What processes and procedures do you have in place to both handle the items themselves, and credit the customer?
For the last year we have looked primarily at sales and pre sales material and item handling, but recent research from Amazon suggests that the perception of a companies returns process is driving an increasing number of customers buying decisions.
In Amazon’s case of course there is an open and transparent consumer rating system that the site actively encourages all consumers to get involved with. As a consumer myself I can guarantee that within 48 hours of anything arriving from a large on-line outlet, I will get a polite e-mail asking me for my opinion of the product an, importantly, the service.
Interestingly, in 2012, this process for Amazon at least changed quite subtly. They made it possible for consumers to re-visit previous reviews and add information regarding their long term experience with a product. Frequently this is used to describe any after sales service that might be required, and, as you might expect would be the way with human nature, it is most often used when their is an issue that needs addressing.
Here is where open criticism of the after sales service received finds its voice, and, this is where, particularly for high ticket price items, this is where new potential customers head first. What they find here informs the buying decision to an ever greater degree. Seeing a bad experience with customer returns from previous buyers is now seen as a major turn off. Almost as high a factor in the buying decision as price and higher even than availability.
In other words, if the returns policy is reviewed as bad, it is one of the very few factors that will lead customers to move to another supplier, even if they are currently out of stock in preference to your own in stock alternative. If that’s not a scary thought, it should be.
There are some great examples of third party sellers using the occasional problem to highlight a caring and reactive customer service response team. As long as the number of issues is low this, of course, can be an effective way of turning a potentially difficult situation into a positive.
On the other hand, their are a surprising number of brand name companies, who prudence (and the threat of litigation) prevents me from naming openly here that have review numbers in 4 figures, a below average score, and little or no customer service presence visible at all.
Perhaps the biggest bug bear according to Amazon’s own research, is the returns cycle for any goods. It seems it might be better to top load the initial cost of an item to reflect the overall cost of servicing returns, then offer a postage paid, quick turn around – than take the route of having a lower initial price then charging a premium for postage and packaging costs and perhaps offering a slower service.
The telling fact here? Of the 24 suppliers contacted directly by Amazon and queries about their sub par on-line presence. Only 7 of them seemed aware they had any problem at all, with the sales director of one multi million pound company whose on-line sales account for almost 305 of their overall sales, was unaware that their products were even available online.
What challenges does your company face when things go wrong with a customer? How do you deal with repairs and returns? How might new media be affecting your potential customers view of your product range and after sales service?
A Retailer’s Perspective On Stock Outs
As a retailer, managing goods well is the key to a business that runs smoothly. Without stock you have nothing to sell – and you have no business. So far, so obvious.
Yet the management of stock is far from simple. It depends on many factors. In fact large stores and manufacturers rely on complex algorithmic calculations to predict what goods they should hold.
Smaller businesses on the other hand don’t always enjoy access to these kinds of tools. It’s therefore not uncommon for them to run out of crucial supplies at the hour of need. As an entrepreneur, I have identified bad inventory as one of the elements that can have a damaging effect on any company. In fact, poor stock control can affect more than just the bottom line as I will show you in the next few paragraphs.
Your Customer Satisfaction Levels Fall
Customers are naturally impatient people. They want their orders fulfilled with no delays and the last thing they want to think of is following up with a business whose stock is running low. In business, we all know that customer satisfaction is key; and that the only way to meet growing expectations is by working towards making timely deliveries always. Given that we live at a time when cut-throat competition exists, it makes sense for you to keep track of your stock-flow all the time. Failure to do that is comparable to giving your competition a through pass during a game of football – ultimately you’ll end up losing.
Inaccuracies That Can Ruin Your Reputation
Inaccuracies are likely to arise when you run out of stock especially where complementary products are involved. Let’s say you run a business of supplying construction materials and your customer who normally buys cement alone decides to order cement and tiles. To your dismay, you learn that you don’t have enough tiles available. Since you don’t want to lose business, you may be tempted to supply an inaccurate order (and correct the mistake later). However, this may not always go down well with your customers as inaccuracies are a sign of incompetence.
