For many, spring brings a slower time. You have finished your year-end physical inventory plans and now you are organizing, getting new product in for your next peak season. Some of you stay fairly steady all year through with miniscule changes in volumes month to month. Whether this period of time before summer (and vacations) hits is a slow time or relative steady, inventory still needs to be addressed.
Do you have some inventory that is older than some of your associates? Are you still picking from the forward pick area, which means that the oldest inventory is not getting rotated? Almost every facility I visit has a problem with aged inventory. It’s just something that doesn’t get addressed because day to day orders need to go out, and addressing inventory takes time, analysis, and, quite frankly, some work.
When you look at aged inventory a different way, you may decide that it needs to take priority. Try looking at it by the amount of square footage it consumes. For instance, if your current geographic region is going for $8 per square foot (in some areas, this number ranges from $6 to $13) multiply that by your number of old (never to be sold or end of life) product. Take the number of pallets by the square foot. So, for example, we will multiply 13 square feet by 125 pallets by $8 per square foot = $13,000
The above example gives you a look at how much each footprint is worth in your warehouse. In this case, it is legitimately costing you $13,000 to store those 125 pallets. Think about it in terms of building a new facility avoidance; how much would that save you? You may not be interested, but you can bet your CFO is very interested. Eventually, this product will need to be written off the books anyway.
The other important point on aged inventory is that it usually is scattered all over the facility, which means your order pickers, replenishers, and putaway drivers are increasing their travel time by walking or driving by the spaces with aged inventory. Once you determine the amount of aged product you have stored in your warehouse, multiply it by the footprint and calculate the additional travel time. This will give you a rough number of the lost productivity. The sad thing is, typically this inventory is stored in premium spots, which, in effect, could double your loss.
To get started, do a report of all inventory in your warehouse. Sort by age; this can be eye opening. Once you determine the amount, sit down with your CFO and develop an action plan on destroying, donating, or offering the product to jobbers. Your CFO will advise what’s best for your company. Sometimes a contribution to underprivileged groups is the best, while in other scenarios the jobber is preferable. Create a plan of action and then make an on-going succession plan, meaning every year in the slowest month, you do another report and eliminate more aged inventory. One company I worked with had a 200,000 square foot location full of old outdated shoes. Since they were summer shoes, the company donated them to orphanages and schools in South America.
Now that you have that report, sort it by area then location. Look at how well your facility is slotted. Most facilities can pick up a 10 to 15% increase in productivity if they just pay attention to slotting. A movers should be located in a forward pick area in premium (easiest to get to) areas. B movers get the next best slots, Cs are the least available slot, and you may want to create a “dog pound,” dead zone, or slow zone for D movers, which are the slowest moving products.
It's a big task to reslot the whole warehouse, so start with the area that has the most activity. Then work your way to the next busiest over a period of time. Also, if you are running into several situations where you wonder how those SKUs got in those particular spots, you may want to look at your putaway and replenishment rules.
Of course, you will need resources to accomplish all the above tasks, but it will certainly be worth it in the long run. Just a tip, one company used high school interns to do this task.
Remember, whether you are getting ready to install automation, get a new software system, or adding a new product line, it’s much better to clean up the old before starting anew.
Susan Rider, President, Rider & Associates, and Executive Life Coach, can be reached at email@example.com.
This article originally appeared in the March/April, 2023 issue of PARCEL.