Inventory Optimization-A journey

We at Portable Intelligence Inc., view Inventory Optimization as a journey and not a destination.  While the journey is certainly different for every warehouse, the factors that result in optimized inventory are common across the board. We use a simple framework while conducting a warehouse review. Ultimately, it is this effective framework, that allows us to not only apply our technology successfully but also to optimize inventory management.

A warehouse is not just a brick and mortar structure. It is an ecosystem which runs on 5 crucial components: Business Outcomes, People, Processes, Resources, and Technology. We have discovered that success of any new system or program depends on its understanding of this ecosystem and hence, it has to work in cooperation with these components to be beneficial.

So, what are these 5 important components of a warehouse that influence inventory optimization so deeply?

People: What is the level of skills and experience of your warehouse team? How would they handle the changes to their jobs and/or need to upgrade their skills in support of the new technologies and processes? Also training an older workforce can be much different from training millennials who grew up using iPads and smartphones. And don't forget safety and need for equipment certification that may result from any warehouse changes. It is essential that your team members are trained to understand the impact of their daily actions on your inventory optimization goals.

Processes: Many times, processes in warehouses are paper driven or a number of in-house systems have been created to augment the existing enterprise resource planning (ERP).  So, it's not uncommon to see workers writing down production information onto paper that are later keyed into these home-grown systems. Also, it not uncommon to see a very limited use of bin or warehouse locations which negates any need to record stock picks or transfers. Thus, processes may reflect a quantity orientation around recording the in/out movement of product and not location changes. This could lead to disparity and greatly affect inventory optimization.

Resources: This speaks to the assets within the warehouse and includes racking, material handling equipment. If a company is adding more stock keeping units (SKUs), it may result in having to reslot pickfaces or create new pickfaces. What happens if all the first level pickfaces are full? Thus, companies will have to add additional shelving or create a second level of picking which may imply the use of new material handling equipment (MHE). Ultimately, this means moving inventory around such as consolidating slower moving products into the same location, getting rid of obsolete product, and or looking at 3PL providers.  Lack of proper resources, be it equipment or warehouse capacity will certainly hamper inventory optimization efforts.

Technology: This is almost a review of company's existing IT infrastructure from its wireless network, operating system versions, and server capacity and software systems (ERP) along with any third-party bolt-on products to homegrown systems). The presence of these systems may dictate the need to integrate any new systems - this is often the costliest and most risky of any IT project.

Business Outcomes: This may be the last factor but it is the most important. Business outcomes provide purpose to any inventory optimization efforts. For example; if the company is hoping to reduce its cycle time from order entry to manufacturing to shipment, then inventory accuracy plays a key role. The key to inventory accuracy is the use of locations, regular cycle counts, and real-time data collection. Likewise, if the goal is to support an increase in online sales, then your inventory optimization processes have to support the creation of split cases, each or less than case picking, and replenishment programs that ‘speak’ in the quantity of an each or multiples thereof.

It is often said; the journey is just as important as the destination. We agree. Achieving optimal inventory balances is the ultimate goal. However, enjoy the journey because when done properly, Inventory Optimization will turn your warehouse into a competitive advantage.

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