Best in class (BiC) warehouses maintain inventory accuracy levels in the high 90’s by following specific warehouse best practices. Warehouses are able to achieve these levels of accuracy by adhering to strict systems. In today’s article, we’re going to take a look at some of these warehouse best practices and systems reflected in the most effective warehouses.
The Problem of Inventory Inaccuracies
To begin, we'll start with an honest discussion of the problems facing warehouses. Many warehouse managers report a 50-60% inventory accuracy level. If this sounds familiar, don’t worry, you’re not alone. That said, if you can’t trust your inventory reports, you have a substantial problem to deal with. For example, how can you maintain successful production and shipment of materials if you are unsure what inventory you currently have? There’s no sense in spending money developing a website or marketing products to drive demand if you’re in this situation. Your store or website is only as trustworthy as the supply of product you can provide it.
Problems with Paper
Next, let's talk about paper. The best warehouses across North America avoid keeping paper records at all cost. Not only is paper-record keeping error-prone, but it also creates unnecessary delays and confidentiality risks. Here's a list of a few risks caused by using paper to keep track of things:
1. Firstly, It’s easy to write a number down wrong. Whether you write the numbers out of sequence or you actually write down incorrect numbers altogether, mistakes happen to us all.
2. Secondly, it’s easy to misread a number. Do your 1’s look like 7’s? Even if you can tell the difference, can your coworkers?
3. Thirdly, it’s easy to lose or damage a piece of paper in a busy warehouse. Spill a cup of coffee and there goes your records!
The Heart of the Problem
The bottom line is that inefficiencies across warehouses result in inaccurate inventory records. Most WMS providers (including ourselves) report a 1-1 ½ year return on investment on doing away with paper records alone. The cost to add wireless internet and bar-code scanners in a warehouse is also extremely affordable given the benefits provided. The real challenge is to find time to implement these upgrades.
So now that we’ve laid out common pitfalls warehouses fall into, let’s move on to examine four warehouse best practices. The first step in upgrading your warehouse is to implement wireless technology and bar-coding.
A Wireless Warehouse
Best practice for large warehouses (over 50,000 square ft) is to use wireless warehouse transaction processing. That said, of the 800,000+ warehouses in North America, only about 30% are actually using wireless warehouse transaction processing.
Regardless of what size the warehouse is, bar-coding and a wireless computer system is a must for warehouses (even if it is used in conjunction with paper reports). These systems should reflect not only what’s physically inside the warehouse, but also any materials in the yard, at 3rd party warehouses, in transit, and product on customer’s shelves.
Data Sharing with Supply Chain Partners
Best in class warehouses frequently share data with their supply chain partners. It’s an important first step to achieve inventory accuracy inside the 4 walls of your warehouse first. Next, you should expand your use of the systems you’ve created and start sharing data with your supply chain partners.
Successful warehouses also conduct inventory counts a minimum of every month (if you have 12 turns a year). Warehouses that have more turns conduct more inventory counts. Requirements to complete an inventory count are locations, bar-codes on locations and parts, and a scanner (you could even use your smartphone for this in a pinch). Scan the file, download it to a CSV/Excel spreadsheet and reconcile it in your system (with the help of your accountants if needed).
Imagine you’re a librarian in a library with no system for categorizing or organizing books. It would be a nightmare to try to find a particular book! And yet, many people run their warehouses like that. If your product is “somewhere” in your warehouse, but only a certain person can locate it, then you’re reliant on their memory (and them being around when you need them). The best practice for moving inventory is to conduct an inventory transfer and back this up with periodic inventory counts.
Every single inbound item needs to have a scannable bar-code affixed to it. Labelling is extremely affordable. That said, it does require you to rethink your systems and processes (to include things like relabelling items originally containing a label from the supplier). Best practice is to label every item in your inventory with a bar-coded part number that is compatible with your existing schema for part numbers.
Incentives and a Reward System
Incentivising accurate record keeping is a cost-friendly way BiC warehouses use to motivate their workers. For example, a reward system could include a pizza lunch, tickets to an event, or recognition. Using an incentives system is an effective way to reinforce the new system you’re implementing too. Considering that a 5% improvement in inventory accuracy on stock of $200,000 is $10,000, you’ll be saving that amount in what would have otherwise been a write-off.
In conclusion, common problems face all warehouses and lead to inaccurate inventory records. To keep up with warehouse best practices, start by implementing a wireless bar-coding system in your warehouse. Once you’ve done that, make sure you’re regularly conducting inventory counts, inventory transfers, labeling, and reinforce it with an incentives system.