The most powerful tool in your warehouse

by René Jones

What asset is more valuable than your people? Inventory. Without inventory, what business would your company be in?

Year after year, distributors try to get a handle on inventory. You select the weekend, order lunch and discuss who is responsible for bringing doughnuts. You make sure someone orders enough pencils, markers, Post-it notes and stickers, then listen to your employees offer excuses why they can't make it.

Is it just me, or do most distributors spend more time preparing for that weekend than they do thinking about why they have to be at work that weekend in the first place?

Think about it: What does inaccurate inventory cost your company? Inaccurate inventory affects profit margins, turns, fill rates, service levels and customer satisfaction, to name a few. Most importantly, it affects the productivity of your warehouse operations. Your people spend an average of one hour a day searching for inventory that was misplaced, received incorrectly, put away wrong, stolen or returned in error. Your customer service department constantly goes to the warehouse to check if what the system says is in the bin is actually in the bin. It’s good they’re not paid by the mile.

Your purchasing department constantly searches for product to fill back orders for items that were just received but can’t be found. How many times have you heard, “The computer said we have it, but when we looked in the bin it wasn’t there?” How much does inaccurate inventory cost you?

Order picking usually accounts for about 50 percent of your total warehouse labor cost. Losing one hour of labor because of inaccurate inventory means money down the drain. Think about how much you spend for your annual physical inventory count. You probably spend about $100 for pizza and drinks, another $100 for pens, pencils, cards, markers and stickers, plus overtime pay for 50 people to count Saturday and Sunday at $10 per hour.

Think about this: Assume your company earns 4 percent net profit before taxes. That means it takes $2,500 in new sales to make up for $100 in lost product. If your warehouse loses $100 per week, the sales department needs an additional $130,000 in new sales each year just to break even. Again I ask, “How much does inaccurate inventory cost your company?" You select the number.

Inventory control is vital to the continued success of your company. When a purchasing agent or buyer procures product for your warehouse, they are tying up current dollars with the hopes of future profits. But what happens when your receiving department receives the product? Some go out in orders, some get damaged, some are given away as samples (without any documentation to update your system), some sit in a salesperson’s desk or car trunk and some your warehouse simply cannot find. Every time a product is not in the bin when you receive a customer order, your profit dwindles.

Your company's success is dependent not only on sales, but also on your company's ability to say, "Yes, we have that item in stock." The problem is, inventory control is usually an afterthought. After the customer orders it, and you don't have it, you begin thinking about it. Now is the time to begin doing something about your inventory accuracy.

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