In operations of any size involving warehouse goods, the finance department should be weary of rising warehouse labor costs and owning excess inventory. An inventory control system in its simplest form creates efficiencies around receiving, storing, picking, and shipping merchandise. It enforces cost-saving workflows at the point of labor through purpose-built logistics software. Using wireless technology and robust scanning devices, barcodes are scanned at both product and slot locations to enforce an efficient put-away process. Modern warehouse management software can provide a new level of product tracking and validation that becomes essential in inventory management.
From a risk management perspective, inventory control solutions can help provide the kind of labor efficiencies and audit trail that provide a CFO with key insights during reporting periods. A barcode-based warehouse management system can offer a sophisticated level of detail that is important when finance departments seek to indicate inventory assets as a dollar value on the balance sheet.
It is important to have tight controls on warehouse inventory because excess cash will be spent on warehouse inventory that is not turned, shipped, or sold. These scenarios can lower overall opportunity costs for a company looking to invest its money wisely in other investments (not just inventory) and gain positive net present value for alternative propositions.
Depending on your industry, most systems allow you to track expiration dates, reorder points, and provide analytics on which in-stock items move the most and generate the most profitability. There is a general rule of thumb that 80% of sales or profits come from 20% of inventory. This type of information can be easily calculated using a warehouse management system. Another important result of having a system that monitors your inventory is having a 99.9 percent accurate inventory snapshot; this means that the dollar value of inventory assets is also very accurate. This high degree of accuracy is achieved through a continuous process of validating barcodes as material handlers select and package products. The warehouse management system automates the typical, labor-intensive process of cycle counting by continually updating product information in the warehouse, from what is picked to what is put away in a bin or slot location . Full inventory cycle counts, which can take many labor hours and days to complete, also become redundant. Confidence in inventory accuracy eliminates the need to schedule a large annual inventory count. Finally, with a software interface, this data can update the host ERP (such as SAP, Infor, Sage, Navision, etc.) and provide visibility across the enterprise. The host system upgrade will improve the efficiency of real-time transactions and improve business processes that depend on timely and accurate inventory data.
One can only begin to analyze inventory numbers and movements effectively with an inventory control system. Accuracy rates in warehouses without any automated tracking can be as low as 70%. Automation can take product count accuracy to levels greater than 99.8%.
Inventory control should be of particular interest to companies that are growing rapidly and have a much more critical view of cash flow. During bursts in production, there is a tendency to overstock and this ties up cash in inventory. Inventory positions must be carefully examined in any cash flow analysis. Even a basic, low-cost warehouse management system can begin to reduce a company’s risk of exposure to excessive inventory and labor costs. It is a fact that most small business owners do not want excess cash from their business stored.
Another potential side benefit may be a reduction in business insurance if excess inventory can be eliminated and events such as dead inventory or overdue inventory can be managed. Inventory control systems can also help reduce damage because items are properly located and stored in well-marked or designated areas of the warehouse. The occurrence of theft can also be reduced if staff realize that a strict process is in place to monitor the whereabouts of inventory and that missing items can be detected quickly.
In short, inventory is subject to risk exposures of various kinds and itself has a cash value that needs to be monitored like any other corporate asset. An inventory control system can help mitigate this risk and provide greater overall certainty to the business.
