The 3 Inventory Best Practices You Can’t Afford To Ignore in 2021 | Inventory Accuracy & Quality
The key to supply chain excellence can easily be reiterated by most supply chain professionals where initiatives to eliminate waste and a focus on inventory accuracy and quality are proudly asserted as “top priorities”. However, most honest logisticians that have been around for a few years will tell you that talk is cheap and that there’s often a gap between what is said and what happens. This is where the rubber meets the road in supply chain mastery and what separates the top performers from the mediocre. Let’s get started!
First, let’s cover a few common practices in warehousing and logistics starting with the cycle count. This is a common and important function that often gets overlooked or the first place where resources are pulled when there is a spike in volume/orders. Don’t make this rookie mistake or forget about cycle counts for the 11 months leading up to an audit or annual inventory. The all too common scramble to “fix” inventory right before it’s time for the annual count or an audit happens at more companies than you might expect and aside from sending the operation into a panic to fix inventory variances and discrepancies, it’s incredibly inefficient and costly. Even worse, many logistics vets can attest to this – it takes only a few days to revert back to inventory unimaginable chaos and confusion after the audit blitz.
Any rational person might ask why this cycle repeats itself year in and year out. These are problems that should have been, not just taken care of much earlier, but avoided altogether (if the “best practices” were followed). What we have learned is that although these experiences are painful for the leadership, costly to the operation, and take a toll on the team members completing the tasks on the distribution center floor, it is often not enough to affect change in an organization. If you want to break this cycle and get ahead of the competition, read on! In this article, we will look at some of the misconceptions about productivity, inventory control, and process exceptions or shortcuts that top-performing logistics and distribution operations avoid at all costs.
The Cost of Poor Quality
At a client’s facility we were working with, we analyzed the cost of rework for common issues where partially picked or over picked orders (whether physical or systematically) were analyzed and discovered that on average, for each carton associated with the error, it costs the company about $20. Over a day, it’s easy to reach amounts in the range of 4 figures in terms of loss to the bottom line. When you run this out in monthly, quarterly, and yearly terms; it’s a very big problem.
Inventory Accuracy, Productivity and Perceptions
Everyone understands that a rate of error will occur but the trend with the incomplete orders is one area that we can work together on and make a big impact on efficiency and profitability. This is not theoretical, or opinion-based but backed by research, both academic and by industry studies from a variety of sources – quality and accuracy are strongly correlated to profitability. Likewise, the most effective way to improve warehouse profitability is by increasing accuracy. This must be paramount to all other things we do as, without inventory accuracy and quality, efforts to drive efficiencies or reduce labor costs will have no impact. To explain I will use the recent examples and some of their direct costs related to poor quality
Tip #1 – Quality at the Source with Inventory Accuracy
Exactly how expensive are inventory and quality issues? Let’s break down some of the associated costs of making and the waste created from them
- Errors are found at point of loading or downstream – operation stops, and a special team or otherwise non productive/value added position is needed to go and retrieve the product or correct whatever other issue occurred
- Administrative time is impacted greatly – do a simple search of “LIC” or “incomplete” or “error” etc in your email and look at the number of messages sent day in and day out. This is all waste and can be avoided if taken the time to ensure quality at the source
- Development time and resources – countless hours are spent correcting systematic issues from billing bins going negative, system forced adjustments, new process or enhancements to compensate for behavior or process deviations, so on and so on. This is a slippery slope as it becomes difficult to determine if process changes or systematic changes actually added value or just enabled a problem that could have been corrected at the source. Furthermore, when there is not control on accuracy or quality, it’s even more difficult measuring the benefits or costs to changes as the data has no integrity.
- The cost of rework – IC team to rework product, count locations, find missing product, Ad nauseam. Every time the zero bin is drawn negative from these oversights, we are burning countless labor hours as “IC” team members have to correct, cycle count all locations for individual items, and work the freight back in.
- The opportunity cost – all of this effort, the original warehouse task where the problem started to admin and leadership research, to EEC development time, to IC team members fixing, to writing this long email (that hopefully is impactful in some way) is ALL WASTE. We would otherwise be doing something productive as in getting product received, stored, or shipped to the customer.
