If you want to see a business owner cringe, ask him about his inventory. He will begin talking in a language few souls on the planet understand, using industry terms like “inventory turns,” “FIFO,” “LIFO” and “cycle counting.” If you are still standing there by the time he gets to “COGS” (cost of goods sold), I admire your resolve.
Being in the business of helping organizations create better processes to control their inventory, it was ironic that an insurance adjuster told me I would have to perform an inventory of my personal assets after a fire destroyed my home in 2004.
“You know, the number of televisions, DVD players, computers, stereo equipment, etcetera, that you owned,” the adjuster said as we were walking through what was left of our home (which fortunately didn’t burn to the ground).
At first I thought this would be a piece of cake, since my wife and I are minimalists. After all, we only had two televisions, two DVD players, two computers, a sofa and love seat, etc.
But the adjuster went on to say that he needed a list of everything, because it’s the information on that list that the insurance company uses to generate my reimbursement check. He said they would need all the makes, models and serial numbers of the items; any photographs of my assets; any receipts we had; and the purchase date of each item as well.
After the magnitude of what he was asking sank in, I started to panic. My wife (who was then seven months pregnant) and I began to frantically go through what was left, trying to piece together a list of our assets.
It then began to dawn on me just how complicated taking inventory after a fire actually is – and what this means for businesses.
Think about a business that does $100 million in sales revenue. The value of its inventory will range between 6% and 20% of its top line sales. In other words, the business has between $6 million and $20 million worth of inventory in its warehouse at any given time. That’s a lot to lose in one fell swoop!
That same principle more or less applies to private homes. If you live in a home with a real value of about $500,000, chances are the things in your home (including everything in the garage, attic, basement, front and back yard, etc.) will be valued somewhere in the range of $250,000 and $350,000. That’s a lot of stuff to try and remember in the event you didn’t take inventory.
Most people only think about the “easy-to-remember assets” – things like the refrigerator, stove, sofa, dining room furniture, bedroom furniture, etc. But there can be a lot of “oh yeah, I didn’t think about that” assets, such as ceiling fans, pots and pans, silverware, clothing, toys, tools, lawn furniture – the list goes on.
As my wife and I listed out all the items we had lost, I thought about all the times I said I was going to inventory everything we owned, but never got around to actually doing it.
I also thought about the people affected by Hurricane Katrina. I felt really sorry for all of those people, knowing that less than 20% of homeowners have an accurate inventory of their assets.
I also thought about the fact that approximately 40% of all small to medium-sized businesses never reopen after a catastrophic event.
Would your organization be able to produce a list of its assets? The sellable inventory probably — but what about the number of desks, chairs, computers, fax machines, paintings, cubicles, filing cabinets, telephones, calculators, cash registers, bookshelves, racks, forklifts and pallet jacks?
It is difficult enough for organizations to document their assets during mergers and acquisitions, let alone documenting them after a fire. Remember that the “burden of proof” is on you, the policyholder, not your insurance provider.
What’s more alarming is that natural disasters have been on the rise as of late: In 2000-2005 there were as many major storms in the U.S. as there were in all of the 1990s. Seven of the ten most expensive hurricanes in U.S. history occurred in the 14 months from August 2004 to October 2005. And now we have the threat of terrorism on top of the increasing number natural disasters.
Remember that it is in your best interest as a business owner to keep accurate inventory of everything you own. Don’t pay on an insurance policy year after year only to not receive all that is owed to you!
Back to my house fire: It has taken us more than two years to receive our final payment, which was only 55% of the total value of everything we owned. Believe me, when you are forced to create an inventory from memory, you’ll wish you had taken the extra time to cover your assets.
Rene Jones is the founder of Total Logistics Solutions, a warehouse consulting organization headquartered in Burbank, CA.
As a distribution professional, you have several key performance indicators you are always aware of. The operations and fulfillment field includes many KPIs–quantifiable measurements that reflect the success factors of an organization.
But which warehouse KPIs are in your “Fav Five?” Here are mine, in descending order.
- Returns processed
By this I mean returns processed as a result of incorrect product being shipped, or that the warehouse made a mistake. If you do not accurately track this metric, how do you know the effectiveness of your warehouse staff? You don’t!
- Inventory movement
When was the last time you took a long, hard look at where your product is located within your warehouse? Most organizations don’t do this regularly—and they should. Did you know that 20% of your product is picked for 80% of your orders? And 55% of your pickers’ and receivers’ time is spent traveling to and from your locations? That’s why this metric is on my list.
Contact us to read our full fav-five
At a time when many wholesale distributors are cutting costs, instituting layoffs, freezing wages and just not spending any money, Bardon Supplies Ltd. decided that if it is to survive the current economic downturn it must focus on two key areas in its supply chain: its customers and its warehouse.
To talk about investing in your warehouse during times like these, many distributors will tell you that’s crazy. But, after being purchased by Group Deschenes, Barry Raycroft the vice president and general manager of Bardon Supplies picked up where his now retired father, Don Raycroft, left off. Don founded Bardon in 1969 in Belleville, Ontario, with a small building and a desire to provide the industry what it desperately needed, “Unmatched Customer Service.” Forty years later with his son Barry Raycroft at the helm, his motto and vision are similar to that of his father. Therefore, it was not out of character to address the one area that has such a dramatic impact on service levels and customer satisfaction, “The Warehouse!”
Bardon commissioned Total Logistics Solutions Inc. (TLS) to assist with the implementation of an industry leading Warehouse Management System (WMS) in their Barrie location. Rene’ Jones, founder of TLS, was already familiar with Bardon. He was the project manager during two previous WMS implementations at the company’s Belleville and Kingston locations.