Lack of Stock Breaks Loyalty
While maintaining optimum stock levels leads to what every business constantly strives for – repeat customers, running out of stock has the opposite effect. For customers to come back for more, you need to be able to meet their demands quickly. And how can you achieve that if your stock levels are always low? This therefore is a wake-up call to all entrepreneurs out there. The effect of insufficient stock has potential to ruin your future plans because as you know, it is easier to keep a loyal customer than to get a new one.
It’s Impossible to Attend to Returns
Insufficient stock makes it impossible to attend to customers who return faulty or damaged products. Normally, when a product is returned because of such reasons, and it is still under warranty, the best thing to do is to give out a replacement from your available stock and later arrange with the manufacturer for a swap. When you run out of stock, you are unable to mirror your return rates meaning that customers have to wait as you sort out things with your suppliers. Waiting leads to dissatisfaction and dissatisfaction yields disloyalty.
It Affects Your Staff Morale
Inadequate stock affects several areas throughout the organization. In additional to crippling operations in the warehouse, poor stock levels affect restocking, purchasing, sales and more. For example: In this highly competitive world, customers have many options to choose from. If they call the sales team to place an order only to find that the item they were interested in is out of stock, they would simply buy elsewhere. In addition to losing customers, low stock levels can further affect your sales team’s morale. They might find it quite difficult to approach new markets because they are not sure if the items they’re promoting are readily available in the warehouse. Generally, bad stock can ruin your sales department’s ability to make smart decision (yet smart decisions are the ingredient for success in entrepreneurship).
There is every reason to worry when you run out of stock. In my opinion, if every organization was to master the important aspects of inventory control, the world would be a much better place. Luckily, modern technology is changing things and with tailor-made solutions readily available there’s no excuse for poor management of stock-flow.
A good litmus test for the recovery in domestic sales has always been the fashion industry.
Within this market the increase in small batch sizes and single item delivery has begun to show real growth over the past 18 months.
Typically a very tough and cost inefficient sub market to process, the marketplace now demands cost efficient (often free to end consumer) deliveries, typically on a next working day time frame.
The Batch Size Issue
Across domestic UK markets online sales of none food products have increased again to 17.4% of revenue up from 16.2% in 2014. One off sales making up almost 22% of these sales (almost 4% of all sales online and offline)
The challenge for retailers is twofold. Firstly, is their existing warehouse space set up to physically store a larger range of products in smaller batch sizes. Bay size and product handling challenges might be potential problems for them to overcome here. The issue is smaller batch sizes and many more deliveries required over ever decreasing lead time.
Alongside this, can their administrative and stock control systems deal with an increased number of transactions.
In other words can systems and workplaces designed to cope with large UOM, repeat deliveries of a smaller range of repeatable products now deal with a much larger data set which, while still including these large scale repeaters, also needs to cope with rapidly expediting a high number of one-offs?
We are seeing one of two solutions to this problem being adopted typically.
To increase the viability of small scale deliveries, the ideal of pairing up with manufacturers servicing the same outlets and sharing delivery facilities offers obvious cost savings. This might extend to collaborative warehousing and the need for integration between inventory control systems.
Third Party Delivery Services
At the smaller end of the market, the trend seems more towards relying less on developing individual delivery networks of vehicles and routes and replying on third party delivery companies who specialise in small batch, next day delivery.
Whichever options are used, the need for the stock control system and those using it to evolve and develop to handle these new processes is apparent
Even Big Data Analysis Can Only Help So Much
You don’t get much bigger than Apple when it comes to mid to high price retail purchases. They are a slick operation with fantastic data collection built right into the very core of their products. If you buy an Ipad, Iphone, Ipod, the chances are you have signed up to Apple through ITunes, the ICloud or some other “I” prefixed service, and of course to do this you need to give Apple just about every bit of personal information about yourself short of blood group and shoe size (Though I’m betting they know most of these).
With a massive data set in terms of both the breadth and depth (they know an awful lot of stuff about an awful lot of people). Even they can sometimes struggle to get meaningful market intelligence from their customer database.
