17 October 2021 The inaccuracy of inventory affects the financial health of your business. The lack of confidence in the accuracy of your stock is responsible for the loss of several orders. Every year companies record significant financial losses due to internal or external theft, breakages and damages, operational errors, and expired product validity. If these losses are not controlled, there is no way to ensure that the stock is correct, and moreover, if the stock information is unreliable, the company will likely be constantly at risk of stockouts (lack of products in stock) or investing more capital than necessary by overstocking merchandise (remaining in stock). Another loss, sometimes imperceptible or not calculated, and which is also caused by differences in stock information (in this case, the warehouse location), is the increase in operational costs, as the stock is not correctly directed by the system and the employee will take more time to find them. All these problems could be avoided if the company had an effective loss prevention strategy and a correct inventory policy. You might think: “I conduct inventory in my warehouse and still have many losses.” Perhaps you are making mistakes in executing the inventory process, in choosing the ideal time for inventory or the type of inventory best suited to your business, and also the lack of technology to support you throughout the process. In this article, you will learn about the advantages of inventory, understand when to do inventory and how to do inventory, discover the main types of inventory, the importance of defining an inventory policy, and know which technologies help in the process. Check out the topics below. But after all, what is inventory? Inventory is a process of sorting, identifying, and accounting for goods that are stored in a warehouse. It is a complete and up-to-date view of the stock, meaning which and how many products are in the warehouse, their value and current conditions, as well as their location. An inventory process has three main objectives: – Survey: counts which and how many items are part of a stock; – Listing: recording and verifying product characteristics, such as quantity/quality by type; – Evaluation: appreciation of the value of stored items, i.e., calculation of stored capital. By conducting inventory, the company is able to: – Verify if the accounting information of goods in and out matches reality (with what is physically stored); – Check if there have been losses with misplacement, damage, or loss of the product; – Ensure that the stock for sale is actually available; – Predict the right time for merchandise replacement; – Avoid the accumulation of stored products (sold out) and, when this occurs, develop marketing actions so that these products have an outlet; – Avoid tax audits by the Federal Revenue Service or any other inspection body due to discrepancies between accounting and physical inventory. In this way, the data collected from the inventory forms the basis for the manager to make correct and assertive decisions. Inventory = financial security We can say that inventory ensures the financial health of your business, as inventory is money. Each product stored in the warehouse has a cost linked not only to the sum paid to the supplier but also to the expenses for its storage and movement (space, labor, and equipment). In this sense, researching the perfect level of stocks and controlling the amount that enters and exits are fundamental actions for those who want business success. It is worth adding that conducting frequent inventories is a key factor to increase stock accuracy, as well as bringing other direct and indirect gains such as: » Optimization of the operational routine With all the stock correct (item, quantity, and location), your operation becomes more organized and agile, facilitating the performance of intralogistics processes and ensuring the intelligent use of warehouse resources (people, equipment, and area). » Greater synchronization between Logistics and Sales Ensuring the ideal level of stocks and sharing information with the Purchasing and Sales team increases the efficiency of your logistics operations. » Quick and decisive identification of products with a higher rate of divergence, breakages, and losses Conducting frequent counts in your warehouse allows you to quickly identify items with divergence and trace their causes, enabling timely decisions to correct them. » Greater security Conducting inventories ensures greater security for your warehouse, especially in the case of higher value-added items. With frequent counts, it is possible to quickly identify any victims and take measures to identify the deviation and increase security. » Raising the level of service to your customers When you conduct inventories, you avoid stockout events, as physical stocks and those available for sale will be synchronized. This has a direct impact on the quality of customer service, as you do not risk selling what you do not have. Remember: if the customer makes a purchase and has the order canceled due to lack of stock, they are likely to migrate to your competitor. And you certainly don’t want that to happen. When to do stock inventory? Before specifically addressing the types of inventory, let’s talk about a very common problem. Imagine a company that works with thousands of SKUs and has a large movement of products. If only one inventory is conducted per year, it will probably not be possible to identify what generated the detected divergence(s), only stock adjustment will be made. The small differences that occur in the routine of that warehouse end up accumulating if they are not notified and corrected in time. This is a reality in many companies that choose to conduct an annual count. However, this inventory strategy is usually more expensive, as it involves stopping the company to do the count, in addition to relying on employee overtime. And, in this case, when a loss is noticed, there is nothing else to do, if not adjust the stock available in the management system. That’s why the first and most important recommendation, when