Leveraging technology to improve inventory management

How technology, combined with commitment, can improve inventory management and help distributors end annual inventory counts.

by Tom McHale

In and of itself, technology is no magic bullet. But the proper technology tools and company-wide commitment to using them can considerably improve one of the biggest ongoing concerns of most distributors: successfully managing inventory.

The benefits of technology are comparable with any other investment. Your expected returns are directly related to the level of your investment and commitment. Investment does not only imply cash; perhaps the most important investments are of time and human resources. Committing to using technology to improve your inventory does little good unless everyone — from the corporate executives to the warehouse personnel — follows through.

You can implement a cultural shift in your organization to fanatically support new processes and opportunities offered by your technology infrastructure. The following steps — involving the entire organization, investing in new business processes, and prioritizing a plan of attack — will help small and mid-size distributors improve their inventory management.

Involve the entire organization
Rather than taking the traditional view that improved reporting or data availability helps just the executive staff, consider first how the new process benefits the end-user or line employee. This approach helps ensure that the system is used properly, and that executive-level reporting benefits follow almost automatically.

To management, top-level benefits of using technology to improve inventory management might include more efficient use of warehouse labor, improved order accuracy, better customer service, reduced stock levels and associated carrying costs, and even the ability to measure pick-and-put-away productivity. These benefits, although valuable, do not have much appeal to those on the warehouse floor. The employees with the biggest impact on the success or failure of the system — the warehouse staff — may not actively support this system, or go the extra mile to ensure the system is utilized to its fullest capability because they may not see direct benefits to their daily routine.

If you focus on warehouse staff benefits, however, the success of the system will soar. Warehouse staff respond to themes such as avoiding having to walk back and forth to fill an order thanks to directed wave picking capability, no longer having to wander around the warehouse looking for a put-away bin, not having to look for a secondary storage location, and never again wondering where to store new stock because the warehouse is bursting at the seams with excess inventory.

Taking an end-user perspective ensures more widespread system adoption while still achieving desired management benefits.

For instance, Emergency Medical Products Inc., a Wisconsin-based medical supplier, implemented a Microsoft Business Solutions system that reduced warehouse staff workloads.

“Knowing where inventory is, being able to get to that inventory in a logical order, and allowing our pickers to know which product to pick first and last makes workers more efficient and allows us to get our product out the door faster,” says Matthew Orr, chief technology officer.

If you focus on how every user can individually benefit from the system, it will get used. Not only will people use it, you’ll find they are a constant source of new ideas to continue to improve your business processes. As the system is more fully utilized, management-level benefits appear almost automatically, and the quality of critical decision-making data from your system will soar.

Invest in creative new processes
Once you are committed to fully using your technology infrastructure, you can think critically about progressive distribution processes and let your technology help you revise these systems and procedures for the better.

For example, most companies don’t think twice about investing several days and many people to perform a periodic physical inventory count. This time-draining and resource-sapping process is common for distributors (and practically required by their accountants). In theory, it offers the perceived benefit of reconciling inventory to the system’s database. Quite simply, it is the way things have always been done. But today’s technology can improve this process and potentially do away with it entirely.

Cycle counting is a process made easier by a good inventory software package. The presence of cycle counting features in a system allow your staff to do partial inventory counts in real time, while orders are taken, received, picked and shipped. There is no need to shut down the operation to get an accurate count. In addition, a good cycle counting feature helps your staff know which items and/or bin locations to count on any given day. You can print expected quantities on the count sheets to give them a hint as to what should be there, or tell the system to hide that data to force a true physical count verification. The benefits are clear: more accurate inventory balances throughout the year result in lower levels of loss, spoilage and theft. You can conceivably eliminate the much hated quarterly or annual physical counts that always seem to spoil a weekend for everyone.

The most progressive distributors should at least consider a process change as dramatic as hiring full-time staff to do nothing but cycle count. It appears to be a major investment in an activity that does not directly support sales growth or efficiency enhancements, yet some companies benefit from exactly that. If you have $1 million of inventory and can improve your accuracy (and therefore lower stock levels) by just 10 percent, that frees up $100,000 in capital, not to mention associated carrying costs. That justifies a lot of hours of dedicated cycle counting! You can do similar math for your particular situation to determine if this process would benefit your company.

Arthur Schumann Inc., a New Jersey-based specialty cheese distributor, turned to Maximum Data Solutions Inc., a Microsoft Business Solutions Partner focused on selling automated data collection systems, to learn to manage stock levels better, reduce inventory carrying costs and improve customer service.

“We used to take inventory very frequently, almost monthly. Now, with automatic data collection, we’re not taking inventories at all,” say Kevin Lehoullier, chief financial officer. “We cycle count every day, all day, 8 hours a day, and as a result, we’re never down for shipping to our customers. Since automated data collection was implemented, we’re at more than 99 percent inventory accuracy.”

Many distributors would like to implement bar code or radio frequency identification (RFID) data collection technologies, but some have not yet figured out how to label and categorize their entire existing inventory. Let’s face it: Proper labeling is a big step but, fortunately, it is mostly a one-time investment.

Once you have made that leap, a host of opportunities are available to you. You can accelerate the receiving process via bar code or RFID capture and automatic inventory updates, meaning everyone in your company will know when new products arrive, not hours or days after they hit the loading dock, but within minutes. As a result, you can fill back orders faster, possibly even before the items are put away.

Similarly, your salespeople won’t tell customers an item is out of stock when in fact it is sitting on the receiving dock. You can then look at implementing process improvements such as increased automation of cycle counting with handheld devices, directed picking, wave picking and directed put-away. But it is crucial that you make the time and labor investment to better categorize, rename and tag your items. It does not necessarily take a lot of cash, but it does require management-level commitment and time. However, once you make this investment, the benefits can be enormous because you will have implemented a platform on which you can automate many new process improvements.

Prioritize: Start with the biggest opportunities
Even the distributor with the best intentions cannot solve all challenges related to inventory management at one time. This is true especially for small and mid-size distributors.

By examining which products turn over the fastest, take up the most space, and generate the largest profits, smart distributors can prioritize and start with easier, large-scale opportunities.

Your technology systems can help you determine your “A” level items. Are they your most expensive? The most profitable? The fastest moving? Items your most important customers buy frequently? Most good inventory systems provide automated analysis to help you identify these items, flag them and update those flags over time according to product movement changes.

Start by cycle counting just these critical items. Put them in the most accessible areas of your warehouse, near the packing area at heights easy for the average picker to reach. If you capture items with the most dramatic impact on your daily operations, you’ll soon see significant benefits. Don’t try to improve the management of your entire inventory all at once.

Start with just a few items. Watch them like a hawk and make sure your system accurately tracks these items. When they arrive at the loading dock, make sure your software package is up to date with available-to-sell quantities within the hour, and cycle count them weekly. This will help you build processes and procedures for the rest of your inventory later.

These improvements will reduce the time it takes people in your organization to know about new stock receipts, which will lead to better warehouse organization and more accurate customer service. The benefits of embracing technology to improve your inventory management and process reinvention have a cascading effect. When your company truly commits to fully using its technology systems to improve inventory management, everyone wins.

What kind of message does it send to your organization when you don’t make an effort to leverage new or existing technology? Weigh the cost of having someone repeatedly produce a manual spreadsheet report against the costs of having your software provider help you with a new, customized data application to provide the same answers in a more automated fashion.

When you begin to understand and embrace these concepts, you’ll put the days of frenzied inventory counts behind you. Then you can focus on proactively working with customers and growing your business.

This article originally appeared in the May/June 2004 issue of Progressive Distributor. Copyright 2004.

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