With the growth of the international trade and retail sector, the importance of warehousing services is increasing as well. Proper storage of goods has always been an essential asset of a smooth logistics strategy. In fact, warehousing services can greatly impact your supply chain efficiency.
It is crucial for the company to have enough space to store inbound shipments and consolidate outbound freight. Good warehouse management can provide substantial benefits to your order fulfillment, service, and customer satisfaction.
Here are 3 main benefits of good warehousing services for your business:
Better operational efficiency
Regardless if your warehouse is in-house or you are outsourcing warehouse management, it should result in better efficiency. When you have enough space and it’s being managed the right way, this can reduce costs and make processes run faster and smoother.
Inventory and stock management
A good warehousing service provider has advanced technology and tools to give you increased visibility into your product stock. Therefore, it lets you manage and track all the shipping processes and forecast the next steps according to the data analysis. With accurate inventory insights, you can see what operations require optimization or elimination, and where you have strategy gaps.
In the retail business, the customer’s experience is the ultimate assessment of a company’s success. Customer service is often a weak link in the business strategy. Perhaps effective warehouse management can fix it in your case? It may seem like there’s barely any connection between purchasers and storage facilities. However, properly managed inventory and visibility into the stock can greatly affect the speed of order fulfillment and delivery. All of this results in fast shipping and increases your customer satisfaction within your company’s services.
Although warehousing and storage are often underestimated, they are major contributors to your businesses performance. Practicing an efficient warehouse and inventory management strategy can take your customer service and productivity to another level.
Every company works to analyze its supply chain costs and eliminate unnecessary costs and processes. Regardless of how complex your supply chain is, every part of it matters, however, not every part of the supply chain is assessed equally. Inbound shipments are often overlooked by companies, although they can account for a substantial amount of transportation costs. In fact, for some companies, inbound shipment costs can reach 40 percent from the entire transportation budget. That’s why it’s important to know some useful practices for inbound freight management.
Management practices for inbound freight
Inbound freight is cargo that comes from your suppliers and vendors. Therefore, it can be complicated and challenging to control inbound shipments and simultaneously balance relationships with your suppliers. Having robust inbound freight management can significantly reduce your transportation costs and provide better visibility into the shipping process.
Analyze your current strategy
Before trying any new strategies or making any changes, look at your current approach. Here are some key things to pay attention to:
Control of inventory
Visibility and tracking
Relationships with the supplier
Inbound freight costs
Try to honestly answer whether your vendors meet the compliance program, what level of supply chain visibility you have, and how much control you have over the movement of inventory. Essentially, relationships with your vendors matter even more. If you have poor communication, most likely you’re losing many benefits of a collaborative partnership.
Inbound freight management is a wide term. You can start with minor changes like checking on-time deliveries to a complete strategy shift and reload. Depending on the current state of things, you will need more or less effort to make the best out of your inbound shipments.
Inventory is the key to successful inbound management
One of the core factors of a good inbound strategy is the ability to properly control and manage your inventory. Increasing administration over the transit of your product and its quantity will help benefit your supply chain in the long run.
One of the crucial factors of successful inbound management is high visibility into the supply chain. Thanks to technology, companies can track their shipments through a transportation management system. Additionally, TMS lets you manage shipments and collect valuable data for strategic planning and defining inefficiencies.
Proper inbound freight management can bring value to your supply chain and cut transportation costs. The key to a successful inbound strategy is to make it among your top supply chain priorities. A reevaluation of your current strategy will help outline working solutions for the future.
Supply chains share common goals: increase productivity, reduce costs, mitigate risks. Common goals for reverse logistics are to improve customer satisfaction, cut costs, maximize return on assets. Reversing the supply chain means taking in returns, recalls, damaged goods and overstocked merchandise and recapturing its value or disposing of it. With the popularity of online shopping, the supply chain has become more multifaceted, increasing the importance of an organization’s reverse logistics strategy and inventory management practices.
Of all products sold, an average of 8%-12% are returned, and the cost to return those units is 2-3 times more than bringing them to market.
