Cycle counting: Periodic cycle counting is an important procedure. For startups, an annual cycle count is likely enough. For larger companies we have instituted quarterly or monthly counts. Cycle count results are the key performance indicator of inventory accuracy. Cycle counts can be tricky to time correctly, because you can’t stop the inflow of new orders and the shipping deadlines – but managing the timing is something your 3PL can help you with.
Measurement: We believe “bin accuracy” is the best measure of accuracy. Bin accuracy is the percent of locations whose inventory count is accurate. This is because if all locations have accurate inventory counts, then not only will total inventory be correct, but pick and pack processes will also be efficient. Conversely, the total inventory count of an item could be correct but if inventory counts by location are not also correct, there are likely issues in the picking process. Other possible measurements include “average bin variance” which is the average quantity variance by location across all locations. Or “average item variance” which is the average quantity variance of all items.
Receiving: The put-away or receiving process, is a crucial first step. Outer boxes and inner boxes should be marked with at least the SKU, item description, and quantity. Different SKUs should not be mixed in the same box or jumbled on the same pallet. Merchants and 3PLs need to verify that what was sent matches what was received. Excelsior’s Advanced Shipment Notification process is an optional tool that helps to automate and streamline accountability in receiving: the merchant submits ASNs either in the Excelsior portal or via the Excelsior API, and Excelsior’s receiver will scan incoming packages as the first step in putting them away. This enables visibility to the merchant on which shipments are OPEN and which are COMPLETE (put away into inventory).
Returns and Damages: 3PLs should maintain dedicated storage locations for damaged and reserved items, to keep them separate from available inventory. Clear procedures for processing returns and handling damaged items should be agreed upon, as merchants have different standards of acceptability. 3PLs do not like to store damaged product because it can quickly fill up a warehouse, though it is easy for clients to forget about this. There should be agreed-upon procedures for how to handle damaged products – discard it, ship it somewhere, or fix/repair it, once the quantity hits a certain level.
Replenishment: This is a key process for maintaining bin accuracy (and order picking efficiency). 3PLs should be running replenishment to bring inventory from overstock locations to forward pick locations. For products with expiration dates, the replenishment process is also how 3PLs can institute first-in-first-out (FIFO) logic. The replenishment process can also red flag problematic items/locations for cycle counters.