Inventory is the lifeblood of a distributor’s business, generally its largest and most important tangible asset. There is the intrinsic value to protect—the investment dollars tied up in product, which often also serve as collateral for financing. As the central currency of a wholesaler’s business, a well-managed inventory also is the basis on which so many other measures of success rest, including order fill rate and customer satisfaction, efficiency in operations like order selection, loading and delivery and ultimately, to a significant degree, overall ROI.

It’s not surprising then that many wholesalers apply considerable resources to inventory control. Methods of maximizing inventory control can be grouped into a hierarchy of approaches, depending on a distributor’s size, sophistication, order volume and product mix.

Companies moving lots of bulk orders of a relatively small number of SKUs—just a couple hundred items, for example—might get by with weekly or monthly paper-based cycle counts and full wall-to-wall inventories two to four or six times a year. But as the number of SKUs and order volumes increase, controlling inventory becomes more challenging.

It helps to think of inventory control as a triangular equation, says Benny Rokni, senior consultant at HK Systems. “On one side is the number of SKUs a distributor carries. Another side is order volumes. The third element is how much labor you want to throw against it in order to have accurate inventory counts and proper stock rotation,” he says.

“Achieving 100 percent inventory accuracy is not difficult. What’s challenging is to do so in a cost effective manner.”

The Simplest Approach: “Historically, most companies have thrown people at an operation to achieve inventory accuracy. They have a team of inventory control clerks doing cycle counting and another crew double-checking every order before it goes out the door. That’s the way a lot of beer and soft drink distributors still operate. It’s a very rudimentary form of inventory control, using a lot of paper and pencil and brute force labor,” Rokni comments.

Regular cycle counts, in addition to less frequent, wall-to-wall physical inventories at least several times a year, are the basic requirement of this approach to insure an acceptable level of inventory accuracy and uncover problems due to mispicks and mis-shipments, improper date code rotation, excessive damage or theft.

Among the downsides of such largely manual approaches is labor-intensity. Companies spend a significant number of man-hours on what is essentially non-value-added activity.

There’s also the matter of timeliness of data with paper-based systems, including those where data is keyed into a computer from paper records by an office clerk, not in real-time. The “snapshots” of inventory gathered by such methods are relatively few and far between. This means significant periods can elapse until a discrepancy is discovered, providing lots of room for such negative consequences as short orders, mispicks, re-deliveries and returns to be processed, credits to be issued, unhappy customers, over- or under-purchasing of replenishment stock, inefficiencies in warehouse operations as selectors go hunting for missing product and losses due to excessive damage or pilferage.

Automation - Level One: The less automation it employs, and the less disciplined its systems, the more frequently a company needs to conduct full physical inventories and cycle counts. “As you progress to more real-time methods of tracking inventory and product movement, the less important cycle counting becomes,” Rokni suggests.

A comprehensive warehouse management system (WMS) that records product movement through the distribution center and directs it, is the best way to reduce inventory counts.

Short of this, companies can improve their inventory control process by implementing an automated system for performing cycle counts for individual items as well as warehouse-wide physical inventories. Some providers of mobile route sales solutions, such as MiT Systems, Inc., offer such standalone inventory control packages, designed to run on hand-held, PDA-type devices and integrate with the host data processing system.

The labor saved by having inventory clerks or warehouse workers input data directly into a mobile computing device at each product location in the warehouse, for real-time or near-real-time upload to an inventory management program, makes it easier for companies to adhere to at least weekly cycle counts on key products and complete physical inventories once a month, says Bal Maraj of MiT Systems. The systems also yield improvements in data accuracy.

Radically Reduce Inventory Control Labor with a WMS: The next rung of the ladder, which provides companies with significantly tighter control over inventory while at the same time reducing labor devoted to the activity, is a warehouse management system. “Properly implemented, these packages provide huge boosts in the accuracy of inventory data, while also reducing labor,” Rokni points out.

The essence of its benefits is the real-time visibility into inventory a WMS provides, by giving companies point-to-point tracking of product from the moment an item enters the warehouse until it leaves.

WMS packages that direct labor each step of the way also improve operational discipline and reduce opportunities for errors in such activities as receiving and putaway, pick face replenishment and order selection, all of which both affect and are impacted by inventory accuracy. They also help insure proper product rotation, by directing selectors and replenishers to the correct lots of products to insure FIFO, a task that becomes very difficult to manage manually when you start getting up to 500 to 600 SKUs and above, Rokni says.

Full Automation: The last frontier of inventory accuracy from a warehouse operations standpoint is the fully automated distribution center, where cases of product are tracked by computer every step of the way in a fully automated fashion, with virtually zero human intervention.

“With such systems that can operate from receiving to selection without virtually any people involved, you really do achieve nearly 100 percent inventory accuracy,” Rokni points out, noting that HK Systems just completed installation of a system like that for a major US beer distributor.

Inventory Control Beyond the Four Walls: For beverage distributors that want to take inventory management to the next level, applications also are available to collect and manage data on inventory that’s in the trade. Taking account of on-site inventory and sell-through at each location allows route salespeople to write more efficient orders, and also gives wholesalers better information for ordering replenishment stock into the warehouse, he points out. Keeping track of store inventories by location also can help distributors resolve delivery issues and improve customer service.

One final key to inventory management is how a company handles discrepancies once they’ve been discovered.

Notes Rokni: “If they have a WMS, most systems already have built in certain bells and whistles, for example they will automatically issue a cycle count instruction, calling on a supervisor or IC clerk to go to the location and start investigating.”

From Beverage World June 15, 2008