Best Practices of Inventory Management

By Morgan White, Inventory Supervisor

In the ancient world, trade routes intersected to form hubs of civilization and commerce.  Prosperity and culture sprang up in the wake of every one of these commercial hubs, which functioned as the ancient equivalent to modern-day fulfillment centers.  Ancient merchants had to decide, then the same as now, which hub (fulfillment center) to utilyze for their products to be shipped throughout the civilized world.  One factor that played a key role in deciding which hub to use was to examine the best practices of inventory management.  Knowing how their product was going to be received, stored, and transported helped each merchant to understand the best practices of inventory management.

    Modern companies run into similar difficulties when deciding the best practices to manage their inventory.  The first factor to be considered is how the product will be received.  As the Inventory Supervisor at Verde Fulfillment, USA, I have run into numerous practices that should be left in the ancient past, along with numerous practices that are tried and true.  First, products are best received in master cartons.  

Imagine an ancient merchant who has twelve different spices to transport.  He decides he wants to cut down on the number of crates used to ship these spices and places them all inside one crate with twelve divided spaces.  However, in the journey from his manufacturing site to the market, the crate is tossed about and thrown around.  By the time it arrives for receipt at the market, the spices are mixed, and it is nearly impossible to organize, repackage, and mark for sale.  The same thing happens when inventory departments have to receive “mixed” boxes/cartons of products.  The cost saved by using fewer boxes is often out-weighed by the cost of processing mixed products.  Receipts are faster and more accurate when received by master cartons.  

    The next factor to understand when considering the receipt of products is verification of goods.  Imagine the humble warehouse clerk opening a box marked “Yak Butter” from Tibet, and to his chagrin the interior holds cobras from India.  While this ancient faux pas is extreme, modern fulfillment centers still struggle with inaccuracies in labeling and pack-slips.  Master Cartons should be accurately labeled and counts verified against pack-slips before leaving the manufacturer.  Pack-slips themselves should be simple and easily translated into a spreadsheet format with simple categories such as SKU, Description, Quantity and Carton Numbers.  Manufacturers often send pack-slips in complex formats to consolidate data and enable someone to physically verify cartons with pen and paper.  Technology has long since advanced to a point where receiving reports can easily be checked against packing slips on a laptop in the warehouse, however, manufacturing companies continue to send consolidated reports that can be a nightmare to simplify.  This wastes valuable receiving and audit time.  Simplified reports that are easily manipulated on a basic spreadsheet are the best for receiving any product.  

Finally, communication is key when considering the best practices of inventory management.  When product arrives for receipt at the warehouse, questions are immediately raised.  Who is it from?  Where did it come from?  What is the tracking number/freight bill/bill of lading?  Does it have a pack-slip?  Consider the cobra for yak butter example above.  The ancient merchant will want to know why the proper product didn’t arrive at its destination.  He will want to know which caravan it came from, which town/port the mix-up occurred in, and who is ultimately responsible for the cost of the blunder.  Modern companies need to have constant communication with their manufacturers, shipping companies, and fulfillment center.  Communication failure at any level leads to costly mistakes and delayed receiving time.  Keeping your fulfillment center aware of incoming shipments, packing-slips, tracking numbers, manufacturers, etc., will lead to a much smoother process all around.

At the end of the day, inventory management is a complex system of maintaining the accuracy of a company’s product from manufacturing and transport to the fulfillment center, to receiving and auditing at the fulfillment center, to picking and packing for shipment.  Having the best practices established well in advance will save time and money.  Customer satisfaction, future sales, and successful marketing all depend on the timely and accurate handling of inventory.