Want An IWatch? Sorry, We Didn’t Make Enough
Nintendo are not the only consumer electronic company to understand the value of managed scarcity
Managed scarcity – Understanding your market so well that a deliberate undersupply of product at launch can be used to spark a buying panic amongst loyal brand followers with all the attendant media publicity that tends to generate
But for Apple to get so caught out with a product so fundamentally linked to their existing catalogue (you need an Iphone5 or newer for an Iwatch to function properly) well that shows the risks of making assumptions on even the biggest of commercial data sets.
Here’s an article originally published at SmartCompany with the details.
Late last week, Apple began taking orders for the Apple Watch, a product I previously described as a make-or-break device for the smartwatch market.
Figures suggest 957,000 people in the US pre-ordered an Apple Watch on Friday, with the first units set to ship on April 24. Unfortunately, some people have already written to tech sites to complain that their order won’t ship until June, July, or even August.
While the long waits might provoke complaints from some users, from a business perspective there are good reasons why it’s an incredibly sensible way to handle a product launch – especially when that product is the first in a new category.
When inventory gets fiddly
Consider this: According to IDC figures, Apple shipped a total of 192 million smartphones worldwide in 2014, out of a total worldwide market of 1.3 billion smartphones.
If even 5% of those iPhone customers pick up an Apple Watch, that’s 9.6 million units. If it’s 10% of iPhone owners, that’s 19.2 million units, and if 20% pick one up, that’s 38.4 million units.
The problem is that ahead of the launch, Apple had no way of knowing for certain whether it would need to manufacture 9.6 million, 19.2 million or 28.4 million units this year. And the demand could turn out to be far more – or perhaps far less.
The issue is further complicated by the fact that there are three basic models Apple is selling, and beyond an educated guess, it has no way of knowing what the sales breakdown will be between the three models.
The tricky thing with inventory management, especially at this sort of scale, is that getting it wrong can turn an otherwise successful product launch into a business disaster.
A good example of how an otherwise successful launch can go wrong as a result of bad inventory planning happened at Steve Jobs’ first employer, Atari.
In 1982, Atari created what was (at the time of its release) the most successful home video game ever: Pac-Man. This is a game that flew off the shelves, with 7 million copies sold worldwide. Unfortunately, Atari manufactured 12 million copies – 5 million more than it needed.
Despite having already sold an exceptional number of copies (for the era), retailers were eventually forced to deeply discount the product to try to clear their inventory of the game. By 1983, the 5 million unsold copies of the game were dumped in a landfill in Alamogordo, New Mexico and covered with cement.
And that happened in the days before social media. Just imagine what the reaction would be today on Facebook or Twitter if Apple attempted to dump an oversupply of products in a similar fashion!
It’s a prospect that has no doubt caused some at Apple to have a few sleepless nights as the launch day approached.
However, Apple has taken a number of crucial steps to make sure they don’t turn their own successful launch into a repeat of the Pac-Man fiasco.
Dodging the ghosts of bad inventory management
The first step Apple has taken is to make sure that the watches are only demonstrated through its own stores, and are only available to be ordered through its website.
Aside from its own salespeople giving customers the best possible impression, it also means that there is no large number of units being shipped to third-party retailers. And, if Apple does manage an oversupply, this means there won’t be any deep discounts being offered to clear unwanted inventory.
The second step is to begin taking pre-orders months ahead of when it expects those units to ship, and then scaling up its production to meet demand. On the downside, customers will have to wait a couple of months or more before their watches arrive. But at the same time, Apple won’t be stuck with a large number of units it can’t sell.
Lessons for the rest of us
So that’s well and fine for Apple, but what are the lessons for those of us who don’t have the sort of brand loyalty that allows us to fret about how many how many blocks the masses will queue on launch day?
A growing number of small businesses have turned to crowdfunding websites such as Kickstarter, Indigogo and Pozible in order to take pre-orders for upcoming products to take pre-orders in a manner similar (but on a much smaller scale) to what Apple is doing with the Apple Watch.
An example of an Australian company that has taken such a path is Microbric, which used a Kickstarter campaign to take pre-orders for Edison, an educational toy robot that’s compatible with Lego bricks. It ended up raising $104,958 from 1153 customers placing their pre-orders ahead of their devices shipping.