possible, is: conduct inventory frequently. If you constantly check your inventory, it is much easier to control losses/divergences, avoiding losses. Furthermore, by conducting frequent counts, your business does not have to stop selling. In other words, it is about incorporating conducting inventories into your routine. And with the help of technology, this can be less complicated than it seems. Regarding the frequency of stocks, it depends on each business and product sold. They can be daily, weekly, or monthly and vary based on product turnover or its value. However, if an event occurs with merchandise, whether in internal movements (storage/replacement) or outgoing, it is a sign that inventory must be conducted as soon as possible. Some situations that deserve monitoring through inventory are: » Products with a history of frequent losses; » Products with interruptions identified in order preparation or line replenishment; » Divergences found in previous inventories; » Targeted products – subject to theft; » Products identified as sold out or in excess. The important thing is to create an inventory control routine so you can properly manage your products and achieve the desired results. How to do stock inventory? Now that you know the importance of inventory and its frequent execution, it’s time to know all the steps to count efficiently. 1) Set a date and time to start counting It is important to have good planning, and this implies planning the activity. When defining when to conduct inventory, consider the quantity of products that will be checked and the average time spent on previous counts. In this way, you will have greater predictability on the duration of the activity, being able to choose the best time to conduct it. 2) Select the employees who will participate in the count and form teams with leaders As it is an extremely important task, choose committed employees who are attentive to details. It is also advisable to gather work teams and define their leaders, who will be responsible for coordinating the work, answering questions, and offering help when needed. When working with teams, management is distributed, which helps in communication and delegation of tasks. 3) Choose the tools that will be used Have technology as an ally in the inventory process. The use of WMS in combination with mobile devices makes a difference. In this case, it is essential to define, for example, the best system for your company (customizable according to your business needs) and which device to use (wireless data collector, computer with barcode reader, smartphone, tablet, etc.). Forget spreadsheets and documents, records initially made by hand by an employee and later entered by someone else are subject to errors. And the worst: in this type of work, it is very difficult to identify where the defects are. 4) Organize the storage area It is not possible to conduct an inventory with a disorganized warehouse. It is important that products are in identified positions, that roads and corridors are clear, and that areas are well signposted. If possible, leave barcodes visible to facilitate counting, define how pallets, boxes, and divided items will be counted, and determine if defective goods should be accounted for or directed to specific areas. 5) Determine the counting strategy Draft a script. Define if the counting will be sequential or parallel; if it will start from the bottom to the top on pallet racks or vice versa; if it will start from the center to the end of the roads or vice versa; the rules for recounting (who counts does not recount) and the maximum number of recounts; and how already counted areas will be marked. 6) Strategies for the best use of your resources If your warehouse has products allocated in higher positions, you need to define the best way to count these items: if an employee will use lifting means to count or if pallets will be placed on the floor for your conference. The first option may be faster and cheaper, considering that higher positions allocate closed pallets and therefore do not require detailed counting (item by item). However, it generates competition for the use of equipment. 7) Train employees and conduct tests It is important that the entire team is committed so that the inventory is conducted successfully. Hence the need to conduct training with the team that will participate in the counts and with the leaders who will support the groups. The employee must know what to do and, above all, what actions to take in the face of each type of situation that occurs in the inventory (shortage, excess, damage, etc.). The employee must know how to count each product, whether to count by package or unit (counting rules), and understand the type of barcode used in each identification (unit or box), among other details. In this case, having a WMS system can avoid headaches, as the software manages the counting and records everything that has already been verified, avoiding confusion and errors by employees. If you already have a WMS, make sure to train your employees well on how to use the system and test the software before starting the inventory. 8) Define how to monitor the inventory It is important to determine which indicators will be evaluated during and after the inventory. These metrics will provide you with important insights for decision-making, bug fixes, etc. The WMS system provides a series of unique KPIs for inventory, so it is essential to evaluate which metrics are offered before choosing the software most suitable for your business. 9) After planning, it’s time to conduct the activity Track the counting to ensure everything runs smoothly. If errors are made, stop, gather the teams, and try to find a solution. To not miss any information, rely on a WMS system and the Visual Management functionality, which allows you to monitor counting performance in real-time, being able to anticipate errors and make necessary adjustments. 10) Don’t forget to check the counting When the counting is finished, check that all previously defined positions and products have been effectively checked. If everything has been accounted for, it is time to evaluate the results. 