Managing warehouse inventory, on its face, seems a simple concept: Keep enough stock on hand to fulfill orders, but not so much stock that your warehouse is filled to the brim with inventory that won’t move for months (or years). Too much slow-moving inventory means you’re spending money to store products that aren’t earning immediate revenue, and too little means backorders and unhappy customers who are likely to seek out your competition. In practice, however, warehouse inventory management is quite complex, given the number of variables that impact the bottom line:
How much inventory do you need to meet current demand?
Is demand likely to increase, decrease or remain the same over the coming weeks and months?
How much does it cost to store and maintain slow-moving or stagnant inventory?
How long does it take to receive new inventory from suppliers?
Given the time it takes to receive orders from suppliers, how soon do you need to reorder each SKU?
Do you have inventory that requires climate-controlled storage, significant space due to size or an unusual shape, making it difficult to optimize your warehouse layout and inventory storage?
In addition to the questions above, other considerations include accounting for lost, damaged or expired inventory, having adequate safety stock to mitigate the risk of possible supply chain disruptions (such as the COVID-19 pandemic) and ensuring availability and reliability of backup and secondary suppliers. Returns are yet another variable that can throw a wrench into your carefully laid plans, leaving you with excess stock that’s taking up valuable square footage in your warehouse.
Efficient inventory management requires quality, accurate data, and lots of it. Warehouse management systems (WMS) provide greater inventory visibility, automating processes such as updating inventory counts when items are scanned for shipment and leave the warehouse. Analyzing data on sales and returns as well as historical and seasonal data can improve forecasting capabilities to enable warehouse inventory managers to optimize inventory levels to maximize profits.
Adding intelligent automation solutions like collaborative mobile robots and mobile sorting solutions help to reduce error rates and improve productivity for more streamlined, efficient warehouse operations. Collaborative robots like Chuck by 6 River Systems, for instance, optimize replenishment routes in real-time and prioritize tasks based on the current conditions on the warehouse floor. Chuck guides associates to the put-away location, the associate scans the location and product, verifies the quantity, and performs the task, resulting in fewer errors such as SKUs placed in the wrong pick locations, which can lead to picking errors and inventory discrepancies. Chuck then sends a confirmation and any exception information to the WMS, ensuring more accurate inventory data.
For more insights into the most common and most significant warehouse inventory management mistakes and how to avoid them, we reached out to a panel of warehouse professionals and asked them to answer this question:
“What’s the single biggest mistake made with warehouse inventory management (and how do you avoid it)?”
Jonathon Karelse is the CEO of NorthFind Management. He is a global leader in Sales and Operations Planning and forecasting and predictive analytics. He creates clarity in supply chain strategies, optimizing for today’s global digital landscape and delivers transformative outcomes for leaders who want to improve their operations in supply chain management.
“The single biggest mistake made in inventory management is assuming that all inventory should be managed equally…”
It is critical to understand the demand personality of every single SKU and manage it accordingly. Details such as which SKUs have steady-state versus intermittent profiles, which make higher margins, have higher or lower turnover or ship to specific geographies are just a few considerations when deciding where and how to warehouse each item. By optimizing inventory levels using a Plan For Every Part strategy, you can reduce inventory levels, increase service levels and optimize capital utilization.
“Carrying too much inventory, particularly when it comes to seasonal or perishable items, is…”
Perhaps the most widely spread mistake when it comes to inventory management, and this is often compounded by poor stock rotation protocols or auditing procedures.
Reviewing and analyzing layout and picking paths too infrequently is another huge mistake, and it’s one that can directly cause or exacerbate the aforementioned issue of poor stock rotation. Workers will commonly shortcut or pick closer/more accessible items if their picking paths aren’t intuitive, are overly convoluted or they’re in a hurry, and even if this only happens relatively infrequently, the impact it can have on wastage and stock loss can soon become significant.
Auditing warehouse contents, stock levels and benchmarks alongside demand and seasonality, plus regular reviews and revisions of your picking path maps and monitoring how they’re actioned on the ground are all essential to mitigate these problems.
Abir Syed
Abir Syed is a CPA and digital marketing consultant and focuses on e-commerce clients.