Of course, even with the pre-order path, there are still headaches and ways the whole process can go horribly awry. But even so, having the certainty of customer orders ahead of when you go into production is in many cases a better option than finding out you’ve overestimated how many watches you’re going to sell – or that Pac-Man is hot on your tail.
How Do You Organise Your Stock?
I remember being asked this as a hypothetical question many years ago. I jumped to what I thought was an obvious answer;
“By frequency of use, the most frequently used items get the easiest picking positions in the warehouse, ideally closest to the shop floor”
As an answer I still see the merits in it now. At the time I was asked I’m remember the frown that must have been all too visible on my face as I was told that, in many cases, this was not the optimal arrangement.
I’m sure I expected some arcane and counter intuitive reasoning as to why having the most frequently used items stored closest to the point of use was not often the correct decision. I remember walking away from the meeting that day really not sure what I had heard or how to make sense of it, never mind how I might want to implement some of the principles in the future.
Now, 20 years on, and having mulled it over, I think I can explain the reasoning behind it and hopefully do a better job of unpicking the logic. Let’s see.
Consideration One. Most Frequently Used Items Should Not Be Stored In The Warehouse At All.
I understood this argument pretty quickly. Where to put line-side or shop front deliveries. Only, appropriate emergency or contingency stock of regularly used smaller items should be allocated warehouse space. If it is ever required then a process further in the logistics chain has not worked correctly. A supplier has let you down, quality issues have occurred or stock has been lost or destroyed.
In this case the emergency stock should not be ready to hand. There should be at least a process of informing company buyers or schedulers that a shortfall has occurred so that the matter can be addressed. Making it too easy to grab emergency stock can mean the risk of a true stock out increases as there is little or no awareness of the potential shortfall. Dipping into emergency stock should trigger an alarm (though not panic). If your system fails to trigger appropriate notifications and responses whenever emergency stock is required then something is wrong with it.
Consideration Two. Delivery Frequency
It might follow that the most commonly used components are delivered from suppliers more often. They might be picked more often and generate more transactions in the company inventory system.
Here is where the needs of the warehouse and the goods in process need to be balanced against the shop floor or output process.
To consider that the only important aspect of shop floor supply is the last one (be that “line feeders”, stock handlers or store expeditors) is to not understand the logistic process.
Here is where I got unstuck. I thought exactly in this fashion. The line supply team were the most important link in the chain. They were the ones who got the flak should component parts not be on hand. I was tempted to focus on whatever made life easier for this team even at the expense of making illogical decisions further up the supply chain.
A weak and emotionally driven response to what should have been a system and procedure driven problem.
After all, if the stock was not booked in, then the line feeders could not distribute it. It if it was quarantined, they could not distribute it, if it had not been through the required inspections they might distribute quality failed items to shop floor.
The right place for the frequently used stock is wherever is best for the whole goods in and distribution system is, and that is a question each company must answer for themselves. In practice however I have rarely found it to be warehouse location closest to the shop floor.
What challenges do stock movements present to you? How do you cope with varying needs of different departments to have access to inbound stock for booking in, quality and manufacturing/sale purposes? Comment blow and let us know.
Does The Functionality Of Your Current System Match Your Business Requirements?
Here’s a question for you. How many of you out there have a stock control system that was specified specifically and only for the key task of inventory management?
Not many? I didn’t think so.
OK, hands down everyone.
Here’s another question. How many of you have a stock control system that is integrated into a larger ERP system? Wow.. that many!
I’m going to make a few guesses here. To gain the functionality that every department needs from your inventory management system you guys in the second group have to do some, “manual intervention”, maybe use the export options from the ERP system and create your own lists, maybe parse blocks of data through Excel or similar to get the reports you need.
Now think back. Try and remember the time when the discussion documents and specification for your ERP system were being passed around. Were you aware of these data needs at the time, and if so, were you told that the ERP system could produce them?
If the answer to those last two questions is yes, then join the growing crowd of medium sized and larger businesses that have found two of the stumbling points that seem common to an unsettling number of adopters of well known ERP systems.
