Are you spending more on managing and storing inventory than the profit it generates? Which warehouse management process are you using to manage your warehouse? Do you have a warehouse management system? If you don't have answers to these questions yet, we can help you understand how to manage it, some of the best tools to use and the benefits you can expect.
Contents
What is warehouse management? What is an ISO warehouse management process?
What is warehouse management?
Warehouse management is managing a warehouse's operations to help companies determine which types of goods and what quantities of inventory to order and when. It tracks inventory from the purchase to the sale of goods. The practice identifies and responds to trends to ensure there is always enough stock to fulfil customer orders and proper warning of shortages.
Inventory becomes revenue when it is sold. Before it is sold, too much stock is costly and reduces the business's cash flow.
The measure of inventory management effectiveness is inventory turnover. An accounting measure, inventory turnover reflects how often inventory is sold in a period. A business doesn't want more stock than sales. Poor inventory turnover can lead to stockouts or unsold stock.
What is a warehouse management system?
A warehouse management system is a system that manages all warehouse operations, including purchasing, shipping, tracking, storing, moving inventory and reordering. The solution can integrate with multichannel sales systems, POS systems, shipping systems or IoT systems to manage the business's warehouses.
What is an ISO warehouse management process?
ISO (International Organization for Standardization) is the international standards body, an independent, non-governmental organization headquartered in Geneva, Switzerland. An ISO process defines and sets out the sequence of steps that guide how an activity or process is carried out within the organization's management system.
Accordingly, an ISO warehouse management process consists of warehouse management steps that follow ISO standards, so that the storage and movement of the business's goods run smoothly and efficiently, inventory is managed in detail to secure stock norms for production and business plans, the budget for investing in goods is saved, and the business operates well and delivers greater customer satisfaction.
Why do businesses need a warehouse management process?
Warehouse management requires creating and following a set of simple processes. Once established, these processes limit improper inventory management and make it possible to trace errors in any activity. The inventory management process is very important because it helps ensure there is rarely too much or too little in stock, limiting inventory risk and inaccurate records. This helps eliminate all excess costs and streamline the supply chain.
The 3 main benefits businesses gain from building an efficient warehouse management process:
Saving money
Understanding trends in your goods means you know how much you need in stock, so you can make better use of the stock you have. It also lets you hold less stock at each location (store, warehouse), since you can pull from anywhere to fulfil an order - all of which lowers inventory-related costs and reduces the stock that becomes obsolete.
Improving cash flow
With proper inventory management, you spend money on inventory that sells, so cash keeps circulating in the business.
Satisfying customers
One factor in building loyal customers is making sure they receive the items/orders they want without waiting.
An efficient warehouse management process
If you make to order, the warehouse management process starts when a company receives a customer order and continues until the order is delivered. Otherwise, the process starts when you forecast your demand and then place purchase orders for the required raw materials or components. Other parts of the process include analyzing sales trends and organizing product storage in the warehouse.
The 8-step warehouse management process
The goal of inventory management is to understand stock levels and where goods are in the warehouse. With the 8 steps of the process, you can evaluate and consider eliminating waste, detecting errors and reallocating resources to any step that needs them to increase your profit and limit your costs.
1. Products/materials (goods) are delivered to your facility: this is the moment goods first enter your warehouse.
2. Products are inspected, sorted and stored: you can choose cross-docking, dropshipping or another strategy for this, whichever best suits your storage space (see details in the Inventory management methods section below)
3. Stock levels are tracked: this can be through physical counts, cycle counts or inventory software (see details in the Inventory tracking methods section below).
4. Customer orders are placed: Customers can buy in person or through your e-commerce stores.
5. Customer orders are approved: this can be an automated process in your POS system. If you dropship, this is the point where you pass the order to your supplier.
6. Products are picked from the warehouse: these goods are found by SKU number, packed and shipped or handed directly to the customer. See also How SKUs support warehouse management
7. Stock levels are updated: The warehouse management software/system automatically changes your stock levels. You can also record each sale manually or update changes when doing physical counts.
8. Goods are replenished: calculating reorders for each product you sell can optimize the forecasting step and help you get the goods needed to meet demand. This is a key component of the just-in-time inventory model.
The 8 steps of the warehouse management process
Inventory management methods (inventory management techniques)
Inventory management methods, or inventory management techniques, are tools you can use to track your inventory better. Some inventory management techniques use formulas and analysis to plan stock. All methods aim to improve accuracy. The techniques a company uses depend on its needs and stock.
Find out which technique suits your business best through the summaries below:
ABC analysis: this method works by identifying the most and least popular types of inventory
Batch tracking: this method groups similar items to track expiry dates and trace defective items.
Bulk shipments: this method covers unpackaged materials that suppliers load directly onto ships or trucks. It involves buying, storing and shipping inventory in bulk.
Consignment: with consignment inventory, your business doesn't pay its supplier until a given product is sold. The supplier also retains ownership of the inventory until your company sells it.
Cross-docking (direct transfer): unloading goods directly from suppliers' trucks and moving them to outbound doors/delivery vehicles, skipping the usual intermediate storage step; goods spend only about 1 day at the cross-dock and sometimes less than 1 hour.
Demand forecasting: this form of predictive analytics helps predict customer demand.
Drop-shipping (selling without handling shipping yourself): delivering goods to customers directly from your supplier based on product, order or customer.
Economic Order Quantity (EOQ): this formula shows exactly how much inventory a company should order to reduce stock levels and other costs.
FIFO and LIFO: first in, first out (FIFO) means you move the oldest goods first. Last in, first out (LIFO) assumes prices always rise, so the most recently purchased inventory is the most expensive and is therefore sold first.