“In my experience, the biggest mistake I’ve seen with clients is…”
Not having the WMS properly integrated with their ERP or financial system.
Between inventory receipts, sales, location transfers, shrinkage and returns, there are too many opportunities for the WMS to be out of sync with the financials. And that can lead to poor inventory forecasting, lost margin, increased shrinkage and just bad decision-making overall due to how important inventory data is to some companies.
“The single biggest mistake most warehouse managers make is in one way or another not controlling the accuracy of the inventory in the warehouse…”
Without a good warehouse management system, inventory tracking becomes a nearly insurmountable task. If counts are coming up short, vendors will soon abandon that warehouse for more secure storage solutions for their products. Always keep a strict accounting of the inventory entering and leaving the facility, maintain physical security, listen to your customers and use good inventory management technology.
“One of the biggest mistakes that can be made with warehouse inventory management is that…”
Often companies send out products that aren’t up to standard, which means that their quality control department isn’t able to keep up with the demand for their services.
The best way to make sure that they’re on top of their work and only allowing the best products through is to invest some time into making the process as streamlined as possible. That might mean having a system in place for quality control reporting or just hiring another person for the team.
Matthew Baratta is the VP of Operations at Daimer Industries. Matthew and his team specialize in selling commercial and residential cleaning products, which demands them to have an exceptional inventory management system.
“The biggest mistake that can be made with inventory management is to assume everything will run smoothly…”
Inventory management must account for unknowable and unpredictable problems, whether it be a shipping delay or a pandemic. A contingency plan and reserve must be in place to ensure continued operations in the event of such an occurrence.
“If you’re not effectively utilizing the space in your warehouse with respect to what is probably an ever-changing need based on customer demand…”
You could be leaving money on the table, so to speak. Especially in this current business environment, when you might receive half pallets, less than full pallets or generally nothing at all (because of the supply chain constraints due to the coronavirus), you need to be flexible and transitory. On a more positive note, if for some reason your business is growing, that makes the need for efficient space utilization that much more important. To avoid this, in short, skip the pre-determined planograms and go with what makes sense. Look at height, length and width, and think about a group by dimension strategy. Using dimensioning systems for packages and pallets can help, as well.
Lillian Jackson
Lillian Jackson is the Chief Human Resources Officer of The RedHead Solutions. She earned a degree in Human Resources and worked in several fortune 500 companies prior to venturing out to start her own small business offering human resources, payroll and bookkeeping support to small to medium-sized businesses at a fraction of the cost of hosting those services on site.
“The single biggest mistake made with warehouse inventory management is that…”
The company is managing the inventory through the use of technology; however, they are not properly managing the people moving the products, therefore losing profits in their people cost. Warehouse inventory management software should be integrated with the people component of the cost of goods to ensure that each move of the inventory is cost-effective. In analyzing payroll and invoicing for several small businesses, we have seen a pattern where companies were able to successfully reduce their inventory cost through the use of software platforms, but their payroll costs skyrocketed, thus negating the benefits of the warehouse inventory software.
Allan Borch
Allan Borch is the founder of Dotcom Dollar. He started his own online business and quit his job in 2015 to travel the world. He achieved this goal through e-commerce sales and affiliate SEO. He started Dotcom Dollar to help aspiring entrepreneurs create a successful online business while avoiding crucial mistakes along the way.
“My biggest mistake with warehouse inventory management happened when I was just starting in e-commerce…”
During those early days, I kept track of inventory using spreadsheets. I felt confident in the research I did and in all the math I mastered to complete my engineering degree. However, when you have inventory for three months and are dealing with orders and returns on a daily basis, it quickly becomes chaotic. I soon found myself way over my head with all the work.
I realized that Excel and other manual processes don’t operate in real-time or allow multiple users to access them at the same time. An automated system, in contrast, enables multiple employees to track items across several locations, all while monitoring orders and shipments for those items. So after a month of sifting through everything manually, I went ahead and got an inventory management software. It was a bit pricey, especially for someone just starting on Amazon. However, the ability to automate this key aspect of the business surely made up for it.