Specific Requirements Meet Generic Functionality
I’ve sat in on more ERP implementations than I care to remember. Initially as an employee of the company buying the system, then later as part of implementation teams.
The line early in the process, regardless of the solution being implemented has always been
“You won’t need to use these hand made reports any more, this new system will do everything for you”
I’ve yet to see that become a reality. Some have got close for a while, but even then the disconnect between what the system as implemented produces and what is required for daily operation tends to drift over time.
Why The Disconnect?
I’m going to give a couple of ideas here and would love you to add your own underneath in the comments section.
Poor Initial Specification
Is it perhaps partly your own fault that the management system does not meet your requirements? Did one or two departments (I’m looking at you accounts) have too much of a say in the implementation at the exclusion of input from others?
Was the consultation of other departmental needs, a full assessment of inputs and output requirements properly worked through?
In the case of inventory management and stock control I’ve seen instances where the departments were not consulted at all.
This happens, while the problem can’t be placed firmly at the door of the management system, it certainly is the fault of the implementation process. Having the excuse that departments were “too busy” to fully detail their requirements at the beginning of the specification process is an example of how these situations occur.
Fit Your Working Practice To Our System
Does the ERP solution you’re looking at require that you change your entire method of operation to suit it’s way of working? While I have experience of this as an issue specific to inventory control, it is something that can, and does affect every other department sometimes.
My feeling is that this simply shouldn’t be the case.
It is the job of the system to mirror the working practices where at all possible, Of course some changes are inevitable.
However, in general a successful company knows how to work – that’s why it’s successful.
To have to fundamentally alter it’s entire structure to fit around an ERP system is not satisfactory, yet, many of the biggest solutions in the field, while headlining flexibility as a bullet point, deliver a requirement for slavish conformity once you get down to brass tacks.
What is your experience of ERP implementation, particularly the impact on inventory control but also in general. Are you finding a disconnect between the specification promises and the working reality?
Or Take The Figure The Accountants Work Out?
Cost Of Sales
Simple right? How much does your organisation spend on stock. It’s more or less the cost of your stock related to the bill of material for the item in question. Isn’t it?
Specifically stock for direct resale or component stock that’s part of your manufacturing process. The question is, do you really know much do you spend on it?
I’m going to make a prediction here. Almost two thirds of those reading this who are responsible for their organizations inventory will not know the real answer to this. At best they will have an accountants version of this figure.
First, let’s sort out one definition. We are actually talking about the cost of inventory, specifically component or raw material inventory for sell-through or to be part of the manufacturing process.
We aren’t talking about the cost of business sundries such as stationery supplies, catering, janitorial equipment and any of the other myriad items required to make most businesses run smoothly, we are just talking about manufacturing cost of raw materials.
An accountant may look at a company that runs a typical perpetually calculated FIFO system (first in first out) and ask that inventory is calculated like so.
At point of sale (when the invoice is raised) a dual transaction is carried out. Crediting the company with the value of the sale and debiting the stock that was used to create the product
For accounting purposes this works it’s the standard way of measuring the cost of sales. For measuring stock levels it can have some flaws.
It relies on a very well maintained B.O.M (bill of materials) being kept for each item. It requires that sundry items directly used in manufacture are drawn down also, perhaps on a pro-rata basis.
The problem isn’t that accountants do this. The problem is that this figure, often simplified and sanitized, and if this is the one fed back directly into your companies inventory control system, in my experience it is often not good enough.
Examples of innacuracy could include items such as disposable templates used during assembly, one-off use testing equipment certain cleaning materials (most would come under business sundries, but there are examples of exotic, specific, manufacturing process critical substances used here). Even paint or powder coat seems often missed from the cost of sales and, for ease of accounting purposes, pushed into a sundry or draw-down category of raw material, relying on periodic and manual counting of stock levels rather than being integrated properly into a process.
Surely these never amount to much? Isn’t a ready reckon system good enough for these items?
I can see why the thought of having these slightly harder to quantify items out of your digital system is appealing. The task of measuring how much powder coat for example is needed to cover every item that needs it is thought to be time consuming. There is an assumption that measuring it is an imprecise task.
