Inventory Stratification – Putting Warehouse Management Systems and Stock Control Software to Work
Experienced distributors understand that from time to time, employing new inventory stratification techniques and making changes to storage locations in one’s warehouse can deliver greater efficiencies. The perfect time to do this is when business is slow, or when you have recently added or deleted even 5-15% of your inventory. A little effort goes a long way to helping build profits, and knowing how to leverage your software system is a terrific place to start. The kinds of ERP software that can help you do this this are:
- stock control software
- small business inventory software
- wholesale inventory management software
- warehouse management system
- wholesale distribution software
There are three main methods of determining optimal placement of items in your warehouse. These are Inventory Stratification, Like-Items (also known as Family Grouping), and Special Considerations.
Distributors software can help you analyze and stratify your inventory in one of two ways: “ABC” categorization of the items, or by using a ratio for loading and unloading. ABC categorization comes from the 80-20 rule, attributed to Italian economist Vilfredo Pareto, and this may be familiar to you as Pareto’s law. He noticed that in the late 1800s, 80% of the Italian wealth was held by 20% of the population. Let “A” represent your fastest moving items, “B” the moderate movers, and “C” the items which move slowest. You may not need warehouse management software to tell you to place your “A” items so they are most accessible for storage and shipping. The disadvantage of applying the ABC method of inventory stratification may mean storing unlike items side by side, but if you prefer to organize your warehouse based on usage and frequency, this is the method of choice.
To fine-tune this method of organizing your warehouse for efficiencies of time and labor, leverage your warehouse management system or wholesale inventory management system to then drill down and increase accuracy by adding an SKU loading/unloading ratio to ABC stratification. ABC applies to the frequency of which items are used, and loading/unloading ratio factors in the handling of the items from the time it enters your warehouse to its shipment out. Basically, it is the ratio of the number of trips your workers have to make to get to the storage location versus the number of trips it takes to get the SKU from storage to its point of use. The higher the ratio, the more important it is for that SKU to be placed close to its point of use. Why use your inventory management software to help you determine this? Even small amounts of time savings that you reap from modifying your warehouse layout will result in a more efficient work environment. Time is money.
Like-Items, or Family Grouping, means placing like items with similar characteristics next to each other. Using this method, you house spoons with spoons, sprinkler heads with sprinkler heads, etc. You might also group SKUs that are frequently sold together, like all silverware items. Using your stock control software, you can gain insights into whether you will get efficiencies from grouping products together that have similar characteristics. Here, your employees might easier recognize locations, and this will give you the ability to create a zone location system within your distribution software. However, there can be challenges with this method of organization. Depending on your inventory, workers might inadvertently pick the wrong item if it is physically too close to the correct item. Check your distributors software to determine how often particular items are used in multiple family groups. If there is a lot of overlap, this may result in several homes of the same item within your warehouse.
Another method of grouping is by ‘special consideration’, which takes into account the unique way some items are received, stored, picked, packed and shipped. Take the example of very heavy items that might require special equipment for picking. That alone should influence the placement of that item in your warehouse. Other special considerations might be size, fragility, perishability, or whether the item is hazardous in any way.
These are proven methods for inventory stratification and warehouse organization that can help you gain efficiencies based on your particular product line. Weigh the benefits of greater efficiencies against the time it will take your staff to get accustomed to the changes. Most workers adjust quickly, and sometimes changes within your warehouse can keep them thinking.