Here’s the math: for every $1 value of an item lost in your warehouse due to breakage or inadequate inventory, you need to generate $4 of additional sales to cover that loss. That’s a pretty steep price to pay, and your business might go under sooner if you’re not vigilant in managing risks. One way to fight losses in your warehouse is to have an effective inventory management system.
Warehouse Loss Overview
It is reported that businesses in North America lose more than $1.36 million per month due to fires, accidental breakage, and poor inventory. If your monthly loss is $1.36 million, this means you have to generate additional sales of $5.44 million.
The reasons behind these numbers are a) the average gross profit for many companies is 25%, and b) you take into account the cost of the item plus the cost of the means that item is produced.
So the formula is if a material, like a $10 switch or a small pipe is lost, you divide that by 25% to arrive at the additional sales you need to generate. In this example, it’s $40 of other transactions.
Effective Warehouse Inventory
A simple device, like a label maker to properly tag your boxes and individual items, can make a world of difference and help reduce your losses. Here are more ways to manage your warehouse inventory effectively:
- Organize, categorize, prioritize. You’ve probably heard of ISO or International Organization for Standardization. Make sure that your warehouse is following the right standards. This means that you need to visit your site regularly. Organize your warehouse based on the demand for each item. Hot ticket items should be easily accessible. Typically, stacking should be between waist and shoulder level for fast-moving items.
- Tracking system. Data is everything in business today. You need to keep track of all relevant information about your product, such as the name of suppliers, barcode data, sourcing information (e.g., names of country or city of origin), availability of stocks from suppliers, and shipment and other miscellaneous costs.
- The 80-20 rule. The rule suggests that 20% of your inventory is where 80% of your income will come from. You need to have a thorough understanding of how these items flow in and out of your warehouse. This means tracking movements of these items consistently on a weekly and monthly basis. You need to ensure that these items are always in stock.
- Digitize. Investing in an inventory management system is the way to go if your company is growing. Spreadsheets and a manual system can only take you so far. With the right inventory management software, you can produce analytics that will give you insights on what improvements in your process need to be made. This tracking system can also serve as a tool for identifying possible breakage and other forms of losses. Consider how other software technologies, like a POS system, will integrate with your inventory system.
From labeling everything to applying digital solutions to your inventory process, you reduce the chances of losses. Communicating with your people and ensuring that they follow procedures contribute significantly to your warehouse efficiency and profitability.