Both of these assumptions are, for the most part, incorrect.
As an aside, usage of cleaning items, powder coating and other fluids and sundries have been shown to be as predictable, once measured, as almost any other item in the average inventory system.
I have walked into companys who use periodic manual “ready reckon” methods for all sorts of manufacturing critical items, companies that have expensive and otherwise well run ERP and inventory control systems, and the management team use just these justifications.
So here’s a few facts – with citation, that might make you change your mind.
General Motors prior to 1999 reported that over 50% of all their line stoppages and slow downs were as a result of issues with coating, cleaning and sundry items.
In 2000 GM changed their inventory control methods to accurately calculate manufacture, loss and “failed in operation” (FOI) use of these items and reduced line downtime by almost 60% as a direct result. Here’s some of the detail of that.
Working with direct to line suppliers (whose profit levels, not to mention trust, relied on accounting for the usage of sundry items, nuts, bolts, wire etc.) Bosch in Worcester, over time, managed to measure a far more accurate level of loss during the manufacturing process and then implement both a best practice initiative on the shop floor to reduce loss, and a more accurate bill of materials which reflected the true level of component use per SKU manufactured. In turn this reduced manufacturing down-time by almost 20% as well as reducing costs as best practice was rolled out.
Here’s a question you might be asking yourself right now.
Why should I, as an inventory professional do this when my accounts department seems to already have it covered?
Her’s an answer for you.
When was the last time you saw the company accountant brought to book for a line side shortage or for a large manufacturing overstock?
If your experience is anything like mine, the answer would be “never”.
Don’t always use accounting principles to control manufacturing methods.
Those book-keeping guys have little interest and no responsibility for your stock availability levels, just the overall stock value and cost of sales.
As an inventory professionals stock availability is your job. Take ownership.
Overcoming The Delivery Issues
Just In time ordering, processing and delivery seems to pull constantly on small businesses. You feel you should implement JIT (Just in time), of course you want to, but is it something you can implement with your current control system? Pushing this question a little further, how about foregoing componenet storage for many of your smaller or “C” class lineside items altogether and implementing supplier lead replenishment directly to the point of manufacture?
If you’ve seen as many implementations of inventory control as I have over the years, it soon becomes apparent that, of the number of manufacturing facilities that would benefit from line side deliveries, very few actually implement it. If pressed, many of the prime candidates for this who have not grasped the opportunity will reply with the same concern. One word.
Stock Replenishment Out Of Your Hands Requires Trust
This reticence comes itself in various forms but can be summed up pretty neatly with;
Confidence that the supply chain will not be interrupted.
This is the most common trust issue. Manufacturers, while understanding the cost of holding excess inventory on one hand, are also often privately happy, or at least like the feeling of security that holding a few hours, days or weeks of “C” class stock and sundry items in the warehouse for “just in case” gives them.
Just in case the supplier has a hitch with delivery, just in case they need to change manufacturing focus at short notice and the new B.O.M calls for a different part – in which case – nice to have some in stock.
All well and good, but the win here is that line-side stock replenishment (component delivery) doesn’t rule out contingency, it just needs to be formalised. Opportunities to enter partnership lead contracts that allow for contingency to be handled in a more cost effective manner.
Slick efficient systems revolving around supplier created invoices which automatically trigger works orders at the suppliers plant. Actioned after being checked by a production planner and reconciled against a shared and updated production plan.
This again relies on trust as it works best with the relevant bill of material tied to the production plan being embedded in the suppliers manufacture control system.
So we have the opportunity for live demand updates always available to the supplier live on their own inventory control or MRP system.
As a slight aside, the biggest potential win I’ve seen in this becomes apparent very early on in the process where, almost without fail a good supplier will offer alternatives and create opportunities by being an embedded part of the process. How often have I heard;
“So why do you have two different lengths of” (for example) “M6 bolts that only vary by 4mm”
A reconciliation between production, design and quality departments then shows that only one size is needed, often saving a SKU and almost invariably providing a stock cost saving in the process.
The technicalities of design aside (an opaque process if you ask designers directly, a much simpler one if you refer purely to form and function) there are often opportunities to standardize many components, often at a cost saving.