- Impacts to the customer – harder to quantify but the most concerning. However, we all have felt the impacts of competition and rising costs of shipping as seen by carriers stopping service to less profitable customer and more. Also, The top 2 public 3PLs operate on slim margins where overall profit margins are less than 2% and closer to 1% with operating margins less than 4%. It’s very competitive
Tip #2 – Alignment on All Levels wit Inventory Accuracy and a laser focus on eliminating waste
Top-down, alignment on all levels with accuracy and quality is vital and I would say not even a priority but a company value. At the hourly level, there’s no reason a basic understanding of the costs of poor quality shouldn’t be engrained in all our messaging as this also impacts their livelihood, the amount of overtime, etc.
Tip #3 – Communication and Transparency to Drive Improvements to the Bottom Line
Lastly, communication and transparency are the foundation to building a healthy warehouse or distribution center. It is important that top leadership facilitate an environment where it’s safe to call each other out when IC compliance, quality, or accuracy issues are ignored or departments are unaware that they are happening. Too many organizations operate out of fear and attempt to cover their tracks to attempt to portray their location and inventory integrity in a way that’s far from reality. These toxic environments are many times the difference between being satisfactory and starting on a path to warehouse management excellence and profitability. The way we can most effectively affect change is through transparency in communication. This can only be done with open and honest feedback so I commend the members of your team that continue to drive quality and call out accuracy issues. A relentless focus in this area and consistency in sharing your findings will pay dividends.
Managing a warehouse to eliminate waste and drive inventory accuracy can be a logistical nightmare if inventory control, organizational culture, accounting, profitability, and most importantly the customer Thankfully, technology and warehouse management systems have become smarter, more robust, and integrated to help manage and measure accuracy. However, make no mistake – there are no substitutes for solid management oversight and accountability.
There are a lot of factors that cause money to vanish in a distribution center and plenty of ways to become more profitable with direct improvements to the bottom line. The top 3 are listed below but without a foundation of inventory accuracy and quality, your efforts will add to the waste your team is trying to eliminate.
10 Ways Warehouse Management Systems Increase Profitability (source iCepts Technology Group)
- Dramatically Increased Accuracy: Accuracy within the warehouse is a huge contributor to costs. Whether it is due to mistakes in keying in order or inventory information, misplacement of products, incorrect picking or packing, mismanagement of inventory, incorrect data can seriously affect operating costs that cut into profit margins. Having an automated data collection system that digitizes inventory management and assists pickers and packers within the warehouse can increase accuracy to 99.9%
- Driving Efficiency: Increasing warehouse efficiency can have a big impact on costs. With automated data collection, there is no more data entry from paper, no re-keying of info into a system and all data is real-time. This allows staff to do more productive things with their time in addition to needing less staff overall. Access to data is more readily available as well so that inventory counts are automatic rather than having to shut down the warehouse for days at a time to count products.
- Managing Labor Cost Better: There are several factors that influence labor management within the warehouse including data entry, picking, and packing. Data entry is digitized, picking is made easier with more efficient routes that require less walk-time and warehouse crossing, and packing is more accurate with scanning. All of these factors contribute to more effective use of labor in addition to a happier workforce because of less movement and potential for mistakes. learn more here
Benchmark your organization and inventory processes
APQC (American Productivity & Quality Center) is the world’s foremost authority on benchmarking, best practices, process and performance improvement, and knowledge management (KM). Founded in 1977 by business leader and innovator Jack Grayson, APQC provides the information, data, and insights organizations need to work smarter, faster, and with greater confidence.
The APQC is a non-profit organization. They provide independent, unbiased, and validated research and data to our more than 550 members in 45 industries worldwide. Here you can access one of the world’s largest set of benchmark data, with more than 2,000,000 data points. Visit https://www.apqc.org/
Everyone understands that a rate of error will occur but one area that any team can work together on and make a big impact in efficiency and profitability is accuracy. This is not theoretical, or opinion-based but backed by research, both academic and by industry studies from a variety of sources – quality and accuracy are strongly correlated to profitability. Likewise, the most effective way to improve warehouse profitability is by increasing accuracy. This must be paramount to all things you do as, without it, all efforts to drive efficiencies or reduce labor costs will have no impact.
Have an inventory issue that seems insurmountable? Learn more today about how to tackle the worst of inventory management issues. Contact BJ Blackburn Now
Download the complete guide here for the Top 3 Tips to improve inventory accuarcy and the bottom line: