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Warehouse Practices & Measures – You Can’t Fulfill what You Can’t Find (Part II)

Monday, March 23, 2020   (0 Comments)

This month’s article is the second in a 2 part series on warehouse infrastructure and stock management, what the WERC Warehousing & Fulfillment Process Benchmark & Best Practices Guide calls “Storage and Inventory Control”.  Last month Steve Murray, our Senior Analyst and Chief Process Auditor, discussed the value of storage layout and location, this month he will focus on how material is managed or what is typically called “Inventory Control” or “IC” for short.

To close last month’s discussion it must be noted that while WERC as an organization of warehousing professionals is fully aware of the various types and uses of storage media, material handling equipment and technology available it is not our intent to provide warehouse engineering guidance.   Our goal here is to help you improve processes and to understand how your physical environment and capacity utilization can influence performance.

While WERC is not an engineering firm, we have many member companies which are, and we recommend that you visit the “Vendor Locator” on the WERC “Resources” page for more information.  Every facility has unique needs and we recommend that you contact a qualified warehouse engineer when creating or changing your layout.  Improper design can not only impact performance, it can be extremely dangerous.

Once you have defined your storage environment, determined where each product should be stored, and actually put products into those locations, you will need to confirm the validity of the stock levels – both the unit count and the actual location. 

Traditionally the focus on inventory control has been financial – does the count multiplied by the cost equal what the financial team has as “Inventory Asset Value” in the ledger.  If so, and if the level of investment is reasonable, the financial auditors and shareholders are happy.  In many cases the Inventory Control function reports to a financial manager, and this group is primarily interesting in confirmation of levels at least one time per year, perhaps quarterly.

Obviously, being able to substantiate the value of assets is important, but here we are considering it from the operations perspective.  If your system cannot accurately tell you how many units are on hand and where to find them you will have reduced efficiency and poor customer service.  Customers (external and internal) may be told that what they order can ship or be supplied to a production unit when there is actually no product available.

A review of the 2019 WERC DC Measures Study shows that Inventory Count Accuracy by Location is one of the top 5 metrics used.  Best practice companies have a 99.9% performance rating and that 97% is the minimum for even an average operation.

Regarding count frequency - WERC believes that the more volatile a product is the more frequently it should be verified.  It is no longer practical to close down operations or use weekends to conduct a massive “wall to wall” physical inventory (although some external auditors or 3PLclients may require int).  Most warehouses use a “Cycle Counting” approach to verify item counts in an on-going basis, perhaps daily. 

But it would be costly to conduct counts too frequently, so best practice organizations use the “ABC” method of cycle counting which enforces counts of high velocity and high value items more frequently than others.  “A” items for example may be counted 12 or more times per year, while slower moving items may only be counted 4 times or even annually.

While most businesses benefit from cycle counting, there are some where the product is so volatile that they must use other means – for example the fashion industry which can have 5 or more complete SKU turnovers (different style/size/color) each year – by the next cycle count the products may have nearly completely changed.  Some facilities may use a count back, zero count or other type system for stock level confirmation. 

One key consistency is that the count of each SKU in each storage location is confirmed.  Knowing that the total on-hand of a SKU is correct is not good enough.  If the SKU total is correct but if one location is 3 short and another is 3 over there are two count variances.  Ultimately finding out what caused this imbalance and correction the process that caused it is the goal of all best practice firms.  Remember that these firms maintain 99.9% accuracy by location.

If your system directs an order picker to some location to pick a given quantity, and if that quantity is not available AT THAT LOCATION, picking performance will fall.  And not only the associate’s performance be impacted, but everyone involved in searching, researching and fixing the problem will generate added cost to the operation.  

As mentioned earlier, there are many methods of doing inventory control and stock level verification.  These are described in various textbooks and papers which are readily available.  Best practice organizations will study these methods and choose which can work best for them.

Knowing what is in stock and where it is located is a foundation of good customer service.  As our title for this series states – you can’t fulfill what you don’t have (or don’t think you have).  But you can create a lot of ill will have you try to sell something you don’t have (or can’t locate)

Best practice facilities track material at every step from receiving to putaway, through pick location replenishment to picking and on to packing and shipping.  Items and locations are scanned or tags read to manage this tracking. 

Best in class operations use real time methods (scans and reads) to ensure that location quantities are updated instantly.  Associates can perform stock level counts anytime during the day comparing the physical value to the system value knowing that the system count was reduced by an actual pick or increased by the receipt putaway that happened seconds prior

As noted previously, our goal as warehouse operators must be to provide accurate timely information to customer service and production operation, and to eliminate non value added costs associated with individuals locating products which are not where they are supposed to be.

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Opinion:  Any time an associate is directed to a location which contains insufficient quantity to fill the request (customer order, production order, transfer, etc.) it indicates a failure in the preceding processes, or a failure in the system.  Process failures are the result of poorly defined or understood tasks, poor training or lack of motivation on the part of associates.  Failures should be recorded and analyzed, and processes or training improved to reduce the possibility of re-occurrence.

There is simply nothing more important than accurately recording how much of what is put/moved where to, and doing the root cause analysis and corrective actions necessary for every variance.  In time those variances will reduced to something less than 1/10th of 1%.

Any incentive programs based on performance should be reviewed to ensure that they do not create the rule of “unintended consequences”.  Associates should not be motivated to make moves so quickly that they ignore the system directed putaway location in order to speed up their performance.

Metrics that are typically used to measure inventory putaway effectiveness include:

  • Inventory Count Accuracy by Units/Dollars  (Total by Category or Facility)

  • Inventory Count Accuracy by Location

  • Putaway Location Overrides (for System Directed Locations)

  • Move/Replenishment Location Overrides

  • Pick Location Faults (Insufficient Quantity at Designated Location)

  • Move/Replenishment Location Faults (Insufficient Quantity at Designated From Location)

WERC’s Annual DC Measures study provides a way for warehouse operators to compare many of their own metrics to those of their peers and the Best Practice guide can help by showing actions that impact those measures.  While the study may not include all of the metrics outlined above, they are nonetheless important to understand, collect and analyze.

WERC believes that excellent KPIs are the result of excellent processes, and by improving your processes you will improve your results.

Previously Steve has discussed the area of inbound operations.  You can catch up by visiting the WERC Tip of the Month page at https://werc.org/page/TipoftheMonth.

Our goal with this series is to help warehouse operators better understand process best practices and how to measure their impact.  In crafting the articles Steve relies on elements of the WERC Warehousing & Fulfillment Process Benchmark & Best Practices guide, our Annual DC Measures study, and his own field work. 

Next month’s tip will address the processes and tasks associated with Picking and Packing, one of the most intensive and what many agree is the most important operations in the warehouse.