Reduce Inventory Shrinkage

Using a warehouse management system to prevent loss

Using a Warehouse Management System to Prevent Loss

Unless you mix chemicals in great big open vats your inventory will probably not evaporate into thin air.  But most distributors experience missing inventory.  That is quantities of products that arrived in their facility and then disappeared.  Missing inventory causes numerous problems including:

  • Salespeople promising material that was in stock according to the computer system but then wasn’t there when the customer arrived
  • The cost of additional stock to replace the missing material
  • The cost of conducting “treasure hunts” as you search the entire warehouse looking for missing products

Distributors can utilize warehouse management systems (WMS) to help minimize loss.  Though expensive WMS systems that include active radio frequency identification (RFID) capabilities can be utilized to track the exact location of every piece of inventory in a facility.  Labels that include a transmitting micro-chip are attached to each item.  These transmitters are constantly sending each piece’s current location to the WMS software.  We have worked with a large car dealer in the implementation of this type of system to maintain control of an inventory of over 5,000 automobiles.

But even if you cannot afford cost of RFID technology other common, less expensive WMS features can be utilized to minimize the loss of material:

Bar Coding

In a traditional warehouse system material is added to inventory when it is received and deducted from inventory when it is shipped.  There is no way of knowing specifically where it is in a warehouse during the time it is in inventory.  As pieces of the product “float” through the facility they can easily be misplaced or otherwise lost.

Bar codes can help prevent this material loss.  In most WMS systems a bar label is affixed to both packages and bin locations where the item is stored.  These labels “identify” the product contained in the package and the physical storage location.  When material is placed in a specific warehouse location it is “scanned into” that bin.  When it is removed it is “scanned out” and simultaneously “scanned into” another location.  For example, one of our customers, an electronics distributor, scans parts out of bins and into totes used to accumulate the quantities of products needed to fill a customer’s order.  The material is then scanned out of the tote and into boxes used to ship out the orders.  The “float” of inventory through the warehouse is eliminated.  The WMS knows exactly where each piece of each item is at all times.

Cycle Counting

Cycle counting is the process of verifying the on-hand quantities of specific items are accurate.  State of the art WMS systems identify those items that should be most frequently counted.  These include:

  • High value products and other items that are subject to pilferage
  • Items that frequently appear on customer orders.  After all every time someone goes to the bin and takes some of the product is another opportunity for a mistake to happen.
  • Regulated items such as liquor and firearms
  • Products that have had a history of inventory discrepancies

We have found that just the act of cycle counting improves inventory accuracy.  Perhaps seeing management’s effort to attain inventory accuracy reinforces the true value of the stocked material in the minds of employees.

Tracking Errors

Different employees have different skills.  A comprehensive WMS system tracks each worker’s productivity and errors that occur while they are performing assigned tasks.  If a specific order picker consistently damages material while filling orders it is probably a good idea to assign him or her to different tasks.

Reduce Inventory Shrinkage

Inventory shrinkage is expensive.  In today’s competitive environment distributors cannot afford to replace missing material or disappoint customers when material that was supposed to be on the shelf is not available.  Properly using a comprehensive WMS system can minimize unnecessary costs and lead to achieving greater profitability and customer service.

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