Reduce Warehouse Inventory Errors
If you’re in the warehouse industry, you’re probably already aware that your business is vulnerable to a host of threats, especially if you process overseas shipments of goods. If, like many, your warehouse conducts business on a global basis, your facility can be threatened by economic instability, rising oil prices, political unrest, natural disasters, and mass protests, just to name a few risk factors.
While it is true that the success or failure of your business is at least partially dependent on factors that are out of your control, your warehouse’s success or failure is also reliant on things you have direct control over. One of the things you can control is the number of mistakes that are made within your walls.
When you consider the scope of the warehouse industry, it’s easy to understand how figuring out methods to prevent receiving errors and reduce manual picking errors can help save your business a significant amount of money. According to IBISWorld’s warehouse clubs and supercenters market research report released in May 2016, this niche of the warehouse industry generated $454 billion in annual revenue, and it experienced a growth rate of 1.8 percent between 2011 and 2016. This market segment includes 24 players, and it employs approximately 1,603,494 people. Just the top four companies in this niche account for 92.1 percent of market share.
If you think about the number of orders needed to generate billions of dollars in revenue and the number of people who are involved with processing them, it’s not difficult to imagine how susceptible the supply chain is to human error. In 2012, Amazon sold 26.5 million items on its peak day during the holiday season, which means the company received orders for 306 items per second. In the same year, ForeSee surveyed over 24,000 consumers between Thanksgiving and Christmas about the level of satisfaction they had with the leading 100 retailers. Amazon received a score of 88, which was the best mark any retailer had ever earned up until that point.
During the 2012 holiday season, Amazon reported that its customers purchased enough televisions to cover the field in every NFL stadium. Consumers also bought enough replicas of the leg lamp made famous by the movie A Christmas Story to reach the top of Mt. Everest if they were stacked on one another. Amazon also said that consumers purchased so many sports teams garden gnomes, the total would fill every seat in Madison Square Garden. Amazon’s third-party sellers sold so many HDMI cables over the holidays in 2012 that they could be used to make three round-trips to the International Space Station.
While Amazon shoppers were clearly interested in a wide range of products in 2012, it wouldn’t have mattered what they wanted if the company wasn’t able to fulfill their orders quickly and accurately. If you assume that Amazon successfully fulfilled 99 percent of the orders it received per second on its peak day, it means the company sent out 3.06 incorrect orders for every second it took product orders. With a minute having sixty seconds, this means the company would have shipped 183.6 inaccurate orders for every minute that it received orders on its busiest day of the 2012 holiday season. This equates to more than 11,000 wrong orders shipped per hour that Amazon received orders from consumers.
Common Warehouse Errors
When you look at the things that contribute to the expense of warehouse mistakes, it’s easy to see how quickly the costs of just one packing or shipping error add up. First, you have to pay the employees who processed the order. You also have to pay shipping and, depending on your return policy, return shipping charges. You pay to have returned items processed and restocked on your shelves as well. Then there’s the cost that might be impossible to calculate, an unhappy customer who may refuse to shop with you again or tell all of their friends about the negative experience the individual had with your company.
Too often, management is quick to blame employees for warehouse mistakes, even though 85 percent of quality issues are actually attributable to processes and materials. While pointing the finger at your warehouse operators is certainly the easy thing to do, it prevents you from discovering the real reasons for the mistakes. Just as importantly, it creates an atmosphere of fear and mistrust for both you and your employees.
Although human errors made by pickers, shippers and receivers are directly responsible for a considerable amount of shipping and receiving mistakes in a given warehouse, warehouses often make mistakes on a much broader scale. These errors can have a huge impact on the success of your facility because they affect your organization as a whole.
One of the most common errors warehouses make is to fail to incorporate technology in their day-to-day operations. This is especially true when it comes to smaller outfits. Since enterprise resource planning software (ERP) and warehouse management systems (WMS) became prominent in larger corporations a few decades ago, these systems have become more affordable and easier to implement. This had made them more accessible to businesses of all sizes, including small warehouses.
While you might be comfortable using paperwork and a simple spreadsheet or two to document the goods in your warehouse, manual inventory management systems are completely reliant on humans to track your products and enter the requisite information in a computer accurately and in a timely manner. This means your system is susceptible to human error at multiple points, including every time one of your employees interacts with a product in your inventory.
In addition to being vulnerable to mistakes, a paper inventory management system is inefficient, absorbing more of your employees’ time than a digitized system would and driving up your labor costs. You can increase your warehouse’s efficiency, reduce your labor costs and save money on the consumable items used to maintain your manual inventory management system by switching to a warehouse management system. Using a WMS provides another meaningful benefit — the reduction of receiving, shipping, picking and packing mistakes.
Additional errors you’ll often see in a warehouse include the following:
Not Using Technology to Its Full Potential
A WMS is capable of doing many things that help you run your warehouse more efficiently. For instance, it can track your individual products from the moment they’re received until their delivery to your clients, all in real-time. A WMS can also monitor the productivity and accuracy of your employees. You can even use a WMS to plan the routes your operators should follow as they pick products to fulfill orders.
