When I speak with distribution executives nowadays, they all say the same thing: “We are struggling to keep our heads above water because of the economy.” However, before the economy took a turn for the worse, they talked about low profit margins, high inventory levels with low turns, and an erosion of their profitability because of their warehouses. I am often forced to ask, “Is the economy really that bad? Or, is your inability to deliver what your customers want, when they want it, and at a competitive price making it seem worse to your organization?”

Your organization is currently under a microscope. Every order you deliver to your customers is magnified 1,000 times. When there is a mistake, you wonder if they will order from you again. Your sales people are working harder than they have probably ever had to work for orders. But they are not competing against other sales people. Your warehouse is competing against other warehouses. So, if you really want to know how to survive in “any” economy, all you have to do is look in your warehouse.

Your warehouse, like every other warehouse, is comprised of two main elements: people and inventory! Most distribution organizations do a horrible job at managing both of these fundamentals.

To prove it, here’s an example. The value of your inventory ranges between 6 and 20 percent of your top-line sales. That means a company with 100 million dollars in sales will generally have between 6 and 20 million dollars of inventory on hand. Let me ask you this question: When was the last time your warehouse supervisor took a course on managing inventory?

Assuming you are generating a 4 percent return, that would mean for every $100 of lost inventory, your hard-working sales staff must generate $2,500 in new sales to make up for the $100 of inventory your warehouse lost. If your warehouse was to lose $100 a week (equating to $5,200 a year), your sales staff would have to generate $130,000 to make up for the $5,200 of inventory the warehouse lost. I guarantee your warehouse loses more than $5,200 of inventory a year—which means a good portion of your sales staff’s effort goes straight to purchasing to make up for your warehouse’s inability to accurately control your inventory! This is a simple example that proves most distributors do a horrible job at managing their inventory.

Scott Hess, a principal with Redhawk Advisors, a mergers and acquisitions firm, had this to say: “In the due diligence phase of an acquisition, the inventory is often overstated and usually reassessed at a much lower value, due to antiquated accounting statements on the balance sheets.”

Your customer service personnel spend a portion of their day performing warehouse tasks. They often place a customer on hold—walking by two warehouse personnel talking instead of working—so they can verify that the inventory in the bin matches the quantity displayed on the screen. Your outside sales personnel often have to pick their own orders because your counter is so busy. And the inventory in the trunks of their cars is probably more accurate than the inventory in your warehouse.

Your picking and put-away personnel spend a good portion of their day—55 to 60 percent of their time—traveling to and from your locations. And when the product is not there for the pickers or the location is full during put-away, which happens quite frequently, they spend approximately an hour a day searching for it in other locations. I have another question for you: When was the last time your warehouse supervisor took a course on how to slot and profile your product?

Because most companies are in “dumbsizing” mode, it appears the staff is more productive. We even see that national numbers are stating productivity is on the rise. However, you have product from vendors that does not get received for days. Therefore, your purchasing department spends its time reviewing proof of deliveries from your vendors. You have returns, which take a backseat to every other process in your warehouse; and for distributors between 3 to 8 percent of your orders are returned. And on average, a customer will call four times to inquire about a return. Again, because it takes so long to process, while the cost of handling a return can be two to three times that of an outbound shipment. When was the last time your warehouse supervisor took a course on improving productivity and reducing picking errors?

Right now you have someone controlling 20 percent of your revenue and hiring and firing key personnel, and they have probably never taken a course, attended a seminar, or read a book on inventory control, or how to efficiently lay out your warehouse or improve employee productivity. I have to ask, “Is the economy really that bad? Or, is your inability to deliver what your customers want, when they want it, and at a competitive price making it worse for your organization?”

Your warehouse was a problem prior to the economy’s taking a turn for the worse. Your warehouse was a problem prior to the housing slowdown. Your warehouse was a problem and you have known about the problems your warehouse creates for some time now—but you have chosen to ignore them. So I say, “Don’t blame the economy for the problems your organization is experiencing right now, blame your warehouse!” By addressing your warehouse problems, your organization will be able to survive in any economy. But if you continue to overlook them, this economy will consume your organization along with the many others it has already devoured.

*****

Rene’ Jones is widely known in the supply chain and logistics industry as the founder of Total Logistics Solutions, Inc. (www.logisticsociety.com). TLS is a warehouse efficiency company which was recently named “One of the top 100 Supply Chain and Logistics Providers in the world.” Rene’ is a sought-after keynote speaker who has been published, referenced, and quoted in industry magazines throughout the United States, Central America, Canada, Australia, and Europe. He is the author of several books, including the critically acclaimed “This Place Sucks (What your warehouse employees think about your company and how to change their perceptions!).” Rene’ has more than 18 years of experience in consulting, training, warehousing, and logistics. He has used his industry knowledge to assist small and large multinational organizations alike, making them more efficient, more profitable, and more prepared.

