The two checkpoints of better inventory management
When it comes to inventory management, warehouses have little room for error – in fact, managers aim for an average accuracy rate of 99.7 percent. Pickers are already strapped for time, and if even one item is missing from its proper location, the error can have a ripple effect across the warehouse.
The best warehouses recognize that inventory management is a continuous process, rather than a count that ends the minute a shipment is received. Human error and manual processes can both lead to inventory mishaps at multiple points, from goods in to packing and shipping. Without a keen focus on accuracy, inventory management errors may result in lost productivity and reduced revenue – your customer may receive the wrong item, generating unexpected returns, or you may not have the correct item in your warehouse to begin with, causing order processing delays. In our experience, many companies simply don’t know what inventory they have and, even if they do, they don’t know where it is! Apart from being unable to fulfill orders, this often results in them ordering stock that they don’t need, increasing both inventory carrying costs and obsolescence.
The majority of inventory errors occur at two crucial checkpoints: receiving and putaway. Take a closer a look at each – and consider whether manual processes are hindering your inventory management.
Without a rigorous receiving process, it’s difficult to maintain optimal inventory accuracy. Paper-based warehouses often rely on a “circle, sign and date” process – if the received quantity is different than expected, managers write it on paper, then circle, date and sign it. Still, that’s a minimum requirement, and this process is prone to errors.
Warehouses face multiple pitfalls while receiving goods.
The vendor may occasionally ship the wrong number of cases for a specific SKU. Without scanning verification, this can easily go unidentified and your inventory validity is compromised even before you put it away., an issue compounded by paper-based processes that lack scanning verification.
Employees might also miscount inventory, or record the wrong unit of measure. Eaches, cases, inner-packs/outer-packs, boxes, pairs, sets - the list of units of measure goes on. In a paper-based operation, people are going to count things (and there will be some frequency of counting errors), but the real challenge is a unit of measure error. A receipt posted as 100 ‘eaches’ is significantly different than 100 ‘cases’!
Finally, failure to properly manage over/under/partial receipts.This requires coordination between multiple departments and issues in communication during these types of activities can also lead to inventory management issues.
To shore up your inventory management processes during receiving, consider moving away from paper records to warehouse management software. A WMS will allow your labor to scan cases for failsafe identification and validation and also supports default units of measure for receiving. As an added benefit, tying receipts back to purchase orders will allow processes to be completed around over/under/partial receiving.
For inventory managers, putaway errors can cause migraines as they’re more difficult to identify quickly. Paper-based systems increase the frequency of errors because they lack a validation step, i.e., scanning the destination location to confirm. Staff often discover the errors only while completing another task such as picking, rather than as a result of an active auditing program.
Most warehouse managers have intuitive investigation steps in place: once an error is discovered, employees check the shelves above, below, and to either side of the correct location, as well as positions with anagrams of the location name (i.e. if the shortage is discovered in location B41, check B14). However, this method is neither scientific nor particularly effective.
RF-driven warehouse management systems can offer greater visibility to assist in locating inventory: a high percentage of putaway errors do not result from the traditional (above, below, beside, anagram) mistakes. Rather, they occur when the putaway is to the same location of a previous putaway line. A top-tier WMS will allow you to investigate what was put away before, and it’s likely that’s where the inventory went.
Ironing out wrinkles in your receiving and putaway processes will naturally improve your inventory accuracy but, no matter how robust your processes, mistakes will still occur. At the same time, your business needs to know what capital it has tied up in inventory and to make any financial adjustments to account for discrepancies, Traditionally, that meant shutting down for a couple weeks to physically count every item in the warehouse.
To avoid this, many warehouses have moved towards cycle counting or perpetual inventory checking, in which a small portion of the total inventory is checked every day or week.
As well as giving your financial controller and purchasing team an accurate picture of inventory value and Cost of Goods Sold, cycle counting uncovers systemic issues with core warehousing processes: receiving, putaway and picking. These types of cycle counts should be geared toward the types of transactions most prone to mistakes: very similar items stored closely together, small items where a quantity greater than five is typically ordered, received items that get put into both bulk and forward pick areas, and items that are ordered frequently as cases or eaches as these types of inventory interactionscarry a high risk of a small error aggregating into larger inventory management and validity issues. A best of breed warehouse management system will include cycle counting functionality which will automatically generate the inventory counting tasks to be performed concurrently with other warehousing tasks, ensuring that the auditing process takes place with maximum efficiency and minimum disruption to your operation.
A better way to manage inventory
Unless you manage a small operation, chances are paper-based inventory management is responsible for many of your warehousing woes. It’s error-prone, and the time your staff spends fire fighting eats into productivity. If you’re understocked, you may not be able to provide a customer with their order – leading to lost revenue and poor word-of-mouth. If you’re over-stocked, your profits will suffer and the financial health of your business may be at risk.
Instead, consider the benefits of a fit-for-purpose cloud WMS. You’ll gain a solution that supports maximum inventory accuracy and visibility across the warehouse. Inventory management is the root of efficiency throughout your operation – and by prioritizing it across processes, you’ll find that errors will drop while productivity (and, ultimately, revenue) begins to rise.
For more details on improving your warehouse processes, take a look at our eBook: Inside the Smart Warehouse: How to Optimize Warehouse Processes.