You Might Have A Bad Warehouse If... You're Knock Knock Knocking on Container's Door

Knock-knock. Who’s there? Empty. Empty who? Empty trailer, boss.

This edition adds an example of a highly questionable yard management activity to our roster of bad warehouse practices, courtesy of Michael Cole, Director of Transportation, Kraft who recently shared his story at Lehigh University's Center for Value Chain Research forum.

Mr Cole shared his former yard management woes with attendees at the conference.  “Kraft’s yard management solution used to involve a person who rode around on a bicycle and would knock on each trailer in the yard. They could tell if the trailer was empty or not by the sound the trailer made when they knocked.”

How very basic! Not very scientific - and definitely not efficient.  It’s certainly not best practice. It’s also not all that unusual apparently.

Upon hearing Michael’s story someone commented, “As a college student I did something similar as a yard checker for a year with Walmart. Except I didn’t have the bike! I had to walk, at night, through the yard. The yard was almost a mile long in one direction at the main site. We could tell whether the trailer was empty or full by the sound of a knock.”

Knocking around the yard may be okay for children playing in back of the house, but not at a warehouse facility. The good news is that there are much easier ways to get the information you need about what is often the least talked about and addressed bottleneck in the logistics system – the yard.

The good news?   Kraft has since adopted PINC Solutions’ Yard Hound management system, which provides real-time visibility of all yard activities and eliminates the need for manual yard checks, all on a web-based platform.   You can read about their efforts by download this PowerPoint presentation.

In a recent white paper, Finding the KPIs for Yard Management, the Berkeley, CA-based PINC says that while yard management is a critical link in logistics management, with a significant impact on the efficiency of the supply chain, many yards “still rely on manual processes to manage operations, creating a visibility gap such that accurate and timely data cannot be ascertained.” This hampers management’s ability to assess the operational performance of the yard, the paper continues.

Companies make significant investments in systems and technologies to track transportation assets, PINC says, but “few realize that transportation delays often take place not on the road, but while the assets are still in the yards at distribution centers, warehouses and manufacturing plants.” Because goods often go through multiple yards throughout the logistics lifecycle, “any inefficiencies or errors in the yard are amplified as the effects propagate through the supply chain network.”

Yard management challenges cited by PINC include long gate check-in processes, multiple or redundant moves, time-consuming yard checks, unproductive administrative time due to ineffective communications and a general lack of actionable information.

With apologies to Bob Dylan, knock-knock knocking at containers’ door from a bicycle just won’t do it.

I really love your feedback - and love your contributions to share those bad warehouse stories to help educate the profession on what NOT to do, and maybe what to do if you’re not doing it.

If you've got an example of a bad warehouse practice, send me your story and photo(s) to [email protected].

If I feature your example in one of my blogs, WERC will send you a free copy of the WERC Warehousing & Fulfillment Process Benchmark & Best Practices Guide (a $160 value).

Your submission can be anonymous if you like so you don't get your boss or company in trouble! I'll be collecting examples all year and the winner will receive a free warehouse assessment by Supply Chain Visions, a $10,000 value. The runner up will win a free conference registration to the WERC conference (a $1,375 value).

You Might Have a Bad Warehouse If... "Safety in Numbers" is Your Safety Stock Strategy

I am reminded of an episode of M*A*S*H, where Hawkeye Pierce went to the main supply depot in Seoul, Korea to requisition a new microscope. The supply Sergeant was not willing to give up one even though he had three on the shelf. His logic, “If I give you one, then I’ll only have two.”

This week’s bad warehouse was witnessed by Mike Ledyard.  The President of a large company hired Supply Chain Visions to do an assessment because he had spent millions of dollars implementing a new Warehouse Management System and Advanced Planning System - but his inventory turns stayed at exactly 12 inventory turns a year despite the technology investments in improved systems.  How could the company spend so much money on the latest and greatest technology and still be getting such poor results? He asked us to do an assessment of their inventory management practices to uncover the problem.

The problem? The company's inventory analysts did not feel comfortable working in the fancy new software – and they would export key inventory information into an Excel spreadsheet where they felt more comfortable looking at the data. The software was making a recommendation for quantities to buy, but the analysts often questioned the numbers. To help them sense check the quantity the system was recommending, the analysts created a few extra columns where they would calculate the monthly average usage. When in doubt, the analysts would update the system’s recommendation with their “sense checked” number which was typically 4 weeks of inventory on hand. Over time – the analysts had overridden virtually all of the systems recommendations and replaced the “system’s math” with the analysts’ 4 weeks on hand rule of thumb. The result – inventory had stayed steady at 12 inventory turns – despite the investment in the advanced planning software!

On the other side of the coin we see examples where safety stock is put in place to mitigate a real risk, but the level is not revisited when the risk is gone. When we asked one company why the safety stock level was set at 120 days, we were told “it is there to cover possible disruptions while we change suppliers”, when we asked how that process was going, we were surprised to hear that the change took place well over a year earlier and the new supplier was performing well. A light turned on, and they changed the safety stock level that day.

