Warehouse and inventory management: Your competitive advantage

The COVID-19 pandemic catalyzed a trend that was already gaining steam in Canada: the shift toward online shopping and e-Commerce. This shift, in turn, has led to a boom in demand for industrial and warehouse space in Canada. Further evidence of this trend came in a recent announcement from Blackstone, the U.S. private equity giant, that they plan to invest more heavily in Canadian industrial real estate and logistics assets.

Most businesses that distribute and sell physical inventory will soon be forced to get very creative in how they optimize their limited warehouse space. In June 2022, StatsCan released sobering statistics about how well-prepared Canadian businesses are for a real estate squeeze in the near future. Unfortunately, many have no plans to change their approach or no ideas for how to weather the storm.

Right now, forward-thinking companies have an opportunity to create a competitive advantage through strong warehouse and inventory management.

What is inventory management?

How do you know what products you have, what's selling well, and when to order more? That is inventory management. For some organizations, inventory management comes down to feel or instinct, while others have a deep understanding of everything they sell and know exactly when they need to restock.

Effective inventory management is important because it helps a business reduce their costs by eliminating wasteful spending and storage. And given the current warehousing shortage, allocating significant space to a product that isn't moving means you're missing out on a big opportunity. Developing and implementing an inventory management plan will help your organization be more agile and take advantage of opportunities faster.

Common hurdles in inventory management

If you're a Canadian business owner whose success depends on managing inventory, you have likely encountered at least one of the following obstacles:

• Too many products
• Excess inventory
• Limited capital availability
• Lost profitability due to bloated inventory management systems

As your business expands, naturally there is pressure to grow your service offerings and processes to meet consumer demand. But as you offer more and more, you will likely find your time and organization stretched too thin. You will discover your inventory management process, systems, and organizational behaviours revert to “how they have always been done” leaving opportunities for reduced costs, more revenue, and efficiency gains untapped.

The reason expansion can feel so difficult is that businesses grow their inventory and warehousing processes without improving their systems and behaviours to match.

How to come out ahead

Despite the unprecedented supply chain pressures of the past couple of years, it's not all doom and gloom in the world of inventory and warehousing. Your ability to effectively manage inventory can separate you from the pack. Some innovative companies are coming out ahead because they've invested heavily in this area.

If you want to weather the upcoming storm and emerge among the industry leaders, you should focus on these key metrics and indicators of success:

• Business Complexity Reduction
• Inventory Reduction
• Product Flow
  • Labour Cost
  • Warehouse Space Utilization
• GMROI (Gross Margin Return on Investment)
• Inventory Write-Offs / Obsolescence Risk

You can design an inventory management process and supporting tools, fully customizable to the shifting realities of your business. The following two-step approach helps business owners see substantial improvements in the key metrics listed above.

Phase 1: The “3 Rs” process

Rationalization

Triaging SKUs and eliminating the ones in your inventory system that are redundant or non-performing is crucial. Ensuring optimal performance of each SKU means putting in place a structured and data-driven method for analyzing inventory activity.

Looking at your current sales data is the right way to understand current customer demand, but trends move fast. As you look at your products, think about what could happen in the next year. This process is called demand forecasting - you're looking ahead to try and predict what consumers will want.

Reduction

Your business must identify SKUs with significant overstock quantities and develop promotional or clearance planning to bring those inventory levels down. This process will ultimately reduce inventory holdings and inject cash into the business, allowing you to re-invest those funds and optimize inventory levels for cash conversion.

Re-investment

By looking at usage and gross margin return on investment, you can determine what SKUs have the greatest effect on your bottom line. As you re-invest the cash you generated in the first two steps, your business can begin a cycle of continuous improvement backed by data-based decision-making.

Inventory management software is one area to consider re-investing in. Modern systems provide you with deeper data, allowing you to track inventory and fully understand your business and lean into your strengths.

Phase 2: Warehousing Optimization

Warehouse layout review and optimization

The layout and structural details of your warehouse matter. Conduct an audit of your physical space — this includes a review of your racking type, product location, product/people flow, and your Warehouse Management System (WMS) including your ability to manage bin locations. These are all key indicators of an efficient warehousing operation. Post-audit you can identify the gaps and develop the associated layout changes and supporting tools necessary to maximize the efficiency and effectiveness of your warehouse layout.

Picking and packing optimization

Conduct an analysis of how your business allocates work and how the picking and packing is performed. This will enable you to come up with better methods, training procedures, and supporting processes that help your picking and packing staff do their best work with maximum efficiency. The final step is to implement KPI reporting that improves your performance management framework.

The benefits of inventory management

Businesses that employ this tried-and-true method of optimizing their inventory systems and warehouse space will see diverse benefits, some of which are visible almost immediately. They include:

• A more focused SKU base, meaning minimal resources and space dedicated to unprofitable or low-usage SKUs, and close monitoring of the most profitable SKUs to maximize sales efforts.
• An optimized level of on-hand inventory that is balanced with profitability, resulting in more cash on hand.
• A substantial improvement of pick time and throughput to maximize scalability.

MNP can help

Every phase of the inventory and warehousing optimization process should be conducted with the help of an unbiased outside advisor. The team at MNP has the experience to execute every step mentioned above on your behalf — a review of your warehouse layout and racking type, development of KPIs and reporting tools, analysis of your company's training methods and internal behaviours, building systems for more accurate inventory data, a review and improvement of your inventory management system, and much more.

As the world shifts its attention to the supply and demand imbalance in warehouse real estate, the steps your business takes today to maximize efficiency will become your competitive advantage.