Your warehouse is the most important area of your business or building. Why is that? Isn’t this where you keep a lot of your money? You invest all that money in your products and you keep them in your warehouse. Who is watching your money out there?
1. Manage your Inventory better. You need to know what is in your warehouse and how many of each item you have. You need to know this always. There is no excuse, inventory accuracy is a must. If your inventory is accurate, you can reduce back orders, improve customer service, and increase fill rates. Reliable inventory accuracy enables companies to maintain lower inventory levels through reductions of safety stock and scrap. Increased inventory turns contribute to savings in inventory carrying costs. Plus, inventory reductions increase the storage capacity of the facility. In order to receive all of the benefits from a good inventory management system, stock balances must be at least 97% accurate, every day of the year. This means that the actual available quantity of every item in the warehouse is no more than 3% greater or less than the available quantity displayed on your computer inquiry screens.
Time is money as we all know. If your sales people have to constantly go to your warehouse and check to see what you have and what they can sell, that is a waste of time. It is also lost opportunity. While they are in the warehouse they cannot be selling, helping your customers or up selling/cross selling your customers. Help your sales people sell. Allow them to always have access to what and how much is in your warehouse. They will be happier and so will you customers if they don’t have to be put on hold or receive a call back after your sales person journeys to your warehouse to “see what you have”.
If inventory in your warehouse is lost, stolen, or broken, it needs to be replaced. Buying replacements is an expense. Just like payroll, rent, or any other expense, the replacement must be paid for. Guess what? It needs to be paid for with part of your net profits. For example, if $200 of material is lost per week ($10,400 per year), this $10,400 comes from your net profit. Assume your net profit before taxes is 4%, it takes $260,000 in new sales to make up for this ($260,000 x .04 = $10,400)! Think about how easy that will be to accomplish with your sales people running around your warehouse looking for your products.
If you promise products to a customer based on what your computer says is in stock, but the material isn’t actually available in your warehouse, the result is a disgruntled customer. You will lose your reputation as a reliable supplier for your customers. And not being a reliable supplier is one of the best ways to increase your competitor’s sales.
Dead inventory is inventory that has had no sales or recurring transfers for the previous 12 months. Slow moving inventory that has had some movement, but less than one and a half turns a year. This means that you have sold the normal shelf quantity less than 1-1/2 times in the past 12 months. Items that will turn or be replenished more than 1-1/2 times within a 12 month period are your “good” items.
If your dead inventory is not being held for parts replacements or they are not promised to a customer, get rid of them. They are taking up very valuable space in your warehouse and costing you money. You need to be a distributor not a collector.
Your slow moving items need to be carefully reviewed. Do you expect the demand for them to continue or increase? Do your customers expect you to have them always available for delivery when they call? Is there any other place to get these items and still be able to meet your customers’ expectations so that you don’t have to stock them? Also, is this product cheap enough that it does not require a large investment to keep it in inventory? Go through all these items because they are literally tying up your cash that could be used to purchase new items to make more money on.
Many warehousing operations have been successful convincing their employees that inventory accuracy is important and they provide economic incentives to maintain this accuracy.
Make money here:
○ Reduce inventory by 10% and not impact customer service
○ Reduce inventory carrying costs by up to 35%
○ Reduce shipping costs
○ Reduced investment – keep more of your money
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