Is daily inventory tracking possible?
If you study business best practices, you know that your inventory is the lifeblood of your enterprise. If you have nothing in stock, you have nothing to sell, and one of the major consequences of poor inventory management is stockouts.
When customers can’t find what they need, they don’t wait for a store to restock its shelves. They go to another store. As Harvard Business Review put it, stockouts cause walkouts.
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Of course, it’s impossible to do a physical count every single day. This is especially true if you’re managing a massive warehouse or distribution center. Over the past decade, the average warehouse size has increased by 143%. Between 2012 and 2017, the average size of newly built warehouses was 184,693 square feet, while the average height was 32.3 feet.
Additionally, the warehouse customer base has changed. Traditionally, warehouses served B2B customers who ordered in bulk on a predictable schedule. As a result, warehouse organization was a straightforward process. Today, the growth of ecommerce has forced warehouses to evolve into distribution centers that can support the B2C models and increasingly, DTC business models.
If inventory management is how you avoid stockouts, but the pace at which inventory moves has accelerated, how are warehouses supposed to keep up?
Adopting the traditional approach for daily inventory counts is impossible. Typically, operations halt for a day or two while an army of workers tackle the warehouse in sections. In some cases, employers offer overtime for employees to stay after hours or come in on a weekend to minimize disruption to the business’s operations.
Fortunately, inventory management software has kept pace with changing consumer trends. Today, integrated systems allow enterprises to access real-time information about their inventory. Of course, this doesn’t mean that companies can simply outsource the entire inventory management process to a piece of software. A software’s data analysis capabilities are only as useful as the data it receives.
Technology is essential for obtaining daily inventory counts, but periodic human checks are important for protecting the integrity of your data.
Here’s how to organize your inventory management operations to ensure the best possible results.
Managing Physical Inventory Counts and Daily Inventory Tracking
Given the hassle of physical counts, it’s not surprising that some business owners question the usefulness of this annual chore. But if not an annual count, what’s the alternative?
Well, businesses have started questioning annual inventory counts thanks to something called cycle counting.
What Is Cycle Counting?
Cycle counting is an inventory auditing method. Workers count a small subset of inventory on specific dates. Naturally, this disrupts operations less than a full-scale physical count.
The logic is simple: A year is a long time to wait to identify an inventory issue. Cycle counts allow you to check your inventory more frequently and therefore identify issues sooner. All of this without the disruption of a full-scale count.
But how do you determine which sections to tackle?
There are three main types of cycle counting:
- ABC analysis cycle counting
- Process control cycle counting
- Opportunity-based cycle counting
ABC analysis is the most popular approach to cycle counting. An ABC analysis categorizes warehouse goods into ‘A’ items, ‘B’ items, and ‘C’ items. How businesses determine different categories for different SKUs varies. One popular approach is Pareto principle-based ABC analysis.
According to the Pareto principle, 80% of outcomes are due to 20% of causes. In a warehouse environment, this translates to “80% of profits are due to 20% of products”.
To complete the ABC classification, a warehouse worker runs a statistical analysis to determine which goods generate the most revenue. ‘A’ items - top revenue generated items - would be prioritized, followed by ‘B’ items, which would be followed by ‘C’ items.
Another approach to the ABC classification is looking at the most frequently moved items. The logic is that since these items are handled the most, they’re the most likely to be miscounted, damaged, lost, or stolen, therefore justifying a more frequent cycle count.
For warehouse managers comfortable with statistical analysis, a hybrid ABC method is an interesting option as well. This approach combines the best of both worlds. Goods are categorized as ‘A’, ‘B’, or ‘C’ items based on how frequently they move and how much revenue they generate.
Is Cycle Counting Really A Replacement For Full-Scale Physical Counts?
Cycle counting isn’t a replacement for full-scale physical counts. Physical counts provide the business with an accurate number of its inventory at the end of the fiscal year.
But cycle counts are very valuable. In fact, experts recommend you conduct both an annual physical count and frequent cycle counts.
What Strategies Can My Warehouse Apply to Its Daily Inventory Tracking Efforts?
Using Cycle Counting To Support Daily Inventory Tracking
If your goal is daily inventory tracking, cycle counting is a possible strategy. But how often do people conduct cycle counts normally?
The standard practice is one cycle count a month. Each month’s cycle count tackles a different category. The goal is to hit every targeted category by the end of the year.
But there is an opportunity to conduct “mini” cycle counts on segments of your warehouse that are critical to your business and your customers. These mini cycle counts can be conducted daily.
Mini cycle counts should occur on a schedule that only management knows in order to combat internal theft. If there are any dishonest individuals among your staff, it’s easy for them to work around a widely-published schedule. While larger inventory counts require advance notice for things like overtime or weekend scheduling, smaller inventory counts don’t.
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Invest In Inventory Management Software For Daily Inventory Tracking
Commerce is not as straightforward as it used to be. According to the Wall Street Journal, retailers have been actively revamping their supply chain’s back office systems to offer customers a seamless experience, whether they order online or in store. All of this work is an effort to deliver an omnichannel retail experience to customers.