Safety stock can also be used to cover peak or unplanned demand acting as a buffer between the supplier’s ability to replenish and customer demand. It can be especially difficult to manage when supply chains are stretched to the other side of the globe, but we have seen cases where the math is just wrong. One company added up all the lead-times, the supplier’s manufacturing lead-time plus the transit time from Asia, they even included a few days for order processing and receiving, when setting the total safety stock. Yet the material was a common part available from multiple suppliers and held by their supplier in a local warehouse, deliverable within days. Understanding how each component flows through the supply chain is an absolute requirement to setting your safety stock level.

Bottom line – if your inventory analysts act like the supply Sergeant in M*A*S*H and think there is safety in numbers – their behaviors to feel “safe” are likely costing you thousands if not millions of dollars. For all you inventory folks out there – please take this time to review your safety stock strategy and ensure it has a purpose.

I’d recommend you start by reading “Inventory Strategy” under “Storage and Inventory Control” in the WERC Warehousing and Fulfillment Process Benchmark & Best Practices Guide, available from the WERC Online Store.

For a good review of setting safety stock levels read “A New Look at Safety Stocks” by Jon Schreibfeder of Effective Inventory Management. Remember that your safety stock should be related to the element of risk as opposed to simple historical data.

For an alternative approach, try working with your suppliers to Purchase Capacity Rather Than Product. This approach can help your supply chain be more flexible – a key to reducing a company’s reliance on safety stock. Bob Parker provides an excellent overview (article is free to CSCMP members or you can subscribe).

I really love your feedback - and love your contributions to share those bad warehouse stories to help educate the profession on what NOT to do, and perhaps what to do if you’re not doing it.

If you've got an example of a bad warehouse practice, send me your story and photo(s) to [email protected].

If I feature your example in one of my blogs, WERC will send you a free copy of the WERC Warehousing & Fulfillment Process Benchmark & Best Practices Guide (a $160 value).

Your submission can be anonymous if you like so you don't get your boss or company in trouble! I'll be collecting examples all year and the winner will receive a free warehouse assessment by Supply Chain Visions, a $10,000 value. The runner up will win a free conference registration to the WERC conference (a $1,375 value).

You Might Have a Bad Warehouse If... You Can Hide the "Ark of the Covenant."

Now, if you are hiding the "Ark of the Covenant" then lots of excess inventory is just what you need. If you are trying to run a profitable business it's the last thing you need.

The sad thing is when companies THINK they have their E&O under control but really have no clue. The bad warehouse practice in this week's blog involves a company that ran their inventory reports monthly, without fail. The inventory analyst was proud to show us the bookshelf with each month's report carefully logged. I asked for a dump of their data in an Excel spreadsheet and in about 10 minutes had sorted the data by days of supply. I quickly pointed out they had product in inventory with years - not days - of supply. The winning product was good for 126 years based on the current demand. The problem? The inventory analyst was going through the process - but the owner of the company just could not bear to write off the excess because of how it would reflect financially on the firm. So each month, the reports were run, and each month nothing was done.

To make matters worse, the stock was being held for them by a 3PL provider who clearly had no incentive to free up the space they were charging the client for. This is what we call a perverse incentive. You can learn more about perverse incentives at www.vestedoutsourcing.com.

A good test for excess and obsolete is to calculate days of supply for each Stock Keeping Unit (SKU). Products above your targeted Days of Supply (DOS) are in excess; SKUs with zero sales (or demand) over an extended period are obviously obsolete, however some industries require a limited stock of repair parts. Calculate the value of product over your target DOS, this is capital that is not being used well.

I urge you to take a critical look at the inventory that is sitting on your warehouse shelves. Calculating E&O inventory as a percentage of the total inventory value may be sobering. Many experts have found that 25%, and as much as 45%, of a company's inventory value including carrying costs fall into this category. "Not in my warehouse!" you say. I challenge you to run the reports, surprises may await.

The Warehousing Education and Research Council says that companies should understand the financial implications of holding non-productive inventory and have in place processes and strategies to minimize its impact. There are indirect costs too: obsolete inventory takes up what should be productive warehouse space and impacts a company's return on assets performance. Read the section on Inventory Control Warehouse Processes in the WERC "Warehousing & Fulfillment Process Benchmark & Best Practices Guide" available from the WERC Online Store. Addressing excess and obsolete inventory, especially in today's tight credit markets will drive bottom line results.

For those seeking more information there is a nice paper posted on technologyevaluation.com titled "Is There a Smarter Way to Handle Excess Active and Obsolete Inventory?" by P.J. Jakovljevic. The paper outline ways to better manage excess and obsolete inventory (free registration required). Take a walk through your warehouse and look for the signs of slow moving inventory. If it's not moving - move it out - through liquidation, by scrapping or donating it, but get it out of the warehouse.

If you find yourself needing to clean house, look to outside firms like Active International or Excessi which specializes in liquidating excess stock or even consider putting it on eBay.

I really love your feedback - and love your contributions to share those bad warehouse stories to help educate the profession on what NOT to do, and perhaps what to do if you’re not doing it.

If you've got an example of a bad warehouse practice, send me your story and photo(s) to [email protected].

If I feature your example in one of my blogs, WERC will send you a free copy of the WERC Warehousing & Fulfillment Process Benchmark & Best Practices Guide (a $160 value).

Your submission can be anonymous if you like so you don't get your boss or company in trouble! I'll be collecting examples all year and the winner will receive a free warehouse assessment by Supply Chain Visions, a $10,000 value. The runner up will win a free conference registration to the WERC conference (a $1,375 value).