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What effective INVENTORY MANAGEMENT means to the health of your business
Do you have your finger on the pulse of your company’s lifeblood: inventory? Are your picking-and-packing processes healthy? Product orders moving smoothly through the system and out the door?

Inventory management is considered one of the most critical vital signs in distribution. If it’s not in tip-top shape, the entire system could fail.

So maybe it’s time for a checkup. A thorough examination of your warehouse’s inner workings could be just what the doctor ordered when it comes to your company’s health. And with cash flow a major concern, now more than ever it’s time for distributors to ramp up inventory management processes, test order-response reflexes, and settle on a program that contributes to warehouse well-being.

For some distributors, the first step requires them to look at inventory much differently.

“I see greenbags. I see dollar bills out there. I don’t see cases of merchandise,” says Bill Hirsch, president of Fulton Paper Co. in Atlanta. A third of Fulton Paper Co.’s products in its 180,000 square-foot Atlanta warehouse are jan/san products. Another warehouse in southern Georgia is 75,000 square feet and stores jan/san products, food service disposables, and industrial packaging and supplies.

Keeping Cash Flowing
Once you turn your attention to the warehouse, don’t spend too much time staring at the shelves, distributors say. Pay more attention to shuttling products out the door and into the arms of customers. And fast. It’s crucial to be able to turn over cash quickly, and not keep it tied up in products, according to the distributors and experts Sanitary Maintenance talked to.

“If you’re not careful, you’ll have your money in the inventory,” cautions Hy Reynolds, president of Gainesville Janitor Supply Co. “You want to turn your money.” His company just dusted off a newly renovated 2,250 square-foot showroom in Gainesville, Ga. He and his wife Theresa manage the inventory of paper products, trash can liners and swimming pool products.

The inventory management functions of Fulton Paper Co. and Gainesville Janitor Supply Co. are examples of companies that embody “best practices,” and “benchmarks” in inventory management today — a determination of the best way to do something, who sets that standard and what that standard is. By learning from example, and developing their own set of best practices, distributors nationwide can work toward more efficient methods of inventory management.

The Time is Right
So when is the best time to revisit and work on inventory management practices? Is it slow times — when cash flow is reduced to a trickle? Indeed, is there a best time to compare your operations to others in the industry? When should you be fine-tuning your picking and packing processes? Tweaking the computer software that’s become a stale staple to your operations? The answer is: always. To all of the above.

On the other hand, “You shouldn’t have to look at it differently now than at any other time during the normal course of business,” says Hirsch. Responsiveness to customers is always crucial when they need items shipped ASAP.

Often, problems relate to excess, or “dead” inventory, so this is an important area for distributors to watch. One effect of the slow economy is that many distributors are stuck with products that were forecasted by customers, but no longer needed.

To avoid this, distributors should never stop asking whether a product is worth stocking, based on its level of demand. Wood Wyant’s strategy? The company developed, and uses, a unique cataloging of its inventory based on sales volume. Products are divided into five segments — segment A (60 percent of sales); B (20 percent); C (15 percent); D (4 percent); and E (1 percent). The result? An item-fill rate that’s improved to better than 98 percent, says Barry Towner, vice president of logistics of the Pickering, Ontario-based distributor.

Towner keeps a close eye on Wood Wyant’s inventory turns, which is no easy task with nine warehouses (ranging in size from 5,000 to 23,000 square feet) spread across Canada. The main one in Pickering alone boasts 68,000 square feet. Between the logistics office in Pickering and the corporate office in Montreal, Quebec, workers must be able to communicate swiftly. They are trained to understand the importance of servicing “fast-moving products” and key customer orders.

Definable Limits
“No more than 5 percent of your inventory should be ‘dead,’ but I doubt anybody is there yet,” says Don Kellermeyer. (“Dead” refers to inventory that is not moving.) Kellermeyer is chair of the National Paper Trade Alliance’s (NPTA) jan/san division and president of Kellermeyer Cos., Toledo, Ohio. This year the company is shooting for 10 complete turns of its inventory. About $4 million in products sits in its distribution center.

He recommends distributors consolidate their purchasing to a handful of vendors. This makes room for a healthy “earn-and-turn” ratio.

Sloppy inventory can cost you customers. Plain and simple. Think about it: if you were a customer ordering jan/san products, and your distributor rarely stocked exactly what you needed, over time you would cross the company off of your call list — and promptly put in a call to their competitor.

Results of practicing efficient inventory management include the ability to maximize warehouse space, reduce operational and transactional costs, and subsequently, keep customers.

“We (would) lose customers,” says Towner, if inventory management wasn’t up to par. “We pride ourselves on being able to get the product to them within 48 hours.”

Should a requested product be out of stock or delayed, Wood Wyant employees are honest with the customer. They take the opportunity to suggest a generic or substitute product. While this happens rarely, employees are prepped to inform their customers.

“Training is paramount,” says Hirsch. Making sure warehouse employees know the products well, and how to handle the hazardous ones, is important. They ought to know exactly where a product sits so that when the order comes in it can be picked immediately.