The Big Picture
The bigger picture though is the need for line side supply contracts to be set up with contingency in mind and for the administrative system that oversees the contracts to be configured to make the control and visibility of this as simple as possible.
Here’s a fact. Where I’ve seen a concerted effort to implement supplier partnerships of this kind I’ve always seen a gradual standardization sub-assembly and component parts and this rationalization reflected in time throughout the stock management and MRP systems.
Give your supplier credit for, in most cases, understanding the items they manufacture better than you do. Then allow yourself to benefit from that.
Also, I should add that when implemented with a full commitment, these arrangements have, in my experience, always worked, and always with a quantifiable, and often sizable cost saving. Added to the initial aim of a reduction in inventory and administration. The positive effect rolls down from design through inventory right onto the shop floor and is reflected in the balance sheet in due course.
Business trust in the supplier. Enabling supply partnerships of this kind in stock replenishment can raise a few hairs when it comes to fiscal trust.
“How de we know we are not being over charged?” and
“What do we do if we get a failed batch delivered?”
While these are real concerns, and in my experience will always be raised by someone in the decision chain, effective and easily manageable solutions are easily found.
Simple 2 bin replenishment methods offer a transparent solution to the actual delivery while trained line side operatives who perform a sample check with the help of your QA staff overcome all but the most disguised of quality issues (which would occur whether direct to line-side deliveries were implemented or not in most cases) and a reconciliation of supplier invoices againt a total of BOM usage and measured scrap at the end of an agreeed period clears up the under/over delivery questions. It sometimes reveals some waste issues line-side which, while hard news at first, offer yet more opportunities for savings if acted upon. Kaizan anyone?
Yes, there is a little more to it than that. The devil is sometimes in the detail. Then so is the advantage of putting a little effort in. It works. Trust me.
Have a read of these papers on the issue;
It might be worth considering as a first step to reduce inventory with the added bonus of building better partnerships with your supply chain and enabling your own employees in the process.
Done right, everyone is a winner.
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.
The industrial revolution brought with it a number of first world issues. Once goods were created and shipped in large numbers the issue of accounting for them soon became apparent.
The problem of quickly identifying large numbers of items with variable units of measure seemed one that could only be solved through some level of automation.
Shining A Light On The Bar Code Problem
The food industry was the first to move towards a solution. The perishability of their products being the driving force here. In 1932 Wallace Flint came up with a system that used ultraviolet light and reflective ink to mark goods and developed a rudimentary scanner that used technologies borrowed from the movie industry and applied that to Morse code.
The rail industry was the next to move towards automated stock recognition. This brought new issues into play. Different companies would share the same trucks and freight containers, the system needed to be adopted more widely to be of any use. It took the railway owners and early adopters to cajole others into buying in. Cost was of course an issue and it was estimated that, on the USD and UK railways alone the cost of implementing this early stock recognition would run to hundreds of thousands of pounds per annum. No small amount in the 1930’s
Business To Customer
While this early solution worked in established trade networks and for business to business use, it was not feasible to roll out to smaller suppliers and implement on a B2C basis. Also, the amount of data that could be held in a readable format by these early technologies was very low. The most common for5mat used a 4 or 6 digit code to identify a unique item, then a simple box quantity appended. There was no room for full description of the product or any other useful data such as supplier name, destination, UOM or expiry dates. Even the description needed to be looked up. It might also take up to 4 seconds to read a box. A great start but not ideal.
In the 70’s a study suggested that it would cost UK industry around £80 million to implement bar codes universally. However this cost would be recuperated within the first two years
Supply Chain Top Down Implementation
In the end, as with many innovations in supply chain control, it was a top down implementation that was required. Large manufacturers, where the issue of large inventory control was most acute, made is a contract requirement that their suppliers implement the technology. This in turn filtered through to customer sales soon after when the benefits of real time inventory management became apparent.
QR And Beyond
Today the best QR codes are capable of holding several kilobytes of information. Enough for full product descriptions safety and perishability details and even branding , Running a large warehouse environment without digital reader technology is almost unheard of.