As Inbound Logistics notes, planning for product distribution failures or product rejection is off-putting; it’s a case where everyone loses – the unsatisfied customer who sends back the product, the supplier who gets parts back, and the manufacturer who wasted resources creating and distributing products that were unneeded or unwanted.
An average consumer goods retailer’s reverse logistics costs are equal to 8.1% of total sales. A manufacturer will spend 9%-15% of total revenue on returns. Improving reverse logistics can help a company increase revenue up to 5% of total sales.
Effectively managing reverse logistics means finding opportunities to make money out of returns. Inbound Logistics suggests companies find monetary opportunities by reestablishing returned merchandise into the selling stream, disposing it more resourcefully, labeling the root cause of the return, and ultimately reducing the number of returns.
Managing returns is as important to consumers as it is to an organization. According to RL Magazine, 82% of those surveyed are likely to complete a sale if the retailer offers a free return shipping label an in-store return policy and 66% of customers look at the return policy before making a purchase. Effectively managing the reverse logistics strategy has a positive impact on the bottom line and inventory management.
Returns and Inventory Management
Inventory management is accountable for planning and controlling the product life cycle – from raw materials to the end consumer. Inventory managers must establish an amount of merchandise that will balance the risk of running out of the product with storage costs.
Safety Stock: Buffer short-term uncertainty of supply and demand
Cycle Stock: Available inventory for normal demand.
Excess Stock: More inventory than what is allowed
Anticipation Stock: Inventory kept to meet seasonal demand or shortfall caused by erratic production
The number of returns directly impacts the amount of inventory. With too many returns, inventory can be built up, even freeze production, if the returned product can go back to market. Recoverable inventory is considered for remanufacturing, and remanufactured products are considered ‘like new’ items, which have the same quality and the same price as new merchandise.
Companies have recognized that their inventories are growing because of the return option, and are looking for inventory reductions that balance the company’s sales growth.
The Wal-Mart Example
Wal-Mart’s inventory comes from more than 70 countries and at any given time, the retailer operates more than 11,000 stores around the world, and manages an average of $32 billion in inventory. Tradegecko reports that Wal-Mart has become the world’s largest retailer with the highest sales per square foot, inventory turnover, and operating profit of any discount retailer. Wal-Mart has taken their supply chain seriously, using best practices like cross docking and vendor managed inventories. These strategies keep transportation costs down, reduce lead time and eliminates inefficiencies.
In 2016, The Wall Street Journal reported that Wal-Mart Stores clamped down on inventory growth and reduced shipping costs while putting more goods on the shelves in front of consumers. Wal-Mart’s overall inventories grew 0.9% in the fourth quarter of 2015 compared to the same period the year before, which was 25% of the rate of total sales growth, and inventory measured against comparable stores for the year before declined 2.9%. Wal-Mart’s efforts to restrain inventory growth have been complicated by the surging e-commerce sales. The company is trying to balance its current use of DCs and separate fulfillment centers. (Source)
Wal-Mart began its Inventory Deload program in 2006 after learning its total inventory levels had been rising at a much higher rate than the company’s sales growth. In 2004, inventory levels at Wal-Mart grew at almost 90% of sales growth and just under 90% in 2005. In 2007, the Wal-Mart Stores division reversed the inventory trend, with inventory growth just 0.7% versus a sales increase of 5.8%. (Source: Supply Chain Digest)
Transportation Management and Inventory
With an established inventory strategy and reverse logistics process, organization’s must also consider their transportation management. Shipment visibility that is cost effective is critical to an organization’s various inventory demands. TMS software reduces logistics costs with its real-time ability to assess transit time, determine the best mode and lane, reduce labor, be notified of risk or disruption, and monitor volumes, trends and performance.
The 27th Annual State of Logistics Report shows that inventory levels are down and logistics costs are rising.
Given the extreme demands of the hundreds of millions of online consumers who expect free shipping and fast delivery, e-commerce interrupts transportation budgets and regular shipping strategies. In 2015, transportation costs rose 1.3% year-over-year.
