Inventory and Inventory Management

Efficient management of incoming and outgoing flows of goods can make forecasting purchases more efficient.

Storage is one of the jobs developed within a storage unit. It requires a series of preparations to be implemented and many others to be managed on a day-to-day basis. Already the inventory is one of the tasks of those who take care of the stock. An extremely laborious task, which we will detail below. According to ABEPRO, the Brazilian Association of Production Engineering, “ managing inventory basically consists of controlling material reserves to meet the supply needs of both customers and the company itself, also controlling costs. Thus, inventory management must weigh customer needs against costs incurred .” It is worth highlighting here the definition of stock by the renowned professor and writer Idalberto Chiavenato: “it is the composition of materials (raw materials, materials in process, semi-finished materials, finished materials and finished products), which at a given moment are not used by the company, but which will be used in the future. ” In other words, we are talking about the management of future needs, requiring a deep knowledge of the corporate universe in which the company finds itself.

According to the Magazine Luiza website, “ an efficient management of the incoming and outgoing flows of goods can make it possible to forecast purchases more efficiently. This helps to reduce losses due to expired goods and even theft, in addition to enabling better negotiation with their suppliers .” We can then say, in a simplified way, that inventory management is nothing more than the rational control of the entry and exit of products in the company.

This is the ideal scenario, when everything works correctly. But what would be the signs that the stock was not being well controlled? The website Empresa Jr. gives some examples of problems that should be observed carefully:

• “Constant delays in delivery deadlines for finished products and raw material replacement times;
• Purchases for stock greater than existing demand;
• Supply chain instability;
• Production stop due to lack of materials;
• Obsolescence and loss of validity of goods;
• High storage costs;
• Breakage and theft of stock items;
• Product inventory does not match purchase spending” .

Overcoming these problems requires careful data collection, with a mapping of the implemented processes and the professionals involved. It is also necessary to purchase good management software, such as a WMS ( Warehouse Management System ) , adequate planning, training of employees, adoption of KPIs for later evaluation and carrying out frequent inventories.

While we’re on that subject, let’s talk a little about stock inventories. The Nomus website defines this task as follows: it is “ a complete listing of all products stored in a company’s stock. This inventory identifies, classifies and determines the value of each product ”.

Inventories are normally classified as follows, according to Blog R3:

• “ General Inventory – Covers the counting and identification of all assets of an organization, such as warehouse items, inputs, merchandise, machinery, etc. It is generally useful for accounting and equity valuation.
• Partial or Dynamic Inventory – Refers to counting a specific portion of a company’s assets. This is the case of warehouse stock control, in which the focus will be on a predetermined set of goods.
• Annual Inventory – This is a count of a company’s assets at the end of the so-called fiscal year. Which, in Brazil, coincides with the calendar from January to December.
• Rotating Inventory – Corresponds to inventory counts carried out several times at daily, weekly or monthly intervals. This occurs in specific parts of the inventory and demands a careful evaluation regarding the periodicity, since it requires the availability of labor.
• Cyclic Inventory – Seeks the periodic adjustment between the quantity of goods in stock and the information used in accounting entries. Therefore, while the rotating inventory meets administrative needs, such as avoiding losses and controlling stock levels, the cyclical inventory seeks to provide security to the company’s database ”.

But when should we take inventory? Well, when observing the results of daily operations, some failures indicate the need for physical checking, such as, for example, stranded products, missing goods, thefts and lost orders. At these times, knowing what you have in stock is the first step to putting your house in order.

The Delage website gives 11 guidelines for carrying out a well-done inventory:

1. Set date and time for counting to start . Preferably a calm day, without movement. This avoids losses and work overload for employees.
2. Select the employees who will participate in the count and form teams with leaders. As this is a very important task, select collaborators who are committed and attentive to details.
3. Choose the tools that will be used . The use of the WMS system together with mobile devices makes all the difference. In this case, it is essential to define, for example, the best system for your company (parameterizable according to your business needs) and which device to use (wireless data collector, computer with barcode reader, smartphones, tablets, etc. .). Forget spreadsheets and papers, as count records initially made by hand by an employee and later typed by someone else are subject to errors.
4. Organize the storage area . It is important that the products are in identified positions (internal addresses), that the streets and corridors are free and that the areas are well signposted. If possible, make bar codes visible to facilitate counting, define how pallets, boxes and fractional items will be counted, and determine whether defective goods should be accounted for or directed to specific areas.
5. Determine the counting strategy . Develop a roadmap. Define whether the counting will be in sequence or in parallel; whether to start from the bottom up on the pallet racks or vice versa; whether to start from the center to the ends of the streets or the other way around; the rules for the recount (who counts does not recount) and the maximum number of recounts; and how the areas already counted will be marked.
6. Trace strategies for the best use of your resources . If your warehouse has products allocated in higher positions, you need to define the best way to count these items: if an employee will use a lifting device to count or if the pallets will be placed on the floor for your conference.
7. Train your employees and run tests . The employee needs to know what to do and, above all, what action to take when faced with each type of situation that occurs in the inventory (missing, surplus, breakdown, etc.). The employee needs to know how to count each product, whether to count by package or unit (counting rules) and understand the type of bar code used in each identification (unit or box), among other details.
8. State how you will track inventory by defining the indicators used during and after the count . The WMS system provides a series of unique KPIs for inventory, so it is essential that you evaluate which indicators are offered before choosing the software that best suits your business.
9. After planning, it’s time to execute the task . Keep track of the count to make sure everything is running smoothly. If any mistakes are made, stop, gather the teams and try to find a solution.
10. Don’t forget to audit the count . When the count is finished, check that all previously defined locations and products have actually been checked. If everything has been accounted for, it’s time to evaluate the results.
11. Evaluate the results and take the necessary steps to correct any mistakes . Given the complexity of this task, it would be great to have technology on your side. Look for computer programs that can speed up this mission.

After carrying out the inventory, with planning and precision, we must choose a working method for moving the stock. There are eight models that are widely used, according to the Ramo Sistemas Digitais website:

• PEPS – The PEPS (First In, First Out) inventory management method, also called FIFO ( First In, First Out ) is one of the most practiced and refers to the output of goods according to the order of arrival . This technique helps to reduce waste, especially when we are talking about perishable products.
• Last In, First Out (UEPS) – Also known as LIFO ( Last In, First Out ). In this case, the management prioritizes the output of the items that entered the stock last. This method does not serve companies that work with perishables.
• Average Cost – The Average Cost, also called MPM (Mobile Weighted Average) is accepted by the Federal Revenue Service for calculating taxes. In this method it is necessary to add the value of the products and then divide by the total number of goods. The result is the average cost per product. This amount will be used to calculate the company’s taxes.
• Just in Time – This model is recommended for maintaining a minimum inventory, indicated for companies that want to reduce storage costs. But it is a stock control method that is not accepted by the Revenue when calculating the taxes to be paid.
• ABC Curve – In this methodology, factors such as turnover, revenue and profitability are considered to list products in three groups:

• Type A: 20% of the products and 80% of the stock value;
• Type B: 30% of the products and 15% of the stock value;
• Type C: 50% of the products and 5% of the stock value.

The ABC Curve increases knowledge about inventory turnover and the relevance of products, which can optimize the operation.

• Specific Price – Indicated for items such as cars or machinery. In this calculation, the specific price of the merchandise guides the process of removing the products from the stock after the sale, considering that the total value of the stock consists of the sum of the specific costs of the items.
• Inventory turnover – Inventory turnover control is calculated to identify the company’s performance in the distribution of its products in a given period, identifying the flow of goods. We must evaluate the storage and output capacity of the items. For example, if the company stores 5 thousand cell phones simultaneously and sells 100 thousand per year, the calculation is: 20 annual rotations every 18 days, on average.
• PDCA Cycle – The PDCA cycle for inventory control is based on the Plan, Do, Check, and Act processes. It is focused on operational performance and problem solving. A step-by-step example includes:
  • Identify the process that causes the problem and needs to be optimized;
  • Map the causes of the problem;
  • Draw up action plans to solve the causes of the problem;
  • Put action plans into practice;
  • Check if the problem has been resolved.

Having this methodological knowledge and choosing the best solution for your company brings a series of advantages. The Magazine Luiza chain of stores highlights some of the benefits of having good management in the storage sector:

• “the anticipated projection of orders to suppliers;
• the optimization of the investment with the stock;
• knowledge of which are the goods with the highest and lowest output;
• a best estimate of sales;
• the improvement of production planning;
• the creation of offers and adequate pricing”.

Did you like the text? At Águia Sistemas, we are national leaders in Intralogistics and we can help your company to always find the best solution in this field. Keep in touch!

(The text above was written with information from the websites, ABEPRO, Magazine Luiza, Empresa Jr., Nomus, Blog R3, Delage ).