Inventory Slotting: Striking A Balance

It's not always about velocity and cube.


There is nothing more frustrating for a distribution manager then walking by the same pallets every day, shrouded in layers of dust, in a prime picking zone.

They have this recurring fantasy. They dream the buyer awakes at 3 a.m., enlightened in a dream by ancestral buying spirits, and revise their forecasts on the10,000 talking Pee Wee Herman dolls they purchased more than a decade ago. The dream remains a hope until their morning facility walk-through, where they greet Pee Wee every day.

Here are some strategies to consider in maintaining a lean inventory and storage profile in your operation:

Eliminate the cause. Work with the buyers regularly to strengthen the communication lines. Have them visit the distribution center at least once a quarter and show them the space and layers of dust particles. This is an incredibly effective strategy. All too often, buyers are driven to action after seeing the raw storage space required for dormant products. Make them a partner.

Consider having senior management provide incentives or penalties, like space allocation chargebacks to the division (or product lines) based on quarterly space consumption. If you have a robust inventory management system, charge product lines a fee for storage used in excess of the company's target for inventory turns.

Another method of eliminating inactive product is performing a "lifetime forecast" on the buyer's behalf. Buyers are too busy to look back on prior purchases. Here is an easy way to present a compelling case for inventory write-offs.

Take the peak order demand for the SKU. Extrapolate that number out,across all the units you have and see how long the inventory should last. Present the buyer with a simple line graph that compares stored units and years of inventory. Use decades or even centuries if years won't suffice. Forecast how many future generations of Pee Wee enthusiasts will sleep soundly at night under the security blanket of the buyers' wisdom. Add clever captions to the graph, highlighting how the doll's clothing fiber will break down around the year 2090 and how the plastic resin will start to decay in the year 3050 for the remaining 73 pallets. Using this approach, I have seen companies with sufficient inventory to last several thousand years.

Reduce travel time. Classically trained distribution managers have been taught it's all about reducing travel time for pickers when slotting inventory. But when does the labor of relocation offset the picking gain? Too often, I see key considerations absent in their location assignment philosophy. Managers typically have insufficient open slots to profile things the way they want, so they pragmatically choose the best available open slot.

A 2005 industry survey demonstrated the premium on space, with more than 60 percent of respondents indicating they were at better than 95 percent storage capacity during their peak season, and more than a third of respondents were at more than 99 percent capacity. Also think about when new product arrives for slotting. Typically, it arrives right in the middle of your peak season when capacity is tight, even further reducing the odds of an ideal slot.

At their peril, few companies have proactive re-slotting programs that continually shuffle primary pick locations as a form of location hygiene. If you can't afford a regular routine, achieve it during seasonal lulls. Sales dynamics are continually changing.

Your facility has to be a living, breathing reflection of those changes. The fewer open locations you have, the more critical the maintenance becomes.

Consolidate not just within SKUs, but across them. SKU consolidation is always the first step in better location management. Combining two half-pallets of the same SKU into one solid one is always easy pickings. But look closer at other options.

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