On that first shipment, it is easy to get your product out of the door. Generally, there are too many people and too few orders. Once a business gets established, the opposite is true. Soon it feels like the product is flying in and out of the doors, and only the Warehouse Manager knows what is in stock.
Peers start talking about their Inventory Control Team, but what is inventory control? What should an e-commerce business look for when investigating Inventory Control Systems?
What is Inventory Control and Why is it so Important?
Inventory control is the systems and processes that manage and track a company's goods through a supply chain, including purchasing, receiving, movement, transfers, picking and shipping.
All efforts in inventory control boil down to better visibility and lower costs. Pretty much every business can appreciate that!
“Inventory control” can also mean a set of tools and techniques, often managed through systems, that increase the flow of business. As an additional benefit, the increased accuracy and timeliness from an inventory control system improves the businesses' trust with their clients, often resulting in increased sales.
4 Inventory Control Methods to Consider
1. Periodic Inventory
Most companies will start out counting their entire stock either weekly or monthly. This is an exciting time when the sales team has a better idea of how much they can promise to a customer, but the quantities won't be reliable for very long. This is also costly when paying for the entire staff to be counting for a day with no revenue coming in. The more frequent the periodic counts, the sooner it is necessary to progress to Perpetual Inventory.
2. Perpetual Inventory and Cycle Counting
Where Periodic Inventory is counting your entire stock once a month, Cycle Counting is counting a portion of the inventory every day so that over the course of the month the entire inventory has been counted. Creating a daily habit of Cycle Counting is core to maintaining Perpetual Inventory accuracy.
As discrepancies are found and researched, trends in damage, shrink, or spoilage can be identified and improved. These improvements can lead to a big impact on the company's bottom line.
3. ABC Counting
After building the best practice of Cycle Counting, we will start to notice a wasted cost in counting the same item every month. Perpetual Inventory is the goal and the next step is to bring more data into the inventory calendar. By bringing item cost, the velocity of sales, and other metrics into the schedule we can make use of the Pareto Principle.
The top 20% of fastest and most valuable items should be counted more frequently, called “A Items,” like weekly or even daily. The bottom 20% might be custom items, leftover seasonal items, called “C Items.” C Items might be counted annually. In between, we have the “B Items” that can be counted monthly.
This is one way to manage the calendar. The percentages and calculations can be adjusted by business and need. If you have a good grasp of the most valuable items in your business, and how critical is it to have an accurate inventory of them, the ABC Counting method of inventory control may be a good fit for your business.
4. Just-In-Time Inventory
Where Perpetual Inventory is the nirvana of inventory accuracy, Just-In-Time Inventory is the Holy Grail of the supply chain. When all parties along the supply chain are in sync, inventory levels in each of the distribution points feed as the customer places an order. This requires lower stocking levels at each stage, reducing the cash tied up in inventory for each business.
The risk is the case study of Toys R Us who became proficient at Just In Time Inventory. Their shelves were so bare that customers became concerned the business was closing. While they saved cash on inventory, they lost the trust of their customers who thought they were going out of business.
How to Pick the Right System for Your Business
The most straightforward way to track inventory is through a Stock Locator. This gives the company a clear view of where on the shelves a product was put away when received and removes the inventory when picked. The Stock Locator will often have a way to digitally represent the warehouse and define an efficient pick path. This simple function can save massive amounts of time for the business.
The core component of any true inventory management system is the stock locator function. Definitely ensure any inventory management system you're considering can tell you not just how much inventory is in the warehouse, but exactly where it is in the building.
Lots and Serial Tracking
Beyond inventory counts, tracking specific items becomes critical to business. Examples can be lot tracking for food safety or serial tracking on electronics for warranties. Being able to see the entire transaction history for each item may be required.
It can be surprising how much extra effort goes into scanning, tracking and logging each data point. The return on that extra effort is crystal clear when we need to find what customer bought a specific stereo when they want a refund.
If the chain of custody is important for recalls or warranty, look for the ability to track multiple lots and serial numbers. If the industry doesn't require the extra tracking, the extra overhead scanning and tracking can be very time-consuming. Often the additional information can be added later as needed.
Units of Measure and Kitting
Michael E. Porter was the first to call out that in a supply chain, each distributor adds value at each stage. He called this the Value Chain. To do that often we must break down a case into smaller pieces or take parts and combine them into a new finished good.
While easy from an operations perspective, it is a unique challenge to break down a product's costs. Even more complex is combining raw materials into a new product.
Have you considered how to add labor into the costs of breaking down a case of Kleenex into boxes? Not only is there labor in breaking down the case, but there is also an increased chance of products damage in the smaller pack size.
Inventory Control System Integrations
In the connected world we live in, it is expected to have data across devices and platforms. Inventory quantities aren't only valuable to the warehouse. Does the CRM need to be updated for the sales team? Does the website need to give low inventory alerts? Finance definitely needs to calculate the stock into costs on the balance sheet.
More advanced operations will require a careful balance between an Enterprise Resource Planning (ERP) system and Material Requirements Planning (MRP) systems.
The ERP system is key to better manage specific costing considerations. First In First Out (FIFO) and Landed Cost give an accurate accounting of the cost of every item, but are very specific tools.
MRP systems are also critical for shop managers to look at the needs of the business compared to the capability of the people, tools, and raw materials. Not only does an MRP help them know what to produce, but it also informs them how to produce everything for the week with the least amount of downtime.
Trends in Inventory Control
QR Codes and RFID
Inventory tracking systems usually default to barcodes for inventory control because they are easy to use, inexpensive to print, and fast to scan. Tracking more information with lot or serial numbers is easy with QR Codes and Radio Frequency Identifiers (RFID). They can store more information in a single scan. QR Codes are popular with mobile devices like iPhones and Androids. RFID was instrumental in Walmart's cost reduction by allowing large quantities of product to scan in a single pass.
Supply chain professionals used to be limited to expensive scan guns. Now new protective cases have made it possible to use the iPhones and Android phones everyone is familiar with. This can reduce costs by accelerating training time.
Not only can mobile devices scan product, but they can also take pictures and communicate with suppliers or customers.
The warning is that they can also play games and chat with friends. The more open the system's tool, the more important it is to have good reporting on transactions to find gaps that could be filled with extracurricular activities.
The most exciting advancement is in voice recognition technology. Having to hold a scanner while picking up heavy boxes is an injury waiting to happen. Putting down a scanner can lead to damaging or losing an expensive piece of equipment.
With the computer on a belt, a simple headset allows a computer to direct a picker's actions. Instead of scanning, she can speak responses that the system can decode and log as data.
Final Thoughts on Inventory ControlIt is amazing to see the efficiencies watching a company move from periodic to perpetual inventory. Each business will have their own needs, but every business can benefit from increased visibility of their inventory.
What are the most critical concerns for your industry? What challenges are you experiencing with inventory controls? Connect with me anytime to keep the conversation going!