Step 8: Assign someone to address “reports” all year long.
There is no room for excess costs in any economy! In order to show a profit, you need a complete understanding of where the money goes and how to run your operations more efficiently and effectively than your competition. This means you can’t just address problems during your annual physical and then think they will not happen again throughout the year. By assigning someone to address reports throughout the year, the reports will be a manageable the week before the annual physical. I see it all of the time. Items are typically added back into inventory when the count is incorrect and the report shows open (shipped) orders that were not invoiced. Those items need to be back into the system to reconcile correctly. This would be avoided if these items were accounted for prior to the physical.
Step 9: Hire an inventory controller.
You need someone in addition to your warehouse supervisor to be held accountable for the accuracy of the inventory. Your warehouse supervisor is nothing more than a firefighter. They do not have time to research inventory discrepancies. Find someone who it detail-oriented, someone who is vocal, and able to start with very little instruction, and complete what they start without any assistance.
Step 10: Stop all non-warehouse personnel from entering the warehouse.
I just have one question that I would like answered: Do you pay your customer service personnel by the mile? It sends a chill up my spine when I see a customer service person walking to the warehouse to check and see if the quantity listed in the computer is actually in the bin, especially while a customer is on hold and more customers are calling in. If an outside sales person needs an item for their customer, they should go to the counter just like a customer. If your counter is so inefficient that you do not want your sales person waiting there, then think of how your customers feel.
Step 11: For the actual annual physical, break the warehouse down into small chunks.
You don’t give your sales people a product guide and car keys and say go sell something, so why then do you give your people a pencil and a sheet of paper and tell them to go count something during your physical? This is one of the most important days of the year! Everyone involved should know where they should begin counting and where they will end. Creating zones will maximize time because there will be a specific plan. People will not be walking around to find out where they need to go next. This will also allow you to begin checking variances sooner because your map will show what zones or sections have been completed and by whom.
Step 12: Develop count teams.
Don’t simply have two people go out and count. There must be a team of several individuals are assigned to a team leader—preferably a warehouse person. This will give personnel the opportunity to take ownership of the inventory and begin to understand the importance of their job.
The team leader is the only person who should be walking and talking. Everyone else should be counting. This will allow you to begin checking variances sooner because your map will show what zones or sections have been completed and by whom.
See the end of this article for some tips and tricks to conduct an effective physical.
Step 13: Only allow warehouse personnel to count.
Before everyone puts this article down, hear me out on this one. I am sure some people have legitimate reasons for using the entire company to count. However, let me play devil’s advocate to some of those reasons.
We don’t have enough warehouse personnel to complete the count.
Is that enough people to complete the count the whole warehouse or enough so you don’t have to be there the entire weekend?
Our warehouse people don’t know the product well enough.
How then are they able to receive it, pick it, pack it, and ship it, but not well enough to count it?
They will fumble up the count.
If you can’t trust your warehouse personnel on this one day, why do you trust them the other 364?
Step 14: Audit the counts.
I see very few companies that audit their counts. Your people need to know that entire sections need to be recounted if too many mistakes are being made. This is the one time when non-warehouse people can be of service in the warehouse. Use additional personnel such as accounting, sales, and purchasing to perform the audits.
Step 15: Correct the variances the weekend of the count.
A lot of things take place in you warehouse, but variances can’t take a back seat to your day to day operations. If you don’t address your variances as quickly as possible, they will not be addressed. You have to decide what total variance you can live with. One word of advice though. I have seen the total dollar amount take precedence over the total item count. For example, if you have 1 million dollars of inventory and your total dollar variance amount is 50k, it may seem acceptable because your variance is only 5 percent. However, if your 1 million dollars of inventory consist of 10k SKUs and of those 10k, 4k have a variance, your inventory is actually only 60 percent accurate. Is that acceptable to your customers? That could mean four out of ten times a picker goes to a location the product is not there. Is that acceptable to you? More importantly, is that acceptable to your bottom line? Personally, I am a fanatic about recounting based on quantity not necessarily just on dollar variance. If missing 200 pieces with a total value of $100 dollars is missing, most people will not want to recount that item. They want to focus on the higher dollar items; however, this is still 200 pieces of that have vanished into thin air.