Warehouse Christmas Carol 

It was the night before Christmas, when all through the warehouse, Not a forklift was stirring, not even a mouse;  

There were no stockings hung, only safety signs that read, Pedestrians beware, or you could end up dead;  

As I looked around I noticed, the inventory was not nestled where it was supposed to be, The warehouse was out of space and all the world could see;  

The supervisor in his ‘kerchief, and I in my cap,Had just settled down and told me, the consultant, “he was sick of this crap;” 

Inaccurate inventory, not enough space, Constant employee turnover, a pile of returns, He took a deep breath, and then put his hands on his face; 

How did we get here, he asked, what are we doing wrong,How will we catch up with receiving, I thought to myself, “This is the same tired song;” 

Next comes the dreams of a Warehouse Management System, to save us next year, But it never comes, because a lack of ROI is what the executives fear; 

I tell him the lack of ROI is not because of the software, But because few organizations address their problems,Before implementing a solution that big, They merely end up putting clean clothes on dirty kid; 

He says, nothing ever changes and wonders if we will be able to keep our sanity, How many more customers will we lose and blame on the economy; 

What will we do when the customer on the phone asks, “Are you sure you have that in stock,”Smile like always and say, “Can you hold while I check my receiving dock;” 

Just then the CEO enters and asks how is it going, The supervisor smiles and says, “Its going, as you can see its going;” 

The CEO then tells of a simpler time when customers weren’t so demanding, When inventory levels were low and all he thought about was expanding; 

Well expand we have done, with a warehouse bursting at the seams, But is the warehouse too small he asks, or do I need to speak with the Purchasing team; 

The supervisor responds no I think we will be okay, We just need to catch up on the receiving that came in the other day;  

Well we definitely need to get those receivers entered so we can close out this year, So do what you can, to make it disappear; 

As he began to stroll away, down the aisle, he stepped over numerous piles of inventory, He then turned and said, “Merry Christmas you two,” and that is the end of Warehouse Christmas story.  

And I hope you all have a Merry Christmas and a Happy (Prosperous) New Year. 

Rene’ Jones is founder of Total Logistics Solutions, Inc., a national logistics and supply chain consulting organization that focuses on improving your warehouse operations. Rene’ is the author of the acclaimed book, “This Place Sucks (What your warehouse employees think about your company and how to change their perceptions!)” and the book “WMS 101 (Selecting, Implementing and Maintaining a Warehouse Management System”. To learn how TLS can help your organization send an email to info@logisticsociety.com or visit the company’s website www.logisticsociety.com

There once was a company who made a lot of shipping errors. Customers were beginning to get really upset and started threatening to take their business elsewhere. After thinking long and hard about what to do, the owner decided to give each department a bag of nails and he told the supervisor of each respective department, “Every time an order was shipped wrong, the person who made the error must hammer a nail into the back fence”.  The first day, the warehouse had driven 16 nails into the fence, customer service had driven 20 nails into the fence and purchasing only had to drive 7 nails into the fence. Totaling 43 nails the first day alone, and after only a week they could not believe how many nails had been driven into the fence.

Over the next few months, as the company began to improve things got a lot better and the number of nails hammered daily gradually dwindled down. People began to discover it was easier to pay closer attention to the customer’s order than to make the dreaded walk to the back of the building and drive those nails into the fence.

Finally, the day came when there weren’t any mistakes at all. The respective managers told the owner and he suggested, “Wait a week and see how each of your departments continue to do.” By the end of the second week without a mistake, the owner suggested each department now pull out one nail for each mistake free day.

The days passed and managers were finally able to tell the owner that all the nails were gone. The owner then called an emergency meeting with the entire company in the back by the fence. He said, “You have done well, but look at the holes in the fence. The fence will never be the same. When we ship an order wrong, can’t find the inventory promised to a customer or don’t deliver their order when promised, it leaves a scar just like this one. And he pointed to the holes in the fence. You can put a knife in a man and draw it out. It eventually won’t matter how many times you say ‘I’m sorry,’ the wound will still be there. Our customers spend their hard earned money with us, because we have promised two simple things. That we will deliver what they want, when they need it. If we don’t do that it is like driving a nail into their account. And a customer will only take being hurt so many times until they begin giving their business to our competitors. And it is virtually impossible to get a customer back once they are gone.”

How many nails would your fence have?

Rene’ Jones is the founder of Total Logistics Solutions, Inc. (www.logisticsociety.com <http://www.logisticsociety.com/> ). Rene’ is a published author and industry speaker, his recent articles and workshops have focused on improving warehouse distribution operations. You may contact Mr. Jones at (888) 807-0958 ext. 709 or via email at rene.jones@logisticsociety.com.

If you want to see a business owner cringe, ask them about their inventory. They will begin talking in a language only a few souls on the planet will understand. They will mention industry buzz words like: Inventory Turns, FIFO, LIFO, Cycle Counting and on, and on, and on. If you are still standing there by the time they get to COGS (Cost of Goods Sold) I admire your resolve.

Being in the business of helping organizations create better processes to control their inventory, it was ironic that an Insurance Adjuster told me I would have to perform an inventory of my personal assets after a fire in my home. So there I was, unprepared to account for everything that I owned and as luck would have it, the need and urgency to produce this list presented itself at an inopportune time. As we were walking through what was left of my home, the adjuster said I would have to produce an inventory (list) of all of my Assets. A list of what, I asked. You know the number of televisions, DVD players, computers, stereo equipment, etcetera that you own. I thought that would be a piece of cake, since my wife and I are minimalists. After all, we only had two televisions, two DVD players, two computers, and our stereo equipment was in the garage. But the Adjuster explained, “It’s a little more complex than that.” He went on to say that he needed a list of everything, because it’s the information on that list that the insurance company uses to generate the reimbursement check against. He continued by telling me, they will need receipts, the purchase price, makes, models, serial numbers, any photographs of my assets, and the purchase date of everything as well. After the magnitude of what he was asking sank in, I began to panic. My wife (who was 7 months pregnant) and I, along with my 3 year old son went through the house and began trying to produce an inventory list of our assets.

We were somewhat lucky, if you can call it that, because our house did not burn completely to the ground. So we could walk through, and room by room create the inventory minus some details. But at that time I suddenly began to realize