Efficiency in warehouse inventory management is the holy grail of logistics...and yet, warehouse managers make mistakes because our industry has not yet convinced them to do things differently. In other words, many warehouse inefficiencies don’t just come from having the wrong technology or the wrong processes. They take root from the start by having the wrong mindset for managing inventory.
Top 8 Management Mistakes to Avoid in Your Warehouse
The good news? Once this mistake is pointed out, it is relatively easy to adopt a new point of view and correct course. Here we review eight of the most common warehouse inventory management mistakes we’ve seen and shared some ideas about how to correct them.
1. Having Way More Warehouse Inventory Than You Need
Having lots of an extra warehouse inventory not only means tied-up capital but also a host of other expenses as well: more square footage leased, more insurance needed, and more money spent on environmental controls. In short, it’s costly to overstock.
Extra inventory could also signal a shift in demand. There are many reasons why an item might stop moving: seasons change, tastes shift, a newer model comes out, and so on. If you have too much of a cushion, you might be stuck with items that never move. The only way to be rid of them will be to sell them at a steep discount or donate them for the tax write-off.
Many times, an extra warehouse inventory accumulates because a merchant “stocks up” when ordering is at a high but then fails to notice when the pace of orders slackens. The result is overbought stock. Avoiding this mistake requires keeping careful track of order velocity and trying to anticipate changes that will come with season and cycle. For example, if news breaks about a new smartphone, it’s time to slow down the orders of cases and chargers for the older model.
2. Not Having Enough Inventory to Meet Demand Efficiently
In the past, when a merchant ran out of an item, it would issue a back-order while more items were purchased or manufactured. That would take time, but there wasn’t much a customer could do about it.
Today’s customer holds a higher standard. Thanks to Amazon and other retailers, customers expect orders to be processed in at most two days and shipped promptly at the lowest cost possible. They want to know exactly when the item(s) will be delivered, too. They will not tolerate back-orders, and if an item looks like, it’s out of stock, they’ll just take their business elsewhere.
In short, back-orders are bad for business, and if they are happening to you, you need to get a grip on why you are running out of inventory that’s moving.
3. Not Using the Right Analytics
The last thing you want to do is base your decision-making on back-order reports and return rate alone. You need to try to forecast what sales will be for every item monthly and quarterly. You should keep track of sales trends as well. With the right analytics, you should be able to make a “best guess” for your sales for the next cycle and act accordingly.
For example, are you keeping track of your sales-to-inventory ratio? This is a measure of how much value tied up in your inventory vs. moving out the door; to calculate this, you divide the cost of goods sold by the average value of your inventory. The closer this number is to 100%, the better. If your sales-to-inventory ratio drops, it’s a sign to pull back on your own order velocity.
4. Resisting Automation
Does your system automatically generate a re-order once your stock gets below a certain level? It should. That way, your new items will be ready and shelved once you’ve gone through your current stock...and you’ll never have to worry about back ordered items.
That’s just one example of warehouse automation. Automation helps to streamline warehouse operations and prevent human error, both of which will enhance warehouse efficiency.
Another way that warehouse managers fails to automate is by using office programs and spreadsheets like Excel or even paper forms to record and track stock. Talk about a serious waste of time! Using spreadsheets also introduces all kinds of errors. According to a study by the College of Business Administration at the University of Hawaii, the error rate for a single person using spreadsheets was a whopping 86%. A group of people using Excel fared much better but still made mistakes 27% of the time.
Finally, spreadsheets and other manual processes don’t operate in real time or allow multiple users to access information at the same time. An automated system, if set up correctly, can operate in real time and route critical information to whoever needs it, even if that means multiple people at once.
5. Slowing Your Flow During Warehouse Inventory Counts
Even more basic than analytics and automation is the cycle count itself. Are you taking the time to physically count items periodically and ensure that the count matches what’s in your system? How do you do your inventory counts?
If you’re not doing physical counts, that can be a problem. For all the good that warehouse inventory management software does, it cannot keep track of things like theft and unreported breakage. This requires a physical count.
That said, if you’re stopping your operation to do a physical count of everything, that’s bad, too. It’s better to do your count section by section and spread the count over the course of several days. If you have a barcode scanning system, this makes the count even quicker.
6. Dissociating Warehouse Shipping from the Rest of the Workflow
Too often, shipping stations become a bottleneck, especially in larger warehouses. This happens because there are several manual steps occurring, but the different systems for warehouse shipping and inventory management are not talking to each other.
In an ideal world, the entire process from picking to packing to shipping would be part of a single, well-documented workflow. Information should pass easily from the initial order and on through to printing and affixing shipping labels. When this happens, it reduces the chances of making mistakes in picking, sorting, packing, and creating the shipping labels. It also helps optimize your choice of carrier.
7. Failing to Manage Your Labor
Warehouse labor costs can stealthily sneak up on even the most efficient operations. Labor needs are variable; during high shipping times, warehouses need an appropriate number of workers to handle the increased number of orders. But these cannot be full-time workers, as having extra people around when not needed will skyrocket your costs.
Variable labor requirements prompt most warehouses to hire temporary laborers to help with periods of high demand. Ideally, these workers need to be called in just before the spike in orders. Afterward, the floor manager needs to feel comfortable releasing them once the rush is over. A good labor management system is key.
8. Trying to be a Hero
Remember that start from mistake #4 talked about the error rates for people using Excel? Human beings are flawed, even if they are “experts” in something. Errors don’t just happen with Excel; they happen whenever a human being inserted into a workflow.
That study also showed that individuals are much, much more prone to error than groups. That is exactly why you should be wary of the warehouse “hero.”
The term “hero” refers to a talented person who, through a combination of knowledge, effort, and will, manages to make a department, operation, or project just work. We’ve run into several companies whose warehouse shipping and operations depend on that one hero.
The problem is that, as a company grows, having a resident “hero” is a bad thing. They usually tend to keep knowledge in their head, do not delegate effectively, underappreciated scale, and resist change. When they are successful, they foster dependence; and when they are not available, the whole process breaks down.
So, don’t be that hero. And don’t encourage them in your warehouse, either. Take steps to make your data and your processes explicit for all (i.e., create a team that communicates), automate what you can, and make it easier for anyone to clock in and begin working efficiently. You’ll be happier with the results. (Note: these are mistakes in inventory management itself. There is a whole separate category of mistakes when it comes to warehouse layout and warehouse setup that you need to master, too.)