Step 16: Prepare! Prepare! Perpare!
I am sure everyone has heard the quote, “We don’t plan to fail, we just fail to plan!” It amazes me to see multimillion dollar organizations that begin thinking about their inventory only the week before the physical. Do the opposite and give greater advanced notice. One of our customers informs its people a year before the next physical. They want all non-essential personnel to schedule their time off around the physical that will be in December. It also gives them plenty of time to get the books in order. If you don’t remember anything else from this article remember this: A physical inventory is 85 percent preparation and 15 percent counting! That means for every hour you spend counting, you should spend 8.5 hours preparing. That may seem like a lot, but remember, there are pre-physical steps that need to be performed, as mentioned above.
Step 17: Cycle the count.
Inventory acts as a buffer between unmatched supply and demand. It hides problems! Eighty percent of a company’s sales, profits, and costs are often from 20 percent of its products (Pareto Principle). That 20 percent should receive the most attention when considering the cycle count. They are termed class “A” products for inventory tracking. There are other methodologies out there, but this the best.
Class Percent of total inventory Percent of total sales/costs/profits Number of times to count
A 20 80 4 to 6
B 30 15 2 to 4
C 50 5 1 to 2
Step 18: Purchase and install a warehouse management system.
When I hear the horror stories about implementations or no ROI has not been achieved, I have to question the company. Most people want to automate their inefficient processes or to use my favorite analogy, they “put clean clothes on a dirty kid.” However, this means they simply do their processes wrong, faster. You have to address your problems prior to or during the implementation. Also, when it comes to ROI, you have to track all of your warehouse expenses. It is impossible to expect a return when you don’t know where something is. See my article, ROI In Your Warehouse—Real Or Imagined for a detailed discussion about this. It is impossible to expect a return when you don’t know what something costs. Track your warehouse expenses—all of them!
Step 19: Address your returns.
This may seem like it is out of place, but believe me, it is not. I want to make sure that when you put this articles down, you will have returns on your mind. They are not a “necessary evil” as they have been called in the past. They are receiving and as I already said, receiving is the most important job in your warehouse, which is why your returns need to be sent through receiving just like a purchase order.
You have to implement the idea of a “day’s work in a day.” If it comes in today, it has to be received and putaway today. Returns cannot just take a back seat to every other process in the building. If you monitored your inventory adjustments for a week, I guarantee more than half of them will be the result of a return being processed incorrectly. You know, several hundred years ago excess inventory meant a businessperson was wealthy. Today, excess inventory shows the inability to understand how to run a business or an organization. Customers today will only pay for a high level of service, and are refusing to accept the excuse that the warehouse is the problem or the system is always wrong. You need to to get a handle on your inventory.
Some Tips and Tricks for the Physical
Use post-it notes. Have counters write problems on the post-it and affix it to the product then move to the next item. This prevents unnecessary conversation and people from walking around to get an answer on how to solve their problem.
Use Problem Flags. Once a problem is identified by a person counting they should place a flag at the end of the aisle to notify the team leader that there is a problem. The team leader will then go the aisle with the flag, read the post-it correct the problem, remove the flag, and proceed to the next aisle.
There must be no talking during the count. One company we worked writes up employees for talking during the inventory. It may seem harsh but their inventory was the most accurate I had ever seen on a manual system. They were in the high nineties.
No Music. Music is a distraction during the count.
Check overstock product prior to the count. Make sure it is properly labeled. This will take the guess work out of the count.
Use count markers instead of dots. This prevents people from stopping ot look for more dots when the run out and minimizes waste because there are no dots to be thrown out after the count.
Centralize the location for supplies and instructions. Your counters should not have to walk around looking for supplies or for anwers to questions.
Identify and purchase supplies ahead of time. Purchasing supplies during the count should never happen. It wastes time.
Close during the physical. Trying to process orders during a physical tells everyone that the accuracy of the inventory is not really that important. As long as you inform your customers about the closing well enough in advance, they will understand why you are not processing orders during that period.