Sawinery.net was created by a real-life woodworker and a woodworking enthusiast, Robert Johnson. His years in the woodworking and carpentry industry, plus his love for the craft inspired him to reach out to his fellow woodworkers through this website.
“The single biggest mistake made with warehouse inventory management is the failure to invest in an inventory management system…”
With inventory systems, labeling and assortment will be easier as it utilizes barcode scanners to ensure that any product in the warehouse can be located any time. It also provides more accurate listings and quantities, making the workflow more efficient. A good inventory management system can be costly, but it is a good investment in the long run.
Martin Heubel is an e-commerce consultant, advising SMB and multinational companies on how to grow their sales and margins online. As a senior manager at Amazon, Martin has successfully developed and implemented e-commerce strategies for 100+ businesses of all sizes and industries over the last 4+ years. On his blog, Consulterce.com, he shares actionable advice that allows his audience to build their own successful e-commerce businesses.
“The single biggest mistake you can make is not to keep an up-to-date catalog of your inventory at hand…”
It’s a costly mistake to realize that your stock is about to expire before you can ship it to your customers. While you might think that this mainly applies to the food industry, think again — products like perfumes, creams or batteries need to fly off your shelves before they are about to expire. Thankfully, it’s easy to automate stock expiry alerts with almost any software out there. But still, it’s a costly mistake that many young entrepreneurs make.
“The biggest warehouse inventory management disaster is ignoring safety measures…”
When thinking of improving profits, most managers think of bringing in more efficient inventory storage systems, but the answer can be as simple as adopting better safety measures while moving the inventory. A huge percentage of lost workdays is caused by accidents that are related to poor safety measures. Accidents and loss of workdays equal low workforce morale and loss of money.
Managers should regularly conduct risk assessments and follow them up with corrective measures. There is a lot of research and evidence to point out that this is the number one factor that reduces workforce retention and drastically improves a company’s profits and trajectory. Ignoring this is the biggest blunder any manager can make.
Sean McGinnis is the Vice President and Head of Marketing, E-Commerce & Customer Experience for KURU, a DTC footwear company.
“The biggest problem we face is accurately forecasting sales so our inventory team can staff to maintain service levels…”
We have a very high expectation that orders are quickly processed and shipped. When we do not accurately forecast our sales levels and communicate those forecasts to our team, there is a potential that orders will not be processed in a timely fashion.
“Failing to provide the right tools and systems to manage warehouse inventory and to train workers in the proper application of those tools is a sure path to failure…”
Specialized inventory management software is expensive, but a warehouse mired in disarray due to outdated or insufficient management systems is vastly more expensive. Ensure the workers are fully versed in using the software since even the most competent software still needs proficient users to function.
“By far, not properly stocking the most critical items can deal a severe blow to a distributor…”
Safety stock is additional inventory of high-demand products intended to prevent stockouts or in case of supply chain delays. By maintaining this safety allowance, warehouse inventory management will never be caught flat-footed by higher than usual demand, replenishment issues or a combination of the two. It is important, however, that the supplier is very attuned to what products will see higher than usual demand. Too much safety stock can hurt company operations and profits.
“As part of the supply chain, one big mistake warehouses make is…”
Using trucks as temporary warehouses by way of making truck drivers wait hours on end to be loaded or unloaded. This habit makes the entire supply chain inefficient and forces truck drivers to violate hours of service regulations.
David Altemir is the President/Senior Consultant at Altemir Consulting – Lean Manufacturing, Supply Chain, Engineering, & ERP.
“The most significant and most prevalent inventory mistake, particularly for smaller manufacturers, is that raw materials are not correctly consumed during production…”
Raw material inventories can become wildly inaccurate as a result. Many accounting and inventory software systems simply are not designed to support manufacturing adequately. Therefore, many manufacturers are left trying to fit a square peg into a round hole when it comes to maintaining accurate inventory.
Willie Greer
@AnalystProduct
Willie Greer is the founder of The Product Analyst.
“One of the biggest mistakes is manual inventory management…”
Lots of companies resort to manual handling of their inventory, as this is somehow believed to be more accurate. However, it is not convenient and is very time-consuming, plus, the accuracy is not even guaranteed.
