Warehouse horror stories: 7 signs you need to rethink your inventory management
As a successful distributor or merchant, your warehouse is the hub of your business. With stock in constant transit, in and out of your business, there’s no doubt that your distribution or merchant software needs to keep very tight control on your inventory.
But does it?
Not all business management software is built the same. Your software may not be allowing you to streamline your stock control operations and get true visibility of your stock from point of order to point of delivery. If this is the case, you could find that the stock control processes your system enforces are working against you, rather than for you and your business.
And if you do find yourself with stock control processes that don’t enhance your business operations, every day could feel like a horror story. In today’s omni-channel commerce environment, inventory management is complex. If you’re not working with a software solution that can guarantee the accuracy of your stock, in both your warehouse and trade or shop floor, there’s no doubt that you’re operating at sub-par efficiency. Worse, you’re most likely losing money too.
1. You manage all/elements of your inventory manually?
Managing stock being moved in and out of your warehouse is one thing. But stock rarely acts in this one dimensional way.
Think about stock being discounted in a sale. Or stock that has been returned and has a credit note for your customer attached to it. Perhaps you have stock that needs to be returned to your supplier and you need to receive a refund for it. Or you’re selling stock both through your bricks and mortar retail/trade store and online and you also need to account for logistics in this new ecommerce environment.
There’s no doubt that your inventory processes are multi-layered and complex.
If you’re still managing all or part of your inventory system by paper or in Excel, you’re missing out on opportunities to be more accurate and more efficient.
Modern inventory management software will help your team keep up-to-date track of your inventory, from order to delivery across your branch network. It’s also easier to identify areas for cost-savings, or areas in which you can make more sales, with an automated system.
2. Is your whole inventory system managed?
Managing your stock control is not only about the products you have on your warehouse shelves.
Your inventory management system has a lot of potential to add value to your entire business. However, it can only deliver this value if all elements of the stock journey are accounted for. This can include stock on your shop floor as well as tracking component and assembly materials required to create finished goods.
Anything you need to ultimately sell your products needs to be accounted for in your stock control system. This also includes stock in transit items and inter-branch or company transfers.
3. You have separate software systems - and they’re not speaking to each other
It’s possible, even probable, that your business has made investments into technology over time. However, you could have different software systems managing separate areas of your business. This is a familiar scenario for many businesses today.
In a modern commercial environment, this type of scenario leads to ‘data silos.’ Information from one part of the business may be completely invisible to another part of the business, even though it may be necessary for different teams within the business.
An ERP system allows you to implement just one software solution to manage all the aspects of your business and enhance business operations and where best of breed software solutions are still required a modern ERP solution can facilitate integration with ease. The flow of data derived from using one fully integrated ERP solution will give your team members access to accurate information, as and when they need it.
4. Are you too reliant on safety and extra stock?
Holding extra stock as a buffer can be a benefit for some companies. However, in many cases the benefits of carrying additional safety stock are exaggerated and cost you money, space and time.
Inventory management software helps you make a more informed decision as to whether your business needs to keep safety stock on hand. Having the data at hand to accurately calculate whether you need this additional inventory prevents you from stockpiling stock that you may not need to. Can you imagine the additional revenue you’d put back into your cash flow if you discovered that your business didn’t require this additional safety stock?
Furthermore, without modern inventory management software in place, you run the risk of your warehouse and/or branch carrying excess stock. This extra inventory may also become out of date. Also, the older the stock gets, the more difficult it will be to sell it. Older stock may also decrease in value faster than you can sell it.
There’s another risk of carrying too much inventory. Your insurance premiums may be calculated on the volume of stock you hold. Extra inventory that you don’t need could be costing you money that you don’t have to spend. A robust business management software solution will help you maintain accurate minimum stock levels ensuring you optimise stock turn rates whilst also making sure stock availability stays at 100%.
There are multiple variables that can impact on your stock levels. These can include anything from the weather to holidays. Predictive stock management analyses helps refine your planning with more precision. Modern ERP solutions provide such functionality taking uncharacteristic peaks and troughs from your data to provide you with accurate stock forecast project requirements.
5. What metrics are you measuring?
One of the fastest ways to understand how much visibility you have on your inventory is to track the right metrics.
Without a software solution that can provide you with accurate data on your inventory operations, it’s almost a sure bet that you are losing money in your supply chain. There’s no way you can keep an eye on any of the following metrics without modern inventory management software:
- Inventory turnover - how many times inventory is sold within a defined time period
- Gross margin percent - the amount of sales revenue that makes up gross profit
- Customer order fill rate - orders that are completely fulfilled (this is an important customer service metric)
- Cost of carrying - fixed and variable costs that can include storage, handling, insurance etc.
- Average days to sell inventory - the amount of time it takes to turn inventory into sales
- Return On Investment (ROI) - how much you are earning compared to how much you invested in your stock
- Item fill rate - an order fulfillment measurement
- Cycle time - how long it takes from when a customer places an order to when an order is fulfilled
- Average inventory level - the mean value of your stock during a specific period (stock value can vary due to supply and demand)
- Inventory accuracy - the level at which your inventory records match your physical stock levels
Then there’s the cost of not being able to accurately track your stock in your system.
- Data capture - there may be poor integration across key business processes and systems, therefore, entering data multiple times in different systems becomes an ongoing inefficiency
- Data accuracy - key data is often inconsistent across systems
- Time cost - there’s too much manual counting
- Scalability - your business is growing faster than your operations can keep up with
- Order fulfillment - you experience frequent stock outs
- Visibility - you don’t have “one source of truth” where you can gain insights into performance at one glance
- Poor customer service - are your competitors gaining market share because your service and offering isn’t as good as it used to be?
6. How quickly is your inventory turning over?
The turnover rate of your stock is indicative of your sales. If your stock is turning over quickly, you’re making good sales. Slow turnover indicates sluggish sales. Monitoring how quickly a certain product sells reduces your risk by alerting you to inventory that may sit on your shelves for longer than you’d like.
7. Are you analysing your stock control?
There are numerous ways to improve your inventory management. But, without clear insights into which improvements will make the biggest impact on your business, you could be acting in the dark.
An ERP software solution removes this guess work. Establishing an ERP system in your distribution or merchant business creates one irrefutable version of truth around which you can benchmark your business.
Keep an eye on cost and margin
All warehouse horror stories have something to do with costs and margins going wrong.
There’s only one tried and tested way to eliminate the possibility of a horror show playing out in your own warehouse. You need to focus forensically on what you’re spending resources on if you want to prevent a disaster with your own inventory.
Developing a “culture of cost accountability” should extend to your whole business, but beginning with your stock management system is a great start.
After all, implementing robust inventory management software in your business will positively impact your business performance and revenue. And these changes will be seen quickly. That’s a win/win scenario, with no horror story in sight!
Click here for more details on effective stock management.