Employees are key to making the warehouse run efficiently, so finding ways to keep performance levels high is imperative.

Kellermeyer Cos. has opted not to put SKUs on its inventory because it would disrupt an employee incentive program that is already in place and working extremely well. Since instituting the program, of the 35,000 orders picked and packed each month, there are fewer than 10 mistakes. That’s a good thing because a mistake can cost between $35 and $52 to fix, says Kellermeyer.

Employees at Kellermeyer are rewarded for correctly picking and packing orders, and responding to back orders. Two-thirds of the evaluation is individual performance and the remaining third is for how the employee contributes to teamwork. They also count the inventory daily (termed “cycle count”) and make any necessary adjustments in the computer system.

All orders from Wood Wyant contain a slip of paper stamped with the PRIDE (Personal Responsibility In Distribution Excellence) logo. The paper states the order was “picked with pride by” and lists the employee’s name who picked and packed the order. Since the program’s launch two years ago, customer service has improved dramatically, says Towner.

The failure to forecast your customers’ product needs could cost you a customers’ business entirely. An unavailable product can erode a customer’s trust in your company.

Making A Prediction
“The real challenge is forecasting of demand and pre-planning of supply levels,” says Paul Claymore Sr., a consultant with the Benchmarking Network, which is a part of the Society for Inventory Management Benchmarking Analysis in Houston. SIMBA teaches employees at distributor companies how to understand practices they don’t normally use. After introducing them to new methods and strategies, the companies almost always save money. The most popular areas that are examined are warehousing projects, maintenance repair and operating inventories. Other focus areas are credit and collections, data mining, activity-based costing, e-mail management and fleet management.

“Even companies that don’t think they’re forecasting, they really are, even if it’s just happening on the fly in somebody’s head,” says Dave Piasecki, president of Inventory Operations Consulting LLC in Kenosha, Wis., an inventory management consulting firm for manufacturers and distributors.

Where To Look
Benchmarks and best practices help distributors pick apart their inventory management structure and see where to rebuild. If you’ve been sitting on a shaky number-counting system or have questions about monitoring warehouse employees, looking at successful companies as a model for improvement is the way to go.

Or, if you have picked up some tips, and wish to share them, there are thousands of distributors itching to hear about it.

There are many ways to share these strategies with peers. NPTA members can use an online message board. Many industry buying groups compile and track benchmarks and best practices for their members.

Hirsch enjoys the “free flow” of dialogue he gets through membership with his marketing organization on a formal and informal basis. “Together we have dialogue,” he says. “We discuss what each of us are doing independently.”

Some industry associations offer two- to three-day mini-universities on inventory management. Similarly, the Benchmarking Network hosts annual networking roundtables.

The Benchmarking Network assists distributors that want to unearth information about their competition, giving them information that might help them improve their own inventory management system. This happens right after the distributor company approaches the organization.

“We would then help put together a survey questionnaire, then would approach (15 to 20) contacts in the distribution industry who are open to participating in the survey,” says Claymore. Each of the participating companies has to agree to accept a visit from the inquiring company if it is ranked in the Top 5.

Another networking opportunity organized by SIMBA is an industry roundtable. Members pay a nominal fee to join either a real or “virtual” roundtable discussion that addresses specific knowledge management processes. It is free to join SIMBA.

“Direct competitors are not going to be enthusiastic about sharing their secrets with anyone else,” says Claymore. It’s best to seek out companies that handle different goods; in many cases it’s not the product that matters so much as the inventory management procedure.

A group of distributors have banded together to form a Yahoo Groups discussion called Distribution Inventory Control. To register, visit Yahoo Groups. Other Yahoo Groups on this topic are: Supply Chain Management, Continuous Improvement, Lean Manufacturing, and Auto ID.

There does exist, of course, danger in affecting your competition. You don’t want to leak valuable statistics unique to your company that competitive businesses could pick up on and use to their advantage. You also don’t want to be too quick to believe any information a company has released to you. Sometimes companies shift the numbers out of fear that producing accurate numbers would harm their industry position.

If you are more inclined to research on your own, consider picking up a copy of the book Achieving Effective Inventory Management by Jon Schreiefeder. It’s available through the National Association of Wholesaler-Distributors’ website, along with other books published by NAW.

In the end, though, distributors need to settle on a process that works best for their individual operation. Perhaps look at best practices of a top revenue-producing company — not necessarily handling the same types of goods — and ask how they adjusted to fit their customers’ needs.

“You shouldn’t use best practices as gospel,” says Piasecki. “Generic solutions, while they work, won’t work at the level to keep you on top.” He says that small distributor companies benefit most from using best practices, as they likely lack years of experience and access to expensive resources.

Just a few tweaks here and there can make a difference to your company’s bottom line. Keep your eyes on the money and perhaps your distributing business will evolve into a benchmark for struggling or new companies.

If you want to be a lesson for others, though, don’t make your system so fancy it can’t be explained. “Try not to over-complicate. Keep it basic. Keep it simple. Keep it logical,” advises Towner.