Obsolete Stock As A Simple Gauge Of Storage Efficiency

I’ve heard it said at meetings with business owners “If I expanded I’d need more warehouse space” or perhaps “The cost of holding extra inventory almost makes expansion a none starter” or words to that effect.
It never pays to contradict a potential client’s point of view straight off the bat, so the thing to do here is to nod in agreement. Maybe some kind, sage words regarding the value of well managed inventory and the overall cost of storage. That’s the sort of approach I’d advise, but what I think is something completely different.

My first objective is to see if I can take a look at the warehouse itself, ask about what inventory control systems they use, maybe even get some insight into the inventory system itself. In an ideal scenario, at some point I’d really like to speak to the busiest warehouse operative I can see, the one with the most experience. In most cases this might be the team leader, and ask one simple question.

“Where do you keep your obsolete and slow moving stock?”

Importantly this isn’t couched as a leading question, but in my experience it is always answered. Quite often, safety considerations permitting, you will actually be shown to the area and the policy for dealing with old, obsolete or unidentified stock is. This is the win.
Here is where a simple mental expansion of the control of this area and systems the company use to control it will tell you in a rough-cut form all you need to know about the potential space savings that might be had.

In other words it is a remarkably effective litmus test for the efficiency of use for the warehouse and inventory system as a whole.

A great example was at a company I visited in Leicester who made spare parts for the motor industry. The logistics director had told me that they were considering renting off-site storage to deal with the ever increasing stock levels and the likelihood of imminent overflow.

Balanced against this was my experience later that day when walking the storage facility with the warehouse manager. I was shown a  “shrine to classic cars” slap in the middle of the large but largely un-optimized warehouse space. This was not a metaphorical shrine, it was a  literal one. A table with a  grease proof cloth in a warehouse bay at ground level. On the cloth a beautifully polished and chromed exhaust pipe from a 1970’s British motor classic. My memory prevents me from naming the actual make of the car. The model escapes me. I think it was a Triumph Stag. But I might be wrong.

Around this, the 5 adjoining bays, 2 either side and the 3 above these. Had various old car parts in different states of display.

A smallish concession perhaps in a warehouse with over 2,000 such bays, but maybe indicative.
A walk further down the narrow isle layout we stopped

“The obso stock is here to the end on both sides, then in the boxes at the bottom, stuff that’s supposed to have been scrapped is outside”
“Supposed to have been scrapped”? was my obvious follow up.
“Yes, we had a deal to get it taken away once a month, but some of it needs a permit to dump and that costs more so we’ve never got around to getting one”
“How long has it been there then?” I asked mentally totting up a rough-cut space and cost savings potential if what I was seeing turned out to be an accurate reflection of the truth.
“Best part of two years most of it” was the reply.

Ok this is an extreme example, but the underlying trend shows one common factor which rings true again and again. That is the disconnect between those that work in the warehouse for a living, and the decision makers who read the cockpit reports on inventory space availability.

In this case, of the approximately 2000 bays in the warehouse, a simple clear out opened up almost 8% with over 150 bays freed up. A deal with a scrap merchant got the yard cleared at effectively no cost.
I should add that this was before the metal price boom of 2008-2012, where the same endeavor might have actually yielded a profit.

Once I had an understanding of the level of inefficiency in the warehouse space it was easy to predict the likely savings an effective stock control and inventory management system tied in to actual customer demand cycles might yield. Added to a little renegotiation of  the delivery schedules from some of the larger bulk item suppliers, alu dipped steel being the main one in this case, the company realised that they had enough space to accommodate their expected growth.

Once the “doorway” question of obsolete stock” was asked, the rest fell into place. Once again it proved its worth as a litmus test of overall inventory efficiency.
Sometimes it’s not what you ask, it’s who you ask.

Author: Miss Inventory

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