Supply Chain Management Best Practices

Use 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 moveable 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 moveable 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.

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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.

Use Focused Metrics to Measure and Track Employee and Facility Performance

Best Practice (Good)

Define, measure and track employee and facility performance in specific, objective and quantifiable terms. These metrics should focus on both employee and facility productivity (Takt Time, Units Produced per Production Employee, Percentage of Manual Work - Estimated, etc.) and the quality of their work (Number of Production Halts, Scrap Rate, Equipment Failure Rate, etc.). Using the resulting measurements and any previously calculated targets (i.e., benchmarks) to measure employee and facility performance ensures that management is able to identify and address any and all issues that arise (whether it's due to employee errors, misunderstandings, equipment age, outdated processes, etc.).

Typical Practice (Bad)

Focus almost exclusively on the "bottom line" production of the facility rather than the individual employees themselves. The performance of the manufacturing facility (how much output it is producing) directly illustrates the performance of the employees working within it as well as the facility as a whole.

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Benefits:

Focusing on the use of clearly defined (specific, objective and quantifiable) metrics to measure employee performance ensures management is able to identify and address any and all issues that are arising. This is especially the case, since not all issues are actually related to employee productivity itself. In fact, facility productivity metrics (Machine Performance Rate, Time Between Failures, etc.) should be measured alongside employee productivity metrics since some issues may involve equipment failures, operational deviations, etc. To increase facility efficiency and reduce the amount of issues equipment failures cause, ensure maintenance employees are able to quickly investigate and resolve those issues. When it comes to employee productivity, on the other hand, efficient communication concerning resulting measurements should be made. Ensure that all measurement results are discussed and extra training is proposed.

Incorporate Auditing Processes Into The Customer Order Fulfillment Process to Improve Order Accuracy and Cycle Times

Best Practice (Good)

Integrate auditing processes into the customer order fulfillment process itself to promote employee accountability, increase order accuracy and reduce customer order fulfillment cycle times. Barcode all products and ensure that each product is scanned before being packaged to ensure accurate auditing and inventory management data entry. Supplement the customer order fulfillment process with the use of standardized quality control checklists to maintain product quality consistency.

Typical Practice (Bad)

Use a standardized checklist after the customer order fulfillment process is completed to ensure that all products are accounted for and in good quality before being packaged and delivered to customers. All poor quality products should be noted and replaced and missing products obtained during this portion of the process. Higher cycle times due to frequent inventory visitations when an item is missing or needs to be replaced are seen as inevitable - "the cost of doing business."

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Benefits:

Order accuracy is one of the most important steps when it comes to order fulfillment since nothing will reduce a customer's satisfaction more than receiving a low quality or erroneous product in the mail. Integrating the audit process with customer order fulfillment processes therefore promotes employee accountability, increases order accuracy and reduces customer order fulfillment cycle times. This is especially the case when products are barcoded and scanned before being packaged. While this and other automating techniques are useful (such a practice also keeps the inventory up-to-date by entering data into the order management system), supplementing these processes with the use of standardized quality control checklists is just as important since such checklists maintain product quality consistency within the organization's inventory and within the customer orders themselves. Performing these processes together during the customer order fulfillment process, furthermore, reduces the need to go back and replace poor quality or missing products which directly impacts the order fulfillment cycle time.

Place Saleable Merchandise in Suitable Putaway Zones and Store Un-Saleables According to Vendor Guidelines to Streamline Return Processing Practices

Best Practice (Good)

Place saleable merchandise on pallets by its destination putaway zone as soon as returned products are received in order to streamline return processing. Track un-saleable merchandise with a bar-coded label and use standardized checklists to ensure that all un-saleable products are stored according to vendor guidelines. Store all returns documentation in a centralized location (typically through the organization's Intranet-based resource) to promote easy access to complete audit trails (documentation typically includes return reason, date of initial shipment, date of return, customer name, etc.) which assures legitimacy of the claim (i.e., reason for the return) while improving supplier relations.

Typical Practice (Bad)

Place returned merchandise, saleable or not, in any open space available before returning to higher priority duties in order to reduce return processing cycle times. Saleable merchandise can be restocked at a later time while unsaleable merchandise should be stored in a designated area in the warehouse to await being scrapped.

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Benefits:

Typically, most merchandise are returned in saleable condition and thus clear for return to the storage area. As such, saleable products should be placed on pallets by its destination zone to streamline return processing practices, increase integration with the warehouse, and reduce the shortage of space and the potential for damage during undocking procedures. Return processing employees should use standardized checklists, however, to ensure that all returned merchandise that is not saleable and cannot be discarded are stored according to vendor guidelines. While some vendors simply require an inventory report to issue credits, others will send a sales representative to inspect the goods and/or to accept shipment to the vendor. As such, storing all return documentation in a centralized location (typically through the organization's Intranet-based resource) not only promotes easy access to complete audit trails (such documentation typically consists of the return reason, date of initial shipment, date of return, customer name, etc.) which legitimizes the return, but it also improves supplier relationships. Keeping orderly documentation, in essence, reduces the frustration and cycle times typically involved in determining why a return happened and what to do with the returned product(s).