Some are afraid that software solutions might disregard important details, and it’s uncontrollable. Though in fact, both processes involve the same amount of effort and assurance. The advantage of automated processes is that you can allocate more time to attend to the needs of more customers rather than wasting lots of it by manually tracking your inventory.
Another mistake is working with the wrong people or assigning tasks inadequately. Some tasks require physical strength, while others require certain skills. There might be some that can’t do it all, and who knows what might happen during emergencies, right? It’s better to hire people who are capable of adapting and learning other skills through proper training so they can be trusted with whatever task is given to them.
“The biggest mistake made with warehouse inventory management is relying on manual inventory management…”
Some companies still rely on a predominately manual approach to inventory management because they believe that changing to automation will cause too much of an upheaval to current processes. After all, why change what is working? Manual inventory management may work for smaller companies. However, when the size and scope of your inventory expand drastically, each manual step is rife with possibilities for human error. Each error is then compounded down the line and may potentially cause great disruption in the supply chain. On the other hand, automation will maximize scalability, reduce human errors, save time and ultimately make your company more profitable.
Kate is the owner/writer for SwankyDen.com, a home DIY, decor and how-to website.
“As an interior designer, tracking every single thing, down to the last button, is important…”
I think that inventory should be given the attention and respect it deserves, no matter how daunting or overwhelming it can be. Based on my experience, lack of communication with your team is the single biggest mistake you can make in managing your warehouse inventory. A slipup, big or small, can cost your business a lot.
We often make the mistake of relying solely on the inventory management software’s automatic estimates. No doubt, technology can make your life easier, but it’s still crucial to have a face-to-face meeting with your team. Although inventory management is quite analytical, it still requires intuition and human input.
If you and your team are simply relying on automated programs and numbers, then you’re most likely to miss out on profitability. So, always keep in mind that in terms of inventory management. Internal communication is not only crucial but should be on top of your priority list.
Arthur Koch is the President of Arthur Koch Management Consulting, LLC. Art has 20+ years’ experience in results-oriented business transformation leadership with a particular emphasis on profit creation through improvements to inventory velocity, customer service and factory management, with inventory reductions of over $200MM, increased EBITDA $100MM+ and increased corporate valuations by nearly $900MM.
“Underestimating the impact the last 1% of demand has on business complexity and profitability…”
Too often, systems people and senior leadership will use the 80/20 rule. I hear, “If you focus on the top 80%, the results will come.” Possibly, this can work in the short term. However, in the long term, this is not sustainable.
The reason is what I call Art’s Law #3; the last 1% of demand represents 50% of business complexity. If there are not root cause solutions to complexity reduction (Discontinuation, 3PL management, 3D Printing/Additive Manufacturing, etc.) for the last 1% demand or 50% of complexity, then the 1% will consume greater than 50% of resources, and the organization will never be able to solve the issues to make the top 80% more profitable.
Jim Schoen is the Principal of FRC Group. Jim helps industrial clients grow through Business Assessments, Team Development and Process Improvement. He has 35 years of experience in Consulting & Executive Leadership and is based in Los Angeles, CA, with an MBA & RPI BS in Mechanical Engineering from UCLA .
“The warehouse inventory management system must be driven by business strategy…”
The single biggest mistake in inventory management is not periodically re-aligning with business strategy and deployment. Without strategic goals or alignment, often the warehouse operating cost will take priority over total warehouse performance, thus sabotaging sales growth. With strategy alignment, the strategy will guide the warehouse goals and KPIs; warehouse location footprint analysis and plan; stockout cost model; ABC inventory management plan; parts selection, packaging and stocking strategy; selection of inventory management software and hardware; and workforce selection, training and management. Warehouse performance is typically measured through warehouse sales and trend, fill rate (% of orders filled complete upon receipt — e..g., not a stockout), fill quality (% of orders with fill errors) and warehouse operating costs. Through proper strategic alignment, a warehouse operating system can be designed and periodically tuned that optimizes total warehouse performance, enabling best sales performance through overall warehouse operating and cost performance.