Even though a WMS can do all of these things and much more, many businesses that have these systems don’t use them to their full potential. Instead of getting the most of their systems, some warehouses only use a few of the capabilities their WMS has. One underutilized capability that a WMS has is the ability to perform regular cycle counts of inventory. Performing regular cycle counts enables you to recognize discrepancies and patterns that may indicate there’s a problem with your inventory and helps you reduce incorrect inventory levels.
Doing regular cycle counts can also help you reduce or eliminate employee theft. When your employees know you do cycle counts often, this knowledge typically serves as a deterrent to theft. With employee theft responsible for approximately 44 percent of inventory shrinkage, doing everything you can to prevent your employees from stealing can add to your bottom line.
In 2011, the National Retail Security Survey suggested that retail outlets lost $34.5 billion worth of their combined inventory due to employee theft, consumer shoplifting, clerical mistakes and vendor fraud. This figure is the equivalent of around 1.4 percent of the retail sales recorded in 2011. If you use your WMS to its full potential, you can reduce stealing, administrative errors and supplier fraud.
Storing Too Much Inventory
One effective way to prevent warehouse tracking errors is to reduce the size of your inventory in terms of the number of individual products you carry and the volume of each item you have on hand. Wholesalers are especially vulnerable to storing too much inventory because they often buy large quantities of an item at once to benefit from bulk quantity discounts.
By reducing the size of your inventory, it will be easier for your employees to find the products they need and fulfill orders faster. Holding less inventory will also free up space you can use for other activities such as receiving and shipping. Many warehouses don’t allocate enough space for their receiving activities, which reduces the processing speed of deliveries. If you store less inventory, you can expand your receiving area, which can help deliveries to be processed more efficiently. Reducing your inventory will also free up some cash you can use for other purposes, such as purchasing a WMS.
If a bulk deal is simply too good to turn down, talk to your supplier about breaking up the delivery into smaller shipments delivered on as needed. A WMS can send you an alert when your inventory of a certain item falls to a pre-determined level, so you’ll know when to order more of that product. A WMS can also generate a purchase order for you so that you won’t have to prepare one manually. This capability makes it less likely that a mistake will be made and decreases the chances that you’ll run out of products when you need them the most.
Planning Picking Paths Poorly
If you’re wondering how to reduce warehouse errors and where you can start, you can begin by analyzing the paths your workers take to fulfill orders. Poorly planned picking paths extend your supply chain timeline, increase your labor costs and decrease employee productivity unnecessarily.
A WMS can help you plan efficient picking routes, which will enable your employees to complete orders faster. If your employees are able to fulfill orders quicker, they can get more done in a single shift, which will make your business more productive overall.
Keeping a Disorganized or Messy Warehouse
If your facility is messy, disorganized or both, it can negatively influence your staff’s productivity levels in addition to jeopardizing their safety. When workers leave debris in the aisles of your warehouse, it can prevent them from following their prescribed picking paths because it’s in the way. You can prevent clutter from impacting your team’s efficiency by dedicating a certain amount of time to cleaning at the end of every shift.
By performing housekeeping at the end of each shift, you’re setting the following shift up for success, because they won’t have to begin their workday by cleaning up after your other employees. Cleaning at the close of every shift can help build a sense of comradery between your employees even if they work at different times because leaving a tidy workspace for others shows you respect the work they do and the space they do it in.
Not having the items in your inventory organized can also be a big drain on your budget. Similar to a disheveled warehouse, a disorganized warehouse can drive up your labor costs, because your employees won’t know where to find the items they need to complete orders in a timely manner. You can start organizing your facility by using your WMS to identify your fastest moving items and relocate closer to your shipping area. In general, it’s wise to keep your best-selling items at waist height so your staff members won’t have to bend or strain to get the things they need most often. This will reduce the amount of time and physical toll it takes for your staff members to put orders of your fastest moving items together.
You can establish a single location for each stock item in your inventory and limit the number of times you vary from your map of products, too. Making too many exceptions to your product floorplan will lead to confusion about the location of items that aren’t where your employees expect to find them. You should also label every product in your inventory with a SKU or UPC as well as a readable name when they’re received. In addition, you can label the aisles in your warehouse so that they’re easier to navigate. For items stored in bins, you should label the bin with the SKU of the items it contains as well as a picture of the product itself.
How Do You Prevent Inventory Problems?
Before you consider fixing problems, you must act to prevent future inventory issues. When you make prevention a priority, you reduce the need to recover from existing errors. You have numerous options available to help reduce the chances of inventory issues appearing.
1. Use Warehouse Management Software Appropriately
Lowering the potential for human mistakes can help fix some inventory problems. Integrating WMS into your operations reduces the chance that workers could grab the wrong products. Use the software to direct your workers on the most efficient paths to picking products. When employees scan barcodes on products, they will be less likely to choose the wrong containers or waste time finding the right boxes.