The Barrie branch which is approximately 30,000 square feet has 13 warehouse employees and five delivery drivers. According to Wayne Buck, the branch manager in Barrie, “It was not a question of whether we were meeting our customers’ needs, it was a question of could we meet them more efficiently while simultaneously reducing our warehouse operating costs?” The implementation of the system was completed in February 2009 with a wall-to-wall Physical Inventory. “We have always taken our annual physical inventory seriously, but this was one of the most in-depth inventories I have ever been involved with.” said, Mike Brymer, the warehouse’s inventory control specialist.
The day after the Saturday inventory was completed, the warehouse began receiving, picking, packing and loading orders with the new system. There were the usual reservations from customers and employees, but the implementation went flawlessly. Customers at the Will Call counter immediately began asking, “How would their order get picked without a Pick Ticket?” The warehouse now uses RF (Radio Frequency) devices to process all transactions.
As product arrives on the dock, an ASN (Advance Shipment Notification) is generated, which selects the most appropriate locations for the product prior to it being touched by the receiving department. “It is great!” said Warren Symes, the lead receiver. He went on to say, “I am amazed at the accuracy, it has virtually eliminated receiving errors especially with serial numbered product. Before we had to read the tiny numbers on the packing slip and then verify those numbers to the number on the box. Now we just scan the product and the system knows if that is the serial number it was expecting. If it is not, we cannot proceed.”
The picking process has been streamlined as well. The order pickers no longer pick an order from start to finish. The orders are now broken down into smaller more efficient chunks based on the type of product to be picked. In other words, an order with fittings, a heating coil and pipe can be picked by three different people simultaneously and merged during the loading process.
You no longer see pickers walking up and down aisles looking for lost product either. The system now directs the pickers where to pick an item from, based on a predetermined picking sequence. Should they choose not to pick the item from the system suggested location, because say the product was damaged, it forces the picker to enter a traceable “Reason Code” why they are not following the directive? Upon the completion of entering a “Reason Code” it then displays additional locations where the product is stored.
But the best part of the system is the Command Center functionality. Before if a customer wanted to make a change to an order that was already printed, the warehouse supervisor would have to find every picker to see who had that customer’s order. “It was a nightmare with order changes,” said James Walsh, the new command center specialist. “Now Gary, our supervisor, simply comes to me and I can tell him who is picking the order, which line of the order they are on, and we can even delete items off of the order without the picker ever knowing the deleted item was there. It is much more efficient!” The Command Center also has the ability to monitor orders, review the receiving process and keep track of the daily workload to change resources depending on the time of day and the amount of transactions to be processed.
The overall goal was to be more efficient, reduce the branches operating costs and provide an unmatched level of service to Bardon’s customers. With the implementation of the system and warehouse layout changes instituted by Total Logistics Solutions, the Barrie branch has achieved the following:
- Less than two errors per 450 orders shipped.
- Inventory Accuracy, which is normally in the mid 80s with most distributors, is now in the high 90s with Bardon Supplies and improving.
- Receiving errors have dropped by 80% and continuing to fall as the receivers become more comfortable with the system.
- The same amount of work is being processed with two less people. They were not laid off, but merely transitioned into other areas of the business.
- Returns, because of shipment errors, have decreased by over 90%. Which is a major improvement considering most distributors have between 3% to 8% of their outbound orders returned.
“Most distribution organizations have forgotten how vital their warehouse operation is to their overall success or failure in good and bad times. Less than 30% of warehouses are efficient, 65% of the cost associated with distribution is directly related to labor and inventory values range between 6% to 20% of the organization’s annual revenue,” said Rene’ Jones. He went on to say, “Many distributors find themselves in a crunch, not because of the economy. But because they often fall short of their customers’ expectations and are not able to deliver (1) What the customer wants, (2) When they want it and (3) At a competitive price.”
Bardon Supplies Limited is a division of Groupe Deschenes Inc., a privately held, family managed corporation. Bardon Supplies was established in Belleville in 1969. Groupe Deschenes acquired the Company in June of 2005, bringing the total number of branch locations in the network to sixty-nine in Ontario and Quebec. Visit the company’s Web site at www.bardonsupplies.com.
Total Logistics Solutions, Inc. is a privately held Supply Chain and Logistics consulting organization. TLS was established in 1997 in Burbank, CA. TLS is focuses on improving the warehouse operations of manufacturers and distributors. Their customers include: Home Depot, Lowes, Your”other”Warehouse, Ryan Herco Products, Builders Plumbing Supplies, Kitchen Distributors of America, Westburne and many others. Email us at email@example.com to see how we could improve your warehouse.
COVID-19 infections filling up hospitals, gas is up over $4.50 a gallon, Inflation running rampant, transportation costs are going through the roof, your employees are struggling to keep their homes and your customers are scrutinizing every cost on their invoices. I think it is safe to assume our economy is in trouble. This means your supply chain, which you have been neglecting, is crucial to your organizations success or its imminent failure. It is even more basic than that, “Your warehouse is about to make you or break you!”
I am not an economist but the signs look bleak for those organizations that have not addressed the issues related to the distribution of their product. In other words, “Their Warehouse Operations!” Your inability to provide the customer: what they want, when they want it, on a consistent basis, and at a reasonable price will affect the livelihood of your organization during a down cycle. And it becomes impossible to grow!
Woseley announced plans to close 75 locations and said their profit was down by 23%. Many other distributors are feeling the crunch and will ultimately begin “Right-Sizing”. “These are tough times” one CEO said, and I was told by a warehouse supervisor, “It doesn’t take a PHD to chop-heads”.
It’s time to admit you have an, “Ugly Baby!” Or, in distribution terminology, “Admit your warehouse is in shambles!”.
Email firstname.lastname@example.org with your biggest disruption problem and he will email you our guide to giving the ugly baby a makeover.