Proven Leading Practices for Materials Management Operations
Materials Management Best Practices Guide
Learn MoreUse ABC Analysis and Other Categorization Systems to Optimize the Use of Warehouse Space
Best Practice (Good)
Use ABC analysis alongside other categorization systems (includes categorizing according to use, department, etc.) to determine which items within the organization's inventory should be considered high or low value. Store all inventory and categorization information in a central asset database to ensure easy access by relevant employees while maintaining precise control over the inventory. Not only do these practices optimize the use of warehouse space, but it also allows order processing, production, packaging and shipping employees to quickly locate inventory items and perform data analysis to further optimize inventory processes.
Typical Practice (Bad)
Categorize the organization's assets according to whether it is movable or fixed (i.e., products that can be sold quickly versus things that can't such as buildings, furniture, equipment, etc.). Use print outs that lists movable asset placements (typically in alphabetical order) and attach them throughout the warehouse to provide relevant employees (typically production, packaging and shipping employees) the ability to quickly locate items to distribute or areas to restock returned items. It is the responsibility of order and return processing employees to keep the lists updated after every stock review and re-order.
Benefits:
The goal of using ABC analysis alongside other categorization systems (includes categorizing according to use, department, etc.) is to optimize the use of warehouse space and to ensure that the most important items are always available for distribution. For instance, ABC analysis splits an organization's inventory into A (the largest revenue and cost contributors), B (items of middle value, volume and frequency of stock reviews and orders) and C (items of lowest value) items in order to describe the value, volume and frequency of stock reviews and re-orders. As a result of such categorizations, less important items should take less space, and more space should be used for the items that are most in demand. Storing all inventory and categorization information in a central asset database, furthermore, allows order processing, production, packaging and shipping employees to easily access and use categorization data to quickly locate inventory items for distribution and perform further data entry and analysis to keep the inventory updated while further optimizing inventory processes.
Track Vendor Performance and Conduct Periodic Vendor Audits to Ensure Consistent Quality of Incoming Products
Best Practice (Good)
Perform periodic supplier audits to ensure that the supplier is following the processes and procedures agreed upon during the supplier selection process and signing of the Quality Agreement. Should any issues of non-conformity be found (low product quality, products are missing or not delivered on-time, etc.), work with the supplier to identify corrective actions to be implemented within a certain period of time. Schedule a future audit to ensure that any and all identified corrective actions have been successfully implemented.
Typical Practice (Bad)
Contact product suppliers once the quality of received products are noticeably lower or if they have deviated from agreed upon processes. If the issue or procedural deviation isn't immediately corrected, searching for a replacement supplier may yield higher quality products.
Benefits:
Once a relationship with a vendor has begun, use clear, objective and quantifiable metrics to measure and track the performance of product suppliers (includes shipping times, quality of the service performed, call answer time, order completion, etc.). Periodic and thorough supplier audits should then be performed to identify and resolve any performance and process non-compliance issues. Since consistently switching suppliers can cost a pretty penny, an appropriate amount of effort should be spent in aligning the company's expectations with supplier product quality. Future audits should be scheduled to make sure that any and all corrective actions have been successfully implemented. Not only do these practice drive suppliers to consistently follow the procedures agreed upon when they were first contracted, but it also acts as a preventative measure to reduce the amount of low-quality products delivered to the company.