Just-in-time inventory - Just In Time (JIT): in manufacturing, JIT means ‘the right product – for the right customer – at the right time’. Companies use this method to keep stock levels as low as possible before bringing in more. See also The benefits of applying the JIT method
Lean manufacturing: this methodology focuses on removing waste, or any item that doesn't deliver value to the customer, from the production system.
Material Requirements Planning (MRP): this system handles inventory planning, scheduling and control for production.
Minimum stock levels: making suggestions for purchase orders or requests for quotation based on future forecasts of your stock levels, to keep costs low
Safety stock: an inventory management approach that prioritizes safety stock ensures there is always extra stock in case the company can't replenish those items.
Six Sigma: a data-driven method for eliminating waste from the business as it relates to inventory.
Lean Six Sigma: this method combines lean management and Six Sigma practices to eliminate waste and increase efficiency.
Inventory tracking methods
One of the most important things you need to do to control and manage your inventory is track each individual product.
Retail inventory management
Retail inventory is the stock of products you sell to consumers. Use a system to set profitable prices and make sure you have the right amount of stock to meet demand.
Manufacturing inventory management
Manufacturing inventory management is the practice of keeping enough stock so production lines can fulfil orders. The process helps managers quickly see stock levels and track raw materials, parts, work in progress and finished goods.
Multi-location inventory management
Multi-location inventory management is the process of managing inventory across multiple sites, warehouses and retail stores or across multiple sales channels. With multi-location management, you can see the stock in every location and optimize your inventory to fulfil orders.
Here are the most common ways to track inventory:
Regular/periodic stock counts
Counting inventory manually is the oldest and most time-consuming way to track it. Sales and goods transfers have to be paused while the count is carried out. The information is tracked with a dedicated tool or in an Excel spreadsheet. Although this method is a good way to start, it can become too time-consuming if you have a large quantity of goods. See also using online barcodes to look up goods
Inventory cycle counting
Instead of manually counting all your products every month, you count only the most valuable products every few days. This lets you keep track of the products that matter most to your business and count inventory without stopping operations. However, you won't know your overall inventory level, so it should be paired with another inventory tracking method for maximum impact.
Using inventory management software
The best way to track your inventory is to invest in an inventory management system. The software updates automatically whenever products arrive, are sold or are deemed lost or destroyed. You will always have the most accurate inventory counts at your disposal, which can help you change course and meet customer demand before any problems arise. It comes with a price tag, so the only real downside is that it is an additional cost. See also Barcode-based warehouse management solution
Internal audit of the warehouse management process
Monthly or weekly, you need to closely monitor your inventory processes. Any irregularities or waste can be detected quickly and any losses minimized. This can be achieved by carrying out an inventory management review.
Warehouse management review
A warehouse management review evaluates the effectiveness and practices of your warehouse management process. There are tools on the market you can use for this, and some inventory management software has them built in. Otherwise, you can review your processes using physical inventory counts to uncover stock level issues. You should also review your 8-step warehouse management process to make sure all variables are accounted for and processes are followed.
How to improve the warehouse management process
There are many ways you can improve your warehouse management process and get the most out of your inventory. Here are some options:
Coordinate with suppliers: the better your relationships with your suppliers, the better your inventory management. If you communicate changes in demand and product needs regularly, they can make sure you are always supplied.
Assign an inventory control manager: a person dedicated to managing inventory will always do better than someone with many responsibilities. This person can grasp supply issues and react faster than you can. Inventory management is the key factor in defining an inventory manager's salary and job description.
Track product lead times: proactively capture or calculate expected lead times and waiting times for products. This will also help you avoid problems meeting customer demand.
Invest in a warehouse management system: the larger your inventory, the harder it is to track manually. A smart warehouse management system that helps you manage inventory is a great choice for reducing your workload and increasing profit.
How to choose a smart warehouse management system?
Choosing a warehouse management system is a matter of identifying the features your business needs. Do you need to track warehouse operations and item locations, or plan inventory and track trends, or both? To answer your questions, here are 5 key points to keep in mind when choosing a warehouse management system:
Timing
When there are signs that you have outgrown a standard warehouse tracking tool and need a more automated system to help you solve problems such as constant overselling, inventory errors and spending more time on manual operational tasks than on growth.
Integrations
Make a list of must-have integrations, for example: e-commerce platforms, marketplaces, shipping, POS, 3PL, or an open API to create new integrations.
Features
Make a list of must-have features from those discussed above. Do you need/want your new warehouse system to also handle order delivery or e-commerce? Do you fulfil many wholesale orders and need to manage them well? Do you manufacture your own products and need a system to handle materials inventory?
Ease of use
You will probably need some less tech-savvy staff to use your warehouse management system. So will these people find the software's user interface relatively easy to learn and understand?
Development
Whatever software you use will support an important part of your business, so finding software driven by innovation and built on the latest technology is crucial. Is the software you are considering developed and improved regularly? How often are new features released and bugs fixed?
Conclusion
Inventory management can make or break a business. Decision-makers know they need a warehouse management system that can grow with them. Losses and shrinkage can quickly pile up, and your inventory can cost more than it is worth if you don't optimize your warehouse management process. Follow our guidance above and try new management methods to find the best one for your business.
Now you have an efficient warehouse management process. But there's more: a set of features for managing warehouse operations, automated barcode-based warehouse management, automatic replenishment, lot traceability and stock counts. Optional synchronized integration with a smart MES manufacturing execution system, Purchase, Sales and Accounting helps eliminate all excess costs, streamline the supply chain and increase the business's cash flow. Learn more: The SmartBiz smart warehouse management solution
Before you leave the page, let us know your thoughts or whether this content was useful to you in the comments below.
DOWNLOAD: Efficient warehouse management process guide (PDF)