Storage and inventory control is a crucial part of any business – big or small.
However, there is much more to inventory control than people think and there are a lot of ways to improve your inventory control to make your company run more efficiently.
To ensure that you are getting the most accurate and useful information, we decided to interview experts on how they handle their inventory and warehouse. We then took all their answers to create the ultimate guide to improve your inventory control and warehouse management.
Danna Crawford
Business Consultant and Marketer
John Sidell
Principal and Founder at New Course Group
Gene Marks
President of The Marks Group
1. Get Rid of Spreadsheets
Managing your inventory by spreadsheets is not a good idea. It may seem like the easiest and most reliable solution, but it can be slow, inaccurate, and it will make it harder to recognize important patterns. Periodic systems, going off the books, or counting off and going into the system are not effective ways of managing inventory.
“The worst way to manage inventory is by spreadsheet,” said Gene Marks, a small business expert and President of The Marks Group.
Marks recommends that businesses start early on with an inventory management system. Most accounting systems have features for inventory management, including a barcode system.
“Proper inventory management is all about real-time and accurate information,” said John Sidell, the Principal and Founder at New Course Group, a consulting organization. “You have to know what you have in stock.”
Another way to know what you have in stock is by creating a stock keeping unit, or SKU.
Danna Crawford, a business consultant and marketer, said that she uses an SKU to keep track of the inventory for her online business so she can easily find items when they sell.
In Smith Corona’s warehouse, we use a warehouse management system called Application Plus.
Application Plus allows Smith Corona to determine fast routes within the warehouse. Employees can then receive the quickest route and use that to get an order out the door quickly and efficiently.
Regardless of what system you use, it’s crucial that you understand how to use it and what to use it for.
“It’s not the software, but the people behind it,” said Patrick Mitchell, a warehouse manager at Smith Corona. “A software is only as good as the person using it.”
When choosing a software, take advantage of free trials that may be offered. A free trial period is a great way to test the software to see if it is user-friendly and providing you with valuable data you can use for the benefit of your company.
2. Use the 80-20 Rule
The 80-20 rule says that eighty percent of sales are coming from twenty percent of inventory.
It also says that eighty percent of the total gross profit comes from twenty percent of the product items. Therefore, businesses must focus on big items that are moving in their inventory.
“The 80-20 rule applies to most clients,” said Marks. “Pay attention to items turning over the most and that have the most activity and dollars. Don’t get caught up in the details of stuff that isn’t imported.”
What products of yours sells consistently? Make sure to always have a backup supply of those products as well as enough space to store them. Don’t waste limited space on things that don’t sell as well.
You should also focus on keeping the purchasing for that product simple for your customers and have it in an easy-to-reach spot.
3. Utilize Your Data
When it comes to inventory management, there is an abundance of data to parse and analyze.
An important aspect is to pay attention to any inventory that isn’t turning.
“Because of the maturity of inventory systems, you want to segment to product line inventory,” said Marks. “Track sales and shipments of inventory by product line.”
Marks also suggested focussing on the margins of sales. Track your gross margin by product line so that you know what is making you the most money.
It is also vital to look at your safety stock data.
Safety stock is the amount of extra stock in your inventory that is kept in case there is a shortage of stock. This can be useful for unexpected rises in supply and demand or other unpredicted scenarios.
Marks once again suggested that businesses use an accounting system. Accounting systems will give you alerts when something is wrong with your inventory or if your safety stocks fall below a certain level. There are even softwares that automatically order more stock when the safety stock falls below your comfort level.
Crawford recommended utilizing an accounting system from GoDaddy called Outright.
“GoDaddy provides the best data resources,” said Crawford. “The data will bring in all the numbers I need from PayPal, eBay, bank accounts and any credit cards I would like to include as well.”
Mitchell says that a critical piece of data to look for is what is and isn’t selling in your inventory. By utilizing this data, you can determine what products you need to focus on and what products will soon turn to old stock.
4. Get Rid of Old Stock
Old stock can make the flow of your warehouse inefficient.
“If you have old stuff, it’s getting in the way,” said Marks. Move it, dispose of it, or lease another space where you can put older stuff for when an odd job calls for it.”
It’s all about how close you can have your most important inventory to your workers. It is vital to keep your warehouse clean and to avoid carrying old stock.
Sidell stresses that the visibility of your inventory is vital for inventory management. Whether your product is on the road or waiting to be shipped from a different location, you must know where your product is.
Another piece of data that is important for inventory visibility is the ability to sort your inventory to what is at rest.
“Where is it resting at? Is it resting on the store shelf or retail storage? Where is the inventory and what are the exact quantities? What do I have coming and going out?” said Sidell. “ At rest, in transit or in motion is the key.”
5. Use the ABC System
To keep inventory control simple and reliable, Smith Corona uses the ABC system. We collect data over the course of 18 months and use that data to determine what items sell best. We can also determine what items typically sell well with other items. From there, we separate their inventory into three different categories.
The A category consists of the stock that moves the fastest and is always being ordered and shipped, like our 4×6 direct thermal labels.
The B category consists of products that don’t move as fast but is consistent enough that you should keep a reasonable level of stock available. For example, our B category inventory consists of 4×4 direct thermal and thermal transfer labels.
The C category is any stock that doesn’t sell very well or anything that is used for orders that are out of the ordinary.
By using this strategy, you will be able to easily determine what you need to keep in stock.
Smith Corona always has one weeks worth of inventory for the products in their A category. This means that no one can clean out inventory and the popular products will always be ready to ship.
The ABC system can also be used to determine a warehouse layout.
6. Determine an Efficient Warehouse Layout
A great way to increase warehouse efficiency is a well-planned layout.
“Layout and design is really an art as much as it is a science,” said Marks. “The devil is in the detail, determine if [buisnesses] are efficiently using every square footage of the warehouse.”
Smith Corona takes the stock in their A category and makes sure that it is closest to the trucks for maximum efficiency. We keep the B category closer to the trucks, but not as close as the A category. The C categories are put in the back of the warehouse since orders don’t call for those products as often as the other categories.
Marks suggested that companies take the time to figure out a warehouse layout by taking stopwatches and timing how long it takes to complete specific tasks – like the time it takes to pull inventory after an order hits the floor.
“Pick out specific jobs and time how long it is taking,” said Marks. “You will uncover lots of mysteries when you do that. The only way to do this is by physically observing and tracking the floor.”
This process can take weeks but can determine specific places in the warehouse that are slowing down your businesses efficiency.
By using a stopwatch strategy, you can have your best selling products within close reach for maximum efficiency.
“The first priority is to keep everything within reach,” said Crawford. Crawford makes sure that her inventory is always easily accessible and visible to keep her business running smoothly.
Another factor that can come into play is the season. Look into order profiles and the pace of your inventory. Then you can plan your layout and flow based on the season, said Sidell.
If you aren’t sure what to change or you are having trouble determining a layout that works for your warehouse, Marks suggested hiring an outside consultant on LinkedIn or from professional societies.
