The Bee Hive

The crux of managing inventory effectively is to ensure that our distributor will be able to at least meet or exceed his customers' expectations in order to maximize his profits. Customers' expectations differ - some will demand immediate delivery of an ordered item but some are prepared to wait longer. But what is relevant is to examine if customers are always this demanding. Surely there must be some items demanded that can be delivered in a certain time without negatively jeopardizing the customer service levels?

Do you enjoy doing a physical inventory? I don't! Really, I prefer to to go fishing than to spending a whole weekend counting every piece of every item in my warehouse. Especially if it is a physical inventory which results in an inaccurate count of what is in stock. After all, the primary purpose of an annual stock take is to ensure on-hand quantities in your computer equals what is physically in your warehouse. If, during the counting process, your people overlook certain products and miscount others, the considerable amount of money involved in taking the physical is totally wasted. In fact, most distributors would be better off with no physical inventory than one which results in inaccurate counts.

Many employees don't realize the value of your stock inventory and may "borrow" products or take samples for their personal use. Unfortunately, there is another reason why material disappears: theft. Many distributors find it hard to believe that their employees or customers would steal. But unfortunately stealing, especially petty theft, is a very common reason for "inventory shrinkage." And a distributor who doesn't admit that theft is a problem, or a potential problem, is just burying his or her head in the sand.

I just remembered an occassion some time back when I was helping a food distributor deal with their inventory management challenges. The company has begun a program to achieve effective inventory management. As part of the program, they are cycle counting products and entering inventory adjustments when they find discrepancies between the quantity of a product in their warehouse and the perpetual inventory maintained by their computer system. Though the company has implemented a system that corrects current inaccurate inventory balances, it still needs to adopt a system that will improve future inventory accuracy. That is, they need to improve their methods of handling stock to prevent additional stock discrepancies. How will they do this?

Cycle counting is the process of verifying the on-hand quantity of a specific number of stock products every day. In previous articles, I have described how to set up and maintain an effective cycle counting program and why this process is usually better than a full physical inventory for maintaining an accurate perpetual inventory in your computer system. But verifying on-hand quantities is only one of the advantages of cycle counting. The other benefit of a cycle counting program is to improve your business processes, including:

• Making sure that all material movement is properly recorded.

• Ensuring that stock receipts are put away in the proper location.

• Verifying that the right quantity of the right item is shipped on outgoing orders or is pulled from stock for an assembly.

• Preventing shrinkage from theft and the mishandling of stocked items.

Process improvement results from carefully analyzing significant stock discrepancies. A discrepancy is the percentage difference between the actual quantity physically counted and the stock level in the computer system at the time of the count:

[Absolute Value of (Quantity Counted – Current Stock Level)] ÷ Current Stock Level

Including the "absolute value" of "Quantity Counted – Current Stock Level" in this equation signifies that a discrepancy should be analyzed if significantly more or less inventory is found during the cycle counting process. For example, assume that a distributor has a cycle count tolerance percentage of 5%.

The goal of warehouse layout design is to optimize your warehousing functions and achieve maximum efficiency and space utilization. A warehouse is typically divided into areas to support your every day processes. These areas include: reserve storage, forward pick, cross docking, shipping, receiving, assembly/special handling lines, and quality/inspection area. Designing a new facility starts with analyzing your current and projected data on the activities in each of these areas, including the receiving, shipping and inventory levels. This data should be supported by other considerations such as process flows, material handling equipment, type and styles of racking equipment, special handling requirements, and personnel.