To ensure this system works, you need to have your warehouse organized and your products properly labeled with the correct barcodes. Having workers scan products prevents them from misreading the labels, but they will only get the correct goods if the containers have the right labels.
2. Streamline Inventory Ordering
Do you know when to reorder inventory? If you do not have a specific plan for reordering, you could waste money on buying products that you won’t sell or losing sales on orders you cannot fulfill.
Assign minimum and maximum numbers for all the products in your warehouse. The exact values will differ between products based on how well each one sells. If you have various sizes, you will need to have minimum and maximum values for each size, too, because some sizes will sell faster than others.
Minimum numbers refer to the lowest amount you can have in your inventory to make the sales you need before new products come from your supplier. The maximum amount is to how much your warehouse can safely hold of a product without wasting space or money on excessive inventory.
3. Put Inventory Specialists in Charge
Either hire or train workers specifically to take charge of your inventory system. Make sure they know how to use all functions of the WMS to get the most from the technology. Your inventory managers need to use the software to control what goes in and out of your facility. They should also use the WMS for verifying the numbers from manual counts.
Inventory specialists should use part of their time to request frequent counts of sections of the inventory rather than spending a week at the end of the year for the task. Doing smaller checks of stock from a single area of your facility daily can catch problems faster than a once-a-year count. Regular counts will also keep your warehouse from needing to close for a week or longer to count everything in the facility.
4. Reduce Human Errors
Human errors can cause serious issues. When you have workers handling inventory, make their tasks as simple as possible. If you can, assign workers to specific jobs that have a handful of requirements instead of asking them to multitask, which increases the chances they will make mistakes along the way.
To help workers with their tasks in the warehouse, give them barcode readers or other scanners to ensure they pull the right containers. Clearly label paths in the warehouse so all workers know exactly where to go. Also, use WMS to help plan out picking routes to reduce the number of steps workers need to take when getting products.
How Do You Reduce Warehouse Inventory Errors?
Fixing inventory problems will help you to avoid issues such as shipping errors. Human mistakes may contribute significantly to your inventory issues.
1. Identify Your Facility’s Worst Problems
Not all warehouses have the same inventory issues. For example, your facility may not have an excess of inventory while another company’s warehouse does. Common issues faced by warehouse managers with their stocks include:
- Excessive products of specific types or sizes
- Suppliers failing to meet delivery deadlines
- Inability to use WMS fully and appropriately
- Inaccurate inventory count
When you know the problems your facility faces, you can take measures to remediate them.
2. Use Inventory Appropriately
Inventory ordering errors lead to serious issues with not having enough or stockpiling too much. Instead of guessing how much to order, use proven methods that work well for small businesses — par levels, first-in/first-out (FIFO) and building relationships. These methods help you to most effectively use your inventory without allowing products to go unsold.
Par levels refer to the minimum number of products you need. This number relates to how quickly a particular product sells and how long you need to get it back in stock. Keeping your inventory above the par level ensures that you have enough to fill orders.
With FIFO, inventory items that enter your warehouse first should go out sooner than the newest goods. If you have anything perishable or time-sensitive, this system prevents products from going to waste from being on the shelves too long.
Building relationships with your suppliers helps you to speed up movement along your supply chain. The better the connections you have with suppliers, the more likely you can shorten the time between ordering and getting products from them.
3. Reduce Inventory Wisely
You already know that having an excess of inventory poses a problem for workers pulling products and storage space. However, throwing away the unused products wastes money, too. You need to find a smarter way to reduce your excesses.
Sending the excess to training departments or research could help you to use up small amounts of products. If you have another use for the stock within your company or at a sister facility, send it there.
Even if the extra inventory does not sell for its full price, you can still recover some of your investment in it. Discount the products when selling them to get a small return on your investment. If customers request substitutions, you could also send some of the extra stock to them. Another way to use the stock is as an incentive for customers. For example, offer some of the excess inventory as a reduced-price add-on or gift with orders over a certain amount. You promote additional sales while clearing out your warehouse.
Lastly, you could take apart the stock and reuse its components or send it to scrap. These last two options should be your final resorts because your business does not financially benefit from them.
How FDM4 Can Help
At FDM4, we’ve been providing end-to-end software solutions for businesses since 1978, including ERP and WMS implementations. Our team is a “Total Solution Provider,” which means we provide everything you need for the implementation of your WMS to be a success over the short- and long-terms. More specifically, we provide:
- Application software
- Database products
- Operational review and analysis
- Project plans
- Sales and support
- Ongoing support
Another component that’s vital to the success of your WMS implementation is training. We will teach you and your employees how to operate your system so that you can realize its full potential as well as the full potential of your warehouse.
No matter how specialized your niche market is, we have the experience and expertise to customize a software solution for you that has the ability to set your business apart from its competitors. We have an extended history of helping businesses grow and we can help you expand your current operation and reduce your warehouse errors. Contact FDM4 to learn more today.