11) Evaluate the results and take necessary measures to correct any errors Depending on your planning, once the inventory is completed, you will have little time to evaluate the results, as the company cannot stop, especially when it comes to retail or many SKU activities. And in such a case, it may not be possible to address all differences individually. Hence the importance of defining a strategy to verify the major discrepancies, which can be in absolute value or quantity. Given the complexity of this task, it would be nice to have technology on your side, after all, the data is already in the system, as well as the results of the last counts. In this case, the system can identify which divergences deserve your attention. Deagor has a specific solution for this moment. This system centralizes all data and performs the analysis with efficiency and agility, i.e., generates periodic counting orders, selects products with the highest probability of divergence, reports failures, and helps in interpreting the obtained data, allowing assertive decisions to be made and rapid correction of deviations. Even when recurring situations occur that are clearly generated by counting reversals, the system can automatically make decisions for you. Why does WMS ensure inventory efficiency? It can be difficult to manually conduct frequent audits, after all, an excellent level of work and information organization is required. But with a WMS system, the difficulties practically disappear, as one of its features is the conducting of inventories. With WMS, the counts occur while your store is selling and your warehouse is operating. When a WMS is used together with portable devices (such as RF collectors and smartphones), all products entering and exiting the DC are recorded, and during inventory management, the system cross-references this information with what was collected during the counting process. Therefore, in the event of a discrepancy, the system itself identifies and notifies the error. As a result, the accuracy and efficiency of the delivery process are significantly increased. Another advantage of the software is that it has a series of inventory models ideal for both routine quality inspections and monitoring warehouse movements. In this way, you can control everything that enters and exits the warehouse, ensuring greater security and recording correct, detailed, and updated data. Furthermore, by automatically generating inventory orders, the WMS avoids operational errors of your team as much as possible, allowing you to maintain your stock with the desired accuracy, regardless of the complexity and size of your business. The independence from the management system you use allows you to conduct audits more reliably, avoiding failures and errors in the operation, as well as data manipulation. How to choose the ideal WMS? A good WMS should offer you the following inventory features: 1. Automatic generation of inventory orders 2. Clustering of branches and products 3. Multiple inventory plans 4. Multiple types of inventory (geographical, product, sampling…) 5. Multi-checker with limitation of repeated counts 6. Tracking by controller, product, counting order, and address 7. Counting via radiofrequency devices and mobile phones 8. Analytical BI of all movements that occurred during the inventory 9. Real-time counting monitoring KPIs 10. Counting rules in accordance with the main company audits All the above-listed points should be considered when evaluating the WMS options available on the market, as these are the features that ensure the success of cyclical stocks. Types of inventory Learn more about the most common types of inventory: 1) General inventory Counting process that covers all stored items and is usually scheduled for periods close to book closure or on extraordinary occasions. As it involves counting all stored goods, the general inventory has a relatively long duration, often requiring the operation to be stopped for it to occur. In this case, a good counting strategy is to divide the warehouse into regions and count by addresses/sectors. 2) Cyclical inventory It aims to distribute counts throughout the year, at regular intervals (e.g., daily, monthly, bimonthly, semi-annually, etc.), focusing each count on a set of items. This type of inventory has a shorter duration and offers more conditions to analyze the causes of divergences/losses, as they are quickly identified, and therefore make the necessary changes. With this, there is a greater control of stock. The cycle counting can be generated from a previous parameterization in the WMS system. This type of inventory can be complete or sampling, with the possibility of reaching the product level, in its details. Furthermore, it is possible to include in the routine counts any exceptions that appear on the CD, such as the breakage of an item in picking or the lack of an item in replacement. There are some sub-modes of cycle counting, such as: » Sampling: the manager determines the percentage of products to be accounted for, thus managing to have a sample of the quality level at which the stock is, for example, a count of 20% of the products that were received or shipped on the last day. » By moved items: in this case, only the items that were moved during the period are inventoried. This form of counting is based on the precept that the merchandise that has been moved is more subject to failures (due to the people handling it), without the need to inventory the other stored items. » By quality: the counting focused on analyzing the quality of certain groups of products, evaluating, for example, their physical state, expiration date, environmental contamination (chemical or biological), among other important aspects. In this case, it is important to have a well-trained team to identify non-conformities. Within this process, the inventory is counted and corrected, removing all detected damages. » Geographical: in this case, an address range in the stock that must be accounted for is determined. The counting takes place in a specific region, inventorying