Distributors need to be vigilant in identifying inventory management inefficiencies in the warehouse to avoid unnecessary costs and to increase overall effectiveness.
If you’re using outdated technology, have piles of obsolete inventory taking up space or can’t access vital inventory information, it’s time to make improvements to your warehouse processes. Here’s a more detailed look at three common areas of inefficiency.
- Outdated inventory management systems: Distributors lose a lot of time and money by using outdated systems. You can maximize efficiency by having integration between your inventory management process, finances and customer relationship management. These components should be working in sync, but many older systems can’t support the level of integration needed in today’s business environment.
While they’re crucial to operations, these systems are often overlooked. According to an article on the Web Business Age website, companies will often expand their warehouses but never follow through on upgrading their system. Old systems usually can’t keep up with higher demand and increased complexity, and therefore should be replaced.
- Obsolete inventory: It’s not uncommon to walk into a warehouse and see a pile of stock sitting in a corner gathering dust. That should never be the case. If a product’s not moving, get rid of it. Obsolete inventory takes up space that could otherwise be used for products that are selling.
Go through the warehouse floor regularly to make sure everything is clean and where it’s supposed to be. “Take care of anything that needs to be discarded or sent back to the manufacturer so it’s out of the way and so your employees can navigate the floor more easily and without clutter,” the Web Business Age article recommends.
- Lack of access to key information: It’s crucial to have easy access to information in order to operate as efficiently as possible, and technology can play an important role in keeping employees in the know. Today’s businesses need role-based dashboards and reports that provide real-time visibility into key data, including inventory trends, on-time delivery rates and shipping costs. Technology solutions can also show where products are located in your warehouse, as well as help you to accurately track and report costs.
In addition to looking at those three areas, distributors can conduct internal reviews of warehouse operations to find where they need improvement the most. Start by establishing key performance indicators (KPIs) to measure efficiency in different areas, and then analyze where KPIs don’t meet expectations. This allows you to isolate the areas where the biggest gains in efficiency can be made.
Fundamental metrics to look at include the following:
- Inventory turnover: This is how fast items are selling. Tracking this will help to ensure you don’t keep obsolete inventory in stock.
- Inventory accuracy percentage: This describes the percentage of items with correct balances following a physical inventory review. Tracking it will tell you whether inventory data is becoming less or more accurate over time. It’s difficult to function efficiently if you don’t have a good handle on what you have in stock.
- Order fill rate: The order fill rate is the amount of inventory on hand at the time an order is due divided by the order amount. For example, if the order calls for 20 units of one item and you have 10 units, the order fill rate is 50 percent. An order fill rate helps measure the efficiency of the business by comparing supply and demand. The more you can align supply and demand, the more efficient your business will be.
These are just a few of the ways distributors can evaluate the efficiency of their warehouse. Inventory management isn’t always easy, but being more efficient starts with understanding your operations inside and out.