Retailers, manufacturers and suppliers hold inventory to reduce costs and/or to improve customer service. Having too much inventory can cause excess merchandise to be wasted, and not having enough inventory can leave customers without the products they ordered.
According to the State of Logistics 2016 report
Between 2009 and 2015, inventory levels rose about 5% annually, well above gross domestic product growth.
These years are typically associated with economic growth, so it’s logical that inventories rose, as businesses restocked, gained demand, and fulfilled e-commerce orders.
In 2014-2015, inventories flattened. Projections anticipate an ongoing decline this year and next.
Inventory is a substantial asset in most companies – today, businesses have costly inventory loads. At the end of 2015, inventory value stood at $2.51 trillion. The US inventory-to-sales ratio has been steadily climbing.
Advantages to Low Inventory Levels
Reduced holding costs: Inventory holding costs include everything from the utilities used in the space to labor handling the inventory.
Better management: Less inventory is easier to manage, store and retrieve.
More capital and more space: it can be expensive to carry inventory. Maintaining moderate inventory frees up working capital. Less inventory creates more space, overcoming the need to have extra space for surplus product.
Inventory is a key measure of supply chain management; it determines where supply meets demand. Lower inventory levels reduce acquisition and holding costs, but increase the cost of direct or indirect stock outs.
Shippers are paying attention to the economy – holding excess inventory isn’t an efficient strategy. Overall, companies are better managing and optimizing stocks, reaping efficiency and productivity with accurate forecasting.
Smaller inventories free up cash, space and management. Low inventory levels are not an indication of poor forecasting or inaccurate transportation scheduling. Rather, it showcases a company’s streamlined supply chain management strategy – where processes have been assessed, cycle times have shortened, and the company operates efficiently and productively.
The omni-channel environment consists of demanding, knowledgeable consumers who expect a seamless, customized shopping experience. They want to order from anywhere, at any time – these empowered shoppers have changed fulfillment and transportation in retail supply chains.
To enhance the customer’s shopping experience, retailers are building virtual inventories. Virtual inventory is an all-inclusive list of a company’s products that can be sold to a consumer; the products might be in a retail store, stock room or warehouse.
Think about it like this: When a customer places an order for new shoes, a system scans and checks the virtual inventory list to determine the product’s location in correlation to the customer. Based on this information, the employee has the shoes picked, packaged and shipped to be delivered to the requested destination.
Inventory management is a differentiator in the omni-channel retail world. Creating inventory visibility means shared data across all shopping channels.
Effective virtual inventory optimizes retail fulfillment by locating the product closest to the consumer and choosing the best routing option, determined by time and cost.
Amazon, the world’s largest online retailer, has an enormous library of virtual inventory. They operate out of more than 100 fulfillment centers and offer unrivaled options in shipping. Amazon has significantly influenced customers’ expectations in service and product options.
Now, these expectations are universal and all businesses are expected to provide the highest level of service. This strains logistics functions – especially transportation, which struggles to provide the necessary capacity for increasing freight tonnage and arriving at varying destinations on time.
Even smaller companies can emulate the virtual inventory process and compete with Amazon and other mega-retailers. Virtual inventory providers assist companies to build inventory in various locations and enable them to offer their consumers fast and cheap fulfillment.
But, like other supply chain practices, a virtual inventory comes with risk:
· Shorter transportation routes/ less OTR miles: Shipping from location with the closest proximity to consumer.
· Poor delivery performance directly affects the brand’s reputation.
· Offer customers products that aren’t in-house.
· Integration and adoption of the order processing system across all inventory locations.
· Offer more brands within product categories.
· Accommodating the increased inventory.
· Increase product offerings without buying additional warehouse space.
· Shipping strategy must meet demand.
Virtual inventory is a key component to retail’s omni-channel strategy because it permits retailers to sell store products in locations outside of their own store fronts and distribution centers. For virtual inventory to be a successful strategy, it requires technological integration and buy-in from the company, its suppliers and its distribution and store operations.