Optimal inventory is essential to succeed in a tough warehousing environment

Every warehouse manager knows how difficult conditions have been since the pandemic and finding solutions has been equally challenging. Warehousing space in high demand areas is at an all-time demand high and even 3PLs in those geographic areas are starting to be choosy about the clients they work with, because they are so much in demand. Warehouse rental is becoming highly profitable which makes moving or relocating more difficult, and more expensive. When you aggregate together higher costs, competition for warehousing space and demand for trained personnel, finding internal ways to build competitive advantage can be significant. In addition, if you are planning a warehouse relocation, achieving optimal inventory prior to taking on your new warehouse rental means that you start with a better business profile, more profitable stock, a streamlined order fulfilment process and lower relocation costs.


Getting your warehouse to an optimal inventory position might seem like another demand, but in fact it provides five distinct advantages for your operation as a whole.


  1. Reduction of working capitalwarehousing inventory


This is perhaps the most significant of all the benefits. An optimised inventory reduces ‘inventory buffers’ the capital amounts that many organisations have to built into operating budgets to be sure that they can meet demand. It is adjacent to the ‘just in time’ policy that operated so well up to the pandemic but very badly during it, but unlike that policy, optimised inventory recognises that customer need comes first and that information is the crucial component to ensuring that customer demand can be met without holding bloated inventory in warehouse space. On average, inventory optimisation decreases warehouse stocks by 10-30% which is a significant saving on both cost and space. It also allow for more capital expenditure on other areas of the organisation.


  1. Better inventory planning


An optimised warehouse inventory also allows for more flexible and accurate planning – for example, rather than stockpiling products or allowing ‘product drift’ which is where large amounts of stock can build up in warehouse corners because everybody knows that eventually it will be called on. Because it reduces redundant stock, it makes inventory turnover more efficient which in turn makes time-based inventory planning easier and improves logistics. Specifically, better inventory planning reduces turnaround time – the period from the submission of a fulfilment order to the time when that order has been fulfilled. Optimised inventory also helps with demand forecasting down to the SKU detail, drawing on a range of data sources such as past periods of operation, wider industry trends and predictions and any promotions or special offers being made available to customers. Additional benefits can be to prevent stock obsolescence and reduce the risk of having to make down large quantities of stock that have missed their seasonal peak or are otherwise unwanted.


  1. Resourced employees


Optimal inventory gives your warehouse workforce much clearer information, this in turn increases their confidence not only about what’s in the warehouse and where it is, but also about their ability to deliver shorter lead times, which in turn leads to lower costs. Well-resourced employees are also able to minimise goods handling within the warehouse, which improves efficiency in the whole warehousing space and also reduces handling and storage costs for stock items.


  1. Reduce supply chain variability


This surprisingly undervalued benefit of inventory optimisation can be one of the best efficiency drivers in recalibrating warehouse space and logistics because:


  1. It automatically produces more efficient operations, thus reducing the need to organise ad hoc logistics
  2. It also gives a clear picture of procurement and production costs, which can often be lost in the detail of an unoptimised inventory
  3. Together these create a smoother flow through the supply chain, revealing obvious area of weakness which can be eliminated.


What this process creates is the ability to forward stock inventory so that a 24 to 48 hour ground shipping system becomes possible for a higher proportion of customers, meaning that there is a better balance of speed and risk. Ultimately, order fulfilment becomes faster because the whole supply chain has become more evident and weak players are either eliminated or logistics are optimised to ensure that slow/high risk routes into or out of the warehouse are accurately factored into the planning. This naturally leads to better informed, and therefore happier, customers.


  1. Customer satisfaction


Of course, all the benefits of optimal inventory ultimately align demand, forecasting and logistics which means that order fulfilment is quicker and more accurate. For warehouse operators with more than one warehouse space, inventory optimisation can also allow for order orchestration – which is the process of using sophisticated fulfilment technology to route orders automatically to the warehouse closest to the customer, which both reduces manual order processing and shortens the order fulfilment route. Combined, these features ultimately lead to happier customers, seamless customer service and greater customer loyalty.


How to optimise warehousing inventory


Most warehouse operators rely on inventory optimisation (IO) software to ensure they’re on top of their complete warehouse space. This allows them to meet their own business targets by having more accurate data and a more balanced view of warehouse operations as a whole. IO also builds in some extra agility around the uncertainties of demand and supply, especially where seasonal and FMCG items are a feature of warehouse activity.


This can be vital to success in the increasingly tight warehouse landscape. Small and medium sized warehouse operations are more challenged by the current economic demands because they have relatively fewer resources to mobilise to help them cope. Further stressors for warehousing staff include the demands made by consumers as a result of omni-channel retailing which has high consumer expectations in a market that is seeing rapidly eroding profit margins.


With over three quarters of retailers experiencing an increase in warehousing costs in 2022 and pallet storage prices rising even faster than rents, optimising inventory can be a significant contribution to the resilience of a warehousing operation and may increase profit margins in tough periods.




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