Inventory is at the heart of our product economy. The growth of e-commerce and the race to shorten delivery times has made inventory even more important.
Now, many producers and distributors are trying to lease, build or buy more inventory space. “With both uncertainty in availability and increased lead times across the market, businesses are holding more inventory,” said Grant Thornton Advisory Managing Director Kirk Waldrop. “That means the market for warehouse space has gotten tighter, as there’s very little available.”
While it’s hard to secure space, businesses also want to avoid taking on too much — excess space and inventory will accrue an ongoing cost. Businesses need to find a careful balance that lets them respond to market demands without the burden of excess cost.
Businesses traditionally develop extensive plans for demand and supply, but many don’t plan for the impact on inventory space requirements and expected capacity. To maintain the right balance of inventory space — even as market demands, supply chain delays and other factors shift — businesses can use data modeling.
Think of data tactically and strategically
Inventory space planning and data modeling can help businesses make better long-term strategic decisions by providing insight into the tradeoffs and total costs associated with their inventory.
“You’re essentially building two models, then comparing the requirements,” said Grant Thornton Advisory Experienced Manager Ben Abraham. “You’re modeling the actual space, for example, to see how many pallet positions are available within the facility. Then, you’re modeling the inventory itself to see how much of the previously modeled space it takes up.” From there, businesses can compare their space and inventory to determine total space utilization and build out a future-state view.
- Analyze the space
Every warehousing space is different, and businesses need to design every space around the products it will store. So, model every space accordingly. You should typically begin by documenting how many inventory positions you have in your facility — this includes pallet positions, case storage positions, unit storage positions, floor storage positions and other details. Do this for all usable inventory locations, and include the staging space for shipping and receiving, line-side storage locations for manufacturing lines, storage trailers and any secondary off-site storage locations.
- Analyze the inventory
The goal of this model is to take on-hand inventory at a unit level, model it in terms of warehousing space consumed, and align it with the space model outlined above. Begin by making sure you understand the different inventory categories you have on hand and their unique storage requirements.
- At what level is inventory stored within your warehouse management system? Is inventory tracked at the case level, item level, unit level or by volume?
- Do you keep item master data for unit dimensions, pallet tiers and heights, units per case, and/or cases per pallet? If this data is incomplete, you can build out assumptions by product type.
- Is this data truly reliable? If not, determine what data elements are critical to your business and develop a plan to improve.
- Look to the future
Since the goal of this exercise is to develop a long-term view of inventory space and requirements, you need to take your current-state baseline models and start to model where you plan to be in the future. You need to consider many factors that will influence the storage space and inventory requirements for your future model:
- Are sales increasing? If so, how much inventory will you need to meet the demand? If sales are flat or declining, can you use the current inventory in some other way? If so, you need to model these changes appropriately.
- Do you have any improvement initiatives at the facility that will impact the storage capabilities? Do you plan on adding additional racking or storage enhancements? If so, you need to model these changes appropriately.
- Where do you stand on leases for space and contracts with warehousing providers? If new contract dates are on the horizon, you need to model against these timelines and determine your true space requirements.
Analyzing your space and inventory data together can help you build an overall inventory modeling solution that improves productivity. “You need the analytics capability to merge space and inventory together. So, it’s the analytical capability and the modeling capability to be able to build your scenarios,” Abraham said. If you find your facility is operating at above 80–85% capacity, it’s very likely you’re already experiencing issues with productivity.
Turn data into decisions
To turn your space and inventory analysis into an inventory modeling solution, you need to make sure your analysis of each factor provides relevant, comprehensive and real-time data, managed with proper data governance processes.
“Getting the right data is key to a proper analysis,” Abraham said. “Data must be collected at the item level, so you understand factors like how many units per case, how many cases per pallet and the dimensions of the pallets. This gives you the information needed to make those 12–24-month projections about product and space needs.”
These inventory models also empower you to perform “what if” scenario planning for decisions about how to manage inventory and space. That helps you understand the tradeoffs of safety stock increases on your existing space, build informed businesses cases for material handling improvements, and understand space capacity for opportunity buys.
Effective inventory management and planning, from the individual product level up to the facility level, can help shape the future of your warehousing operation and give you a competitive advantage in your marketplace. This comprehensive analysis can also help prioritize inventory management within your business and organizational planning, and help you stay ahead of the increasingly competitive market for warehouse space.
Your data can help everyone in your business to better understand your inventory, along with how it’s stored, handled, and moved on-site and off-site. That takes a lot of the guesswork out of inventory management and control, keeping warehouse employees productive and making the overall business more profitable.
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