Inventory Management Part II: Improving Your System

INVENTORY MANAGEMENT SYSTEMS: How to Improve your Inventory Management Program

contributed by Bill Donnelly, Bac2Profit LLC

Our “vision” of inventory is somewhat different than the norm. We see inventory as stacks of crisp $100.00 bills neatly stacked & stretch wrapped on a pallet. After all it is money; you paid for the product, you pay to store it, you pay to handle it and it depreciates in value. Don’t you want to know where your money is? And what’s happening to it?


We realize change is not easy; developing a plan, documenting it and training employees takes time and can be frustrating. But it is a very attractive option to the profit-eroding alternative! When putting together a winning formula you have to build from the ground up and that process starts with the basics…efficient material flow paths, organized storage and process mapping. Most inventory inefficiency is created by smaller underlying deficiencies, either in the physical layout or information flow. It’s important when implementing a new Inventory Management plan, or revamping an old one, to start simple and stick to the basics.

Most people think of automated data transactions like bar coding & scanning when thinking of upgrading warehouse/inventory control operations, and yes they are very effective tools for recording inventory transactions. However, most ignore “The Basics” and set themselves up for failure even if scanning is implemented. Improving the performance of your Inventory Management System can be simpler, and far less expensive, than you think.

Start by mapping the physical movement of product from pre-receipt to shipping confirmation

Review the corresponding documentation

Determine appropriate data collection points based on physical movement

Initiate a continuous cycle counting program

Have a storage location for all items and all items stored in the appropriate location (sometimes easier said than done, but try it, it works!)

Review the “flow” of information, where it goes, to who & why & what is done with it

Review inventory reports for timeliness and accuracy

Streamline the flow of information

In business and in life, attitude is everything. Sustaining inventory accuracy should be an integral aspect of your business. It is a mentality that must be promoted from the top and be instilled through every employee.

Additionally, when developing your Inventory Management plan of action, you should seize opportunities to eliminate, or at least reduce, the potential for errors. Taking into account all the scenarios is challenging, so involve key internal personnel whenever possible and utilize external resources to supplement your internal Team when necessary.

Once your plan of action is defined, it must be documented and effectively communicated to all employees. Training is an essential step to promoting inventory control, quality assurance, enhanced productivity, improved safety and reducing overall inventory carrying costs.

Documented studies clearly emphasize that employee training results in better procedure execution, reduced stress, and a clearer understanding of the corporate vision. Proper identification of products and their respective storage locations will dramatically decrease the labor time required to find items, pick orders and perform put-away functions.

Another simple way to improve Inventory Management is to maintain good housekeeping. A clean work environment will reduce “touch labor”, allow quick access to the desired SKU and will increase productivity. The elimination of “reconnaissance missions” (looking for the desired product that is somewhere?? in the "wherehouse") will save valuable time, most likely overtime dollars, and improve Customer Service. Most importantly, aisles free of impediments and temporarily stored product will allow unobstructed access to your inventory. It’s similar to how your car always runs better after it’s washed, but good housekeeping always increases the amount of space in your warehouse.

An effective Inventory Management System starts with an efficient storage system; one designed to support order fulfillment and Customer requirements. It is also important to remember the correlation of Inventory Management to your Supply Chain initiatives and the overall impact on your business objectives relative to Sales & Marketing.

Start with the basics and have a plan to work yourself up to real-time inventory transaction reporting. Accurate Inventory Management requires effort, time, discipline and attention to detail, but the Payback can be huge!

Note - I wrote this as a White Paper for a client a few years ago and it still holds true.


Thanks to Bill of Bac2Profit for Parts I & II on this topic. Check out his blog at: bac2profit.blogspot.com and OED's Community at http://www.oedmembers.org/ for more operational tips and insights.