only the products allocated in that position (mode: view of empty addresses, location, reservation – movements for segregation, region, roads/corridors, picking stations). » By product: counting of a predetermined group of products or single product in all areas of the warehouse. » By curve: this is a more elaborate type of inventory, very common among Deagor customers, where it is determined by the product turnover (ABC curve) how often the cycle is closed. For example, counting rules can be defined where products of curves A and B (very high turnover) are counted in monthly cycles, and rules where products B and C (medium and low turnover) are counted in quarterly cycles. In this configuration, every day there are N items, in the proportions of each curve, interspersing the two rules mentioned above. When determining the cycle counting plan, it is essential to consider that all inventory items are counted at least once a year. Generally, the determination of the frequency of counts and the number of cycles is carried out based on the ABC classification or the number of positions in the warehouse. The importance of implementing an inventory policy Companies that do not efficiently control their stocks certainly have more safety stocks than they really need or are constantly at risk of stockouts and subject to losses that they often do not even realize, in addition, of course, to having an operational cost higher than desired for the simple reason that the stock is not correctly directed by the system. Among the causes of the main financial losses are: » operational failures (36%) » external theft (20%) » inventory errors (13%) » internal theft (11%) » administrative errors (9%) » other (4%) » external third-party fraud (3%) » internal third-party fraud (3%) » product registration (2%) In addition to the losses mentioned above, the lack of control and poor stock accuracy in a logistics operation have a direct impact on productivity and warehouse cost. A warehouse where products are not in the expected place when required makes employees spend hours looking for them. Another equally harmful situation is when the quantity of logical stock is different from physical stock, which sometimes leads to an excess of stock of certain materials, implying an unnecessary increase in invested capital and storage area, and sometimes causes product breakage, reflecting customer loyalty. In this scenario, what we see are large companies increasingly investing resources to minimize their operational losses, reviewing processes, training and recycling personnel, developing ways to prevent thefts, improving security techniques, and other activities that involve great care with stored materials. However, industry experts are unanimous in stating that the most effective way to achieve a positive and lasting result is to implement stock counting routines (inventories). The greater the counting frequency, the greater the possibility of finding the root cause of stock disparities, losses, and movement and operation errors. Technologies involved in counting To achieve the expected result in conducting an inventory, it is important, as we highlighted above, to rely on the WMS system, which will generate counting orders and cross-check data to detect discrepancies. However, other resources and technological tools must be used, such as: » Barcode: the use of barcodes helps standardize processes, identify all items, and control their movements in and out. Being a standard model, it can be read by different types of equipment. Among the most used types in Italy are: – UPC-A, UPC-E, and EAN-13 (used in retail); – ITF-14 or DUN-14 (used by most retailers to identify logistic units, cartons, or groupings of standardized products / *cannot be used for individual products); – GS1-128 (the most used code in logistics, as it provides additional traceability information to the product code, such as batch number, expiration date, and production date). » RF data collectors: these devices ensure faster counting and increase reliability, as all products and addresses are automatically issued and recorded in the system. » High-precision bench scales: used to count parts that technically have homogeneous sizes and weights, such as screws, washers, small nuts, and more. » Computers and notebooks: important for tracking counting data, making changes, and including information. » Smartphones, tablets, and TVs (distributed throughout the warehouse): these devices allow real-time information monitoring (Sight Management), and smartphones and tablets are of great value for the mobility offered – the WMS system transmits data to them instantly. » Wireless printers: used for the immediate issuance of conference reports, before adjustments and data inclusion. » Medium-range transceivers: equipment for communication between employees and their leaders/supervisors during the counting process. Final tips As we highlighted at the beginning of this article, good inventory management is essential to avoid losses and waste, ensure stock accuracy, and provide important information for purchasing and sales teams. And for your company to have the best possible results, having the support of technology is essential. The WMS system assists throughout the process, signaling any discrepancies and automatically requesting a recount when necessary. Relying on tools that help in executing the counting activity, such as RF collectors, offers greater security and reliability. Remembering that if you do not have the support of technology, it is essential to ensure the excellence of the work of those who will do the counting, that it is necessary to have good leaders, know the products in stock very well, and be very detailed and attentive. Do not let poor inventory management hinder your processes and the financial health of your company. Take advantage of all the tips in this article and start applying them to your business. With organization, planning, strategy, and the right tools, positive results will surely come! Complete Guide to Managing and Executing Your Inventory Deagor WMS per ecommerce può aiutarti!