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.

A solution for a large office products company was deeper than combining pallets of the same SKU. The company picks full and broken-case products. It quickly opened up several hundred active carton pick slots by identifying slow-moving products with only several cartons in stock. With no new receipts on the horizon, it moved a few units to a bin. The balance was palletized with other slow-moving carton stock, mixed onto bulk pallets and stored in remote bulk locations.

The labor to break the pallet for future picks was more than offset by gaining valuable golden zone slots today. Mixing SKUs can be dangerous, so insure picking quality control is maintained. Having a flexible system to allow mixed SKUS per location and location velocity codes is critical.

Some companies have product velocity codes, a value of the inventory turn, or a combination of cube and inventory turn of the product. Fewer companies have formal location velocity codes or velocity-ranked zones and areas. A location velocity code prioritizes the accessibility and travel time to a pick location in your warehouse.

I recommend keeping it simple. Assign zones within areas that categorize prime picking. Prime zones are typically the first rack in the shipping zone, away from dead storage areas. Insure that you take into account vertical and horizontal travel time when assigning location velocity codes.

Velocity is not all that should be considered when assigning slots. Basic rules like using prime pick zones, with high volume picks, and placing your seldom-ordered products deep within your storage scheme are basic rules of engagement in the war on reducing inventory fluff.

Too often in this battle, a key indicator is omitted: labor and material handling. Labor is probably your top cost and must play a decisive factor. Slotting has a fundamental flaw if all the labor-related steps are not visible to the inventory control team.

Cubic velocity. Many inventory operations slot inventory based solely on cubic velocity. The concept is sound and works well with some operations, but with some product mixes there's a twist often overlooked. To calculate cubic velocity, simply take the metric dimensions of your SKUs and establish the cube of the product. Multiply that by a pick velocity factor.

A pick velocity factor is the number of visits a picker makes to a product's location for a given period of time. Keep that period of time standard throughout. Be careful how you define velocity. This code may differ from sales volumes if you bulk pick or run multiple waves. Don't forget put-away visits if your returns are high.

Ask yourself if it is always static across all waves If you are just starting out, keep it simple and just use sales volume. The result of these calculations is a cubic velocity code that tells you how much flowthrough space your product will consume over a given period of time.

Once you have these product velocity codes, rank the results and sort your SKUs by velocity code. Then marry your product velocity codes to your sorted location velocity codes. Consider creating an exception report that highlights the products that are stored in poor location velocity ranges. These are ideal relocation candidates.

If you use unique numbers across all locations and products, don't worry that the location velocity codes and cubic velocity codes don't match perfectly. The key is to always make them closer, not perfect. Also consider clustering products that are ordered and picked together.

The most common factor omitted in slotting strategies is material handling. Too often companies do not evaluate down-stream labor.

If you use cubic velocity alone, you will likely store heavy, dense products, next to light crushable ones with comparable product velocity codes. The result? Most every order having heavy products mixed with light products will have to be moved up to three times before it ships. They may have to re-handle heavy products to build more symmetrical and stable pallets that would protect fragile products from being crushed by the heavy ones.

Finding the right balance between location maintenance, material handling and optimizing your cube is a fine line. Make it part of your management plan to integrate reslotting as part of your weekly goals.

Try just 10 locations a week for a start. You will be amazed at the gains in both productivity and service.