Managing a warehouse in manufacturing, distribution, and retail environments is increasingly tricky, because even smaller and mid-sized businesses are dealing with a global supply chain. A warehouse is a dynamic work space that requires nimble leadership, and that includes your inventory planning.
No matter how big or small your inventory team is, if they start getting things mixed up or if they are unable to handle the changes in your supply chain, your warehouse will get out of whack very quickly. And when your warehouse isn’t running at peak performance, profits suffer. Dramatically.
So let’s hone in on your inventory management team to see how your warehouse gets off track and what can be done to improve it. Let’s do so by looking at a day in the life of your inventory planner.
First things first
It’s the start of the workday and your warehouse is already moving. The coffee is brewing and the team is assembling. As your planner/purchaser/buyer clocks in, whether they’re in the warehouse or 1,000 miles away, a couple trouble spots have already been identified for them to address. The sales team is working hard to close the quarter, and sales of a relatively obscure item have surpassed the warehouse’s ability to fill the orders. Meanwhile, you’re running low on another key item — one that’s part of your Bill of Materials for several other finished goods. It’s time to make some tough decisions already.
Before the first cup of coffee is even poured, your inventory team is looking at a sub-optimal choice: do you change the date these items get delivered, or do you wreck your profit margin by expediting a reorder so you can fill the order on time? If you change the date of delivery, do you lose the sale? Are you at risk of losing the customer? And if you are able to get things back on track — but you had to torpedo your profit margin to get there — was the sale even worth it?
Fixing yesterday’s problems today
When your planner starts their day, they are already asking themselves, “what’s going wrong today?” Often, the morning is the time when your team is looking at various reports, trying to figure out what they can do to keep things running on time and on budget.
Expediting orders. Changing delivery dates. Contacting the sales team. Sourcing items from alternate suppliers.
That’s all part of how to address what’s going on right now. It’s ad hoc. It’s triage. It’s an attempt to fix problems that could’ve been solved already, if only the team knew they were coming. It’s a time-intensive process and, frankly, it’s stressful. The options at hand are rarely good ones. Expediting orders costs more. Changing sales expectations creates problems and will impact sales. Alternate sourcing means you’re not ordering how you’re supposed to. It all cuts into productivity and costs money.
Trying to get the levels right
The other major question your planner is asking is this: “what do I need to order today?” They’re examining sales projections, seasonality, lead times, stock levels, and a dozen other inputs just to figure out what needs to be ordered.
Inventory replenishment isn’t a “set it and forget it” type of process. It’s labor intensive and requires a planner with a feel for the business. But when so much time and energy is spent addressing the triage of the first question — “what’s going wrong today?” — it becomes exceedingly difficult to address your ordering in a such a way that will prevent problems from popping up next week and beyond.
Perhaps you’re already getting the picture. This is a nasty cycle. Great inventory planners are worth the investment, because they can maintain the short view and the long view at the same time. But let’s really think about your supply chain and your warehouse. Is it even possible for your planner to keep all that straight in their head and with a couple of spreadsheets?
Add in complexities like a weather event, Chinese New Year, or new products without sales history and what you’ll quickly realize is your planner is being asked to do more than any person could.
You made it through, but at what cost?
You can get by. Your planner can replenish in an ad hoc way and your warehouse team can spend many hours handling random issues as they arise. But is that any way to run a warehouse? Can you really grow your business, invest in new products, and take on new marketing initiatives like this? What is the true cost of running your warehouse this way?
And here’s the kicker: you haven’t even thought about excess stock issues yet.
One of the most basic tactics your planner has at their disposal is to just “order more.” You can’t stock-out that way, right? It makes sense. Establishing a Safety Stock policy is fundamental to operating your warehouse (check out this post for an overview on Safety Stock). But simply buying more so you don’t run out is not the same as creating a viable Safety Stock policy — and the difference can be found in your profits.
You need to know the difference between excess stock and Safety Stock. If you don’t, you’re killing your own cash flow. You are choosing to bury your working capital in the back shelves of your warehouse because you aren’t willing to figure out the proper way to manage Safety Stock. Could you even venture a reasonable guess as to how much cash you have needlessly tied up in excess?
There is a better way
Gut intuition won’t save your team or your planner here. Neither will outdated tools like an inventory spreadsheet. Your ERP may have some helpful functionality, but not enough to manage demand planning needs in the modern supply chain.
It’s time to stop the ad hoc warehouse management. You’ve wasted enough time and money trying to get the most out of tools that can’t even help you produce better purchase orders. You need to know how much excess stock you have, you need to know if you have surplus orders, and you need to know where stock-outs are occurring.
To put it another way: you have to do the research and then invest in the correct tool to manage your inventory replenishment process.
Integrating the right tool won’t mean your inventory planner is obsolete. Quite the opposite, actually. It will allow them to do their job the way it’s supposed to be done.
A version of this post was published earlier this year by Blytheco.