An omnichannel experience is markedly different from a multichannel retail experience, and consumers can spot the difference.
A multichannel retail experience gives customers the option of shopping from several channels: in-store, online, or via a native mobile app. But while the brand is the same for all of these channels, the back office systems are different, requiring customers to create different customer profiles, re-key data they already provided on the site, or figure out which catalog’s inventory count to trust. Are there 3 bags in stock? Are no bags in stock?
On the other hand, an omnichannel experience offers multiple entry points, but delivers a seamless back office experience. The brand is unified in both form and function.
A unified back office system isn’t just beneficial to customers. It’s beneficial to supply chain managers as well. Supply chain managers and retailers have a single source of truth. They will also have flexibility in terms of order fulfillment.
If a customer orders a product online, the product can be shipped from either the store or the warehouse - whichever happens to be closer. And since the back office system is integrated, the inventory numbers are updated.
Powering this capability is an inventory management system. It goes without saying that comparing your inventory count against your sales across all channels and against your returns or damages would be a cumbersome daily task.
This is where a smart inventory management system software comes into play. A sophisticated inventory management system is connected to all of the following channels to update your inventory count in real time:
- Receiving dock of your warehouse (via barcode or RFID tags)
- Point of sale systems in your physical stores
- Ecommerce point of sale systems
- Reverse logistics system (via barcode or RFID tag)
The system captures all of this information and updates your inventory count to facilitate your daily inventory tracking.
Are Real-Time Inventory Management Systems a Replacement For Cycle Counts And Physical Counts?
Physical counts and cycle counts are still important, even when you’ve got a great inventory management system for your daily inventory tracking.
While an inventory management system helps you centralize your data, it isn’t immune to human error. Your cycle counts and physical counts allow you to identify any trouble areas. For instance, are items being entered into the system incorrectly? Manual check-ins can help you assess the accuracy of your system.
Why Is Daily Inventory Tracking Important?
Inventory management is such a tricky task to get right that many warehouse managers tend to adopt a “good enough” approach.
No. Not good enough.
If you’ve got too little inventory, you’ll erode customer trust through stockouts. If customers can’t rely on you to have what they need, they won’t bother to stop by.
On the other end of the spectrum, if you’ve got too much inventory, you’ll wind up with excess inventory and eat into your operational costs by paying too much in carrying costs.
Which brings us to an interesting question: What’s the problem with having too much inventory?
The Danger of Excess Inventory
Excess inventory may sound like a harmless problem. What’s the big deal, right? If you’ve got excess inventory, you’ve got extra for your customers when you run out. You’ll even save a bit of the time spent putting in a new order.
This couldn’t be further from the truth.
Excess inventory brings its own host of expenses known as carrying costs. The carrying cost is everything you spend on storing, securing, and managing goods. When you’ve got extra inventory (also known as inventory that isn’t selling that quickly) you’re taking on the following expenses:
- Rent and heating: As ecommerce grows, warehouse availability only grows scarcer. In other words: the space you’re using is extremely valuable and costs money in rent, heating, and lighting. It’s also taking up space that could be used for other inventory.
- Labor costs: It costs money to count, handle, and secure that inventory. The more inventory you have, the more man hours are spent taking care of it, contributing to already pricey warehouse labor costs.
- Insurance: Your inventory plays an important role in your business’s viability. No inventory, no sales, no revenue. To protect yourself, you’ve got to insure it, but the more inventory you hold, the more money you’re spending on insurance premiums.
Damage, theft, loss, spoilage, and obsolescence are other factors that make excessive inventory unattractive. The longer your inventory sits around in your warehouse, the more time it has to be damaged during handling, stolen by an employee, or simply lost or misplaced in the hustle and bustle of warehouse life. There’s also a higher chance of spoilage (e.g. food products or pharmaceutical products) and obsolescence (e.g. consumer electronics).
Daily inventory tracking also allows you to increase your warehouse’s efficiency by:
- Calculating stockout rates: With segmented data, forecasting using a safety stock formula is easier.
- Optimizing the layout of your warehouse: Fast-moving items can be located in the most easily accessible part of the warehouse, contributing to a smarter warehouse layout.
- Optimizing your picking path and putaway processes: Fast-moving items can be located closer to the docking area, cutting down on the pick path and putaway path of your workers, thereby using labor more efficiently.
What Inventory Accuracy Rate Am I Aiming For?
Here’s the thing: The goal is 100% inventory accuracy.
But since you can’t always be perfect, the standard wisdom is that you should always be floating between 99% and 100%. You read that right. Improvements should be in decimal points.
If that sounds extreme, it should. How you manage your inventory affects both your operational costs and your revenue. It’s an extremely important part of your business where aiming for perfection is expected.
Daily Inventory Tracking Is Possible With The Right Commitment
While daily inventory tracking may sound like an enormous undertaking, it will contribute positively to the health of your business. By committing to a combination of physical counts, cycle counts, and sophisticated inventory management software, your warehouse can shoot for an inventory accuracy rate between 99% and 100%.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.