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The Importance of Warehouse and Inventory Management​

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In today’s fast-paced business environment, effective warehouse and inventory management have become critical factors for success across several industries. The efficient flow of goods and the accurate management of a company’s inventory are crucial for maintaining a competitive edge. This article discusses the fundamentals of warehouse management and inventory management, including their importance, key concepts, related technology, and potential approaches.

Warehouse Management vs. Inventory Management

What is Warehouse Management?

Warehouse management is the process of controlling operations and resources within a warehouse or distribution center, including monitoring the storage, handling, and movement of goods and managing space, labor, equipment, and technology.

The scope of action of warehouse management goes from door to door, covering all material and information flows running inside the warehouse or DC – reception, storage, picking, packing, and shipping, among others. Warehouse management aims to ensure products are available when needed and delivered to customers on time and with quality while preserving safety and ergonomics.

What is Inventory Management?

Inventory management involves monitoring stocks, optimizing inventory turnover, and tracking the availability of products and materials, keeping them at an appropriate level to meet SLA (Service Level Agreements) and demand. This entails the determination of optimal stock parameters, continuously tracking inventory levels, and replenishing and ordering goods, thus requiring close coordination with suppliers and customers and reliable technology (such as barcoding and RFID technologies, inventory management software, and automated inventory control systems).

Therefore, the primary goal of inventory management is to ensure that goods are available when and where needed, in the correct quantity, and at the lowest stock-holding cost.

Differences between Warehouse Management and Inventory Management

Warehouse and inventory management are significant aspects of supply chain management that make products available when and where needed. There is some overlap between the two, but also several key differences.

The primary responsibilities of warehouse management are the layout organization and the inbound and outbound flows of goods (storage, handling, and movement). In contrast, the central role of inventory management is the tracking of physical inventories, including the determination of optimal stock levels and the coordination of ordering and replenishing processes.

Additionally, while warehouse management concerns the optimal usage of space, labor, and equipment to shape efficient and effective warehouse operations, inventory management, on the other hand, is focused on the strategic management of stock levels across the entire supply chain, from suppliers to customers.

In terms of performance measurement, warehouse management is typically oriented to operational efficiency metrics, such as inventory accuracy, order lead time, productivity, and on-time shipments, whereas inventory management is driven by the financial performance of inventory and the service level, including indicators like inventory turnover, days of inventory, and stockouts.

The difference between these two lies also in the technologies used: while warehouse management relies on software to streamline warehouse operations – e.g., warehouse management systems (WMS), automated storage and retrieval systems (AS/RS), conveyor systems, and barcode scanners –, inventory management counts on technologies to optimize stock levels and reduce the costs incurred – inventory management software, demand planning and forecasting software, and automated inventory control systems.

So, despite being distinct in their scope, focus, metrics, and technologies, warehouse management and inventory management are complementary aspects of supply chain management. Overall, warehouse management focuses more on the physical storage and handling of products, while inventory management is concerned with strategically managing inventory levels across the entire supply chain.

Why are Warehouse and Inventory Management important to Organizations?

Effective warehouse management is critical for several reasons. First, it helps businesses maintain inventory accuracy and cut losses; second, it ensures goods are stored and moved in an efficient way that minimizes damage and increases operational performance; and third, it facilitates on-time and on-quality order fulfillment, which is vital to meet demand and maintain a competitive advantage.

The relevance of effective inventory management is also undeniable. First, it helps businesses provide the right products in the right place and at the right time; then, it reduces excess inventory and holding costs; and last, it lets companies optimize their inventory turnover, ultimately leading to increased profitability.

In a nutshell, by optimizing warehouse operations, businesses can reduce costs, increase productivity, and increase service levels. Improving inventory management can expand cash flow, reduce storage costs, minimize idle stock and stockouts, and improve customer satisfaction. So, not only do they have individual importance, but there is also a combined contribution to implementing an optimized and seamless logistics flow.

How can Technology help in Warehouse and Inventory Management?

Warehouse and inventory planning are critical for a stable and flexible supply chain. Warehouse management technology integrates the automation of manual processes (e.g., conveyor systems,

AS/AR, robotic systems), the real-time tracking of orders and inventory, and data analytics, which allow for the reduction of time and risk of error, provide stakeholders with live and accurate information, avoid stockouts or overstocking, and ensure compliant order fulfillment and grounded decision making. This brings many benefits, including cost savings, improved customer satisfaction, and increased process accuracy.

All this should be introduced with the mindset of optimizing before automating to ensure the process is as efficient and free of waste as possible before investing time and resources in technology to refine it. Automation can also free up valuable time for employees, allowing them to use their time wisely and focus on higher-level tasks that require human expertise.

Warehouse and Inventory Management Systems (WMS vs. IMS)

Warehouse management systems (WMS) and inventory management systems (IMS) are two types of software used to manage warehouse operations. Although the two have some similarities and complementarities, they serve different purposes.

