehouse have higher risk.
- High Volume: Fast moving items, especially those with multiple units of measure and frequent returns tend to also have more discrepancies.
Your business management software should provide you the information for categorization and allow you to set cycles for counting based upon the groupings. Theoretically the more accurate the counts are, the less often you should have to count!
Blanket Orders, Consignment, Vendor Managed and Just in Time (JIT) Inventory
Depending upon your relationship with your suppliers there are many techniques to limit your exposure to excessive and obsolete inventory. With Just in Time (JIT) ordering, the system will automatically send your supplier a message to deliver a calculated quantity of inventory as required. Instead of large occasional warehouse deliveries, goods only arrive when they are needed (just in time), which not only eliminates risk of obsolescence, but saves warehouse space and reduces your capital outlay for inventory.
Even better is when the vendor to stocks your warehouse and you purchase the goods as you remove them from your own shelves! Large distributors with power in their relations with smaller manufacturers have utilized this practice for years, but depending upon your relationship with your supplier, you may be able to negotiate these terms in exchange for exclusivity or larger volumes.
Good distribution software has consignment warehouse and other virtual warehouse functionality to properly account for vendor owned inventory. Virtual warehouses allow for automatic tracking on content and value without including the inventory on your balance sheet.
Reduce errors with barcode scanners
Your staff should be recording incoming deliveries instantly, but this runs the inherent risk of injecting errors by manually entering goods into your inventory systems, especially in the event of high sales volumes or if your products look similar to one another. Barcode scanners can help. Take full advantage of this technology to smooth receiving and sending deliveries, and when performing inventory counts. Scanning bypasses manual errors and works much faster than writing or typing in individual counts.
Integrate with 3PL companies
If you outsource your warehousing or use 3rd-party logistics (3PL) companies, you may be able to integrate your inventory management system with theirs. While 3PL companies have their own systems to keep track of inventory, some will be willing to enter transactions to yours, or at a minimum send you files to integrate with your systems. With modern systems like SAP, you can provide portal access or integrate via web services at a much lower cost than traditional EDI.
Digital Disruption in the Warehouse
Digital disruption refers to utilizing technology to meet the needs of your customers, suppliers and stakeholders. Instead of orders coming from your sales team and goods coming and going out the designated bays in your warehouse, technology is complicating your world to meet customer needs.
- Orders now come in from web stores, mobile applications, and other electronic forms.
- Goods are drop shipped from suppliers or fulfilled by Amazon
- Customers want consistent answers when they shop online, speak to a product expert or work with a brick and mortar location. And they want you to have all three!
- Customers expect to know the status of their orders in real time
If your technology platform can’t meet these needs, provide real time inventory information, support web services for mobile or electronic commerce, integrate with web stores, or meet the myriad of new technology requirements, then it is time to invest in a new platform. With real time systems you can turn data into information, which provide insight for action that improves your bottom line.
Ready to start maximizing the return on your inventory investment and optimize your warehouse? Check out our E-Book!
Ready to start maximizing the return on your inventory investment and optimize your warehouse? Check out our E-Book! This e-book provides ideas and options for eight areas of inventory management that can improve your bottom line. Starting with the basics of having an accurate perpetual inventory count, the concepts continue through warehouse layout, picking and packing and much more.