WMS is focused on the physical operations of a warehouse and usually includes functionalities such as automated data capture (barcode scanning or RFID), layout and space optimization, order management, and task automation. IMS is more concerned about the location, physical movement, and availability of goods inside a warehouse, providing real-time tracking of inventory levels and using features like demand forecasting, order visibility, inventory tracking, and procurement.

The Role of Data Analytics in Warehouse and Inventory Management

Data analytics plays an essential part in assisting businesses to make informed decisions about their processes, optimize their operations, and improve customer satisfaction by analyzing and acting based on meaningful data.

Big data algorithms in logistics consist of implementing systems that simultaneously optimize warehouse space usage, streamline material and information flow across the logistics chain, and reduce stock levels while improving service levels. The right choice and setup of such systems are crucial in the art of logistics management, as they can make or break business success. This allows an integrated, multi-factor, and multi-constraint optimization and contributes to the continuous improvement of the supply chain. Complementary technology such as EDI, blockchain, and process digitalization promote high stock rotation and top-performing operations, which ultimately significantly impacts the bottom line.

This lean, analytical mindset and approach to logistics will assist decision-makers and managers in making the move…

From:

  • High level of stock.
  • Misbalanced stock across products and stockouts.
  • Warehouse teams with low productivity.

To: 

  • Balanced utilization of warehouse space and reduced movements. 
  • Leveled team dimensioning according to workload. 
  • Sharper selection of picking methodology. 
  • Effective stock management policy. 
  • Better service level and lower stock levels. 

The KAIZEN™ approach to logistics optimization

Nowadays, logistics work as a differentiation factor in all industry sectors. Although market volatility cannot be controlled, one can build a supply chain that enables rapid and intelligent response. By building efficient, flexible, and agile supply chains, companies can keep up with market dynamics and increase profitability and market share.

Hence, there is room for logistics optimization (warehouse and inventory management duties included) in any industry or business area that relies on its supply chain performance. That is where KAIZEN™ and lean methodologies play an essential role.

The main target of the KAIZEN™ work in this field is to ensure the ability of supply chains to react and adapt to constant changes in their ecosystems, avoiding stock interruptions, poor service levels, and increased lead times, to name a few. The path encompasses designing and implementing an optimized network to serve customers and enable growth. This approach is designed to radically improve the speed, agility, and flexibility of any value chain, covering both the network at the macro level and the operations at the micro level. Models are customized to each customer to ensure reduced production and logistics lead times, increased orders’ speed, and increased operations’ capacity and flexibility.

These are some of the principles of KAIZEN™ optimization in the logistics field:

  • Address the entire end-to-end supply chain, including all the logistics loops, from suppliers to the final customer.
  • Get the macro perspective (network level) before diving deep into operations’ detail.
  • Analyze the flow in reverse order, starting from the end (customer’s nearest point) and working backward toward the beginning.
  • Build consumption-driven replenishment models (pull) based on actual demand instead of forecasts (push) with an amplification effect (bullwhip).
  • Divide the value chain into small logistics cycles (“loops”) connected by demand, with high-frequency information and material flows.

The final solution answers several vital decisions and provides a tailor-made vision for crucial processes. At the strategic level, this includes:

  • Definition of warehouses’ locations and types (e.g., traditional, cross-docking, drop-shipping, JIT)
  • Modeling the transport network, strategy, and freight service to meet demand.
  • Stock management strategy and allocation along the chain.

At the operational level, the KAIZEN™ approach focuses on streamlining the material and information flows for an efficient, quick, and lean delivery process. This involves both transportation and warehouse optimization initiatives:

  • Outbound improvement for picking and shipping operations, fitting the picking strategies to the order profiles and reducing movements.
  • Inbound improvement for reception, storage, and replenishment, including process streamlining and standardization and eliminating non-value-added or redundant activities.
  • Planning and control model to link all flows and resources and ensure the leveling and synchronization of operations, providing leaders with tools for continuous activity monitoring.
  • Resources optimization, including people, equipment, and infrastructure (machines, space, racks, and so on).
  • SKU and layout management to ensure operations’ basic stability and reliability.
  • Transport improvement initiatives to maximize the time wheels are running at an optimal cost, including freight capacity optimization, fuel consumption efficiency, pick-up and delivery norms, park management process, and routing optimization.

Where to start the KAIZEN™ journey?

Kaizen Institute has extensive experience in optimizing logistics chains in different industries, including healthcare, manufacturing, consumer goods, pharmaceutical, automotive, food and beverage, grocery, and specialized retail, among others.

The time frame to implement such transformation projects will depend a lot on the dimension and complexity of the business. The VSA (Value Stream Analysis) delivers a comprehensive report including all conclusions and recommendations, metrics’ improvement potential, the business case with payback analysis, and a detailed transformation roadmap of KAIZEN™ events, organized in 3 to 6 months sprints.

This approach relies on on-the-job training and practice and applies to an existing supply chain or a greenfield one and should constantly be upgraded with technology, from automation to data analytics! In this lean, holistic framework, both warehouse and inventory management are addressed since they are complementary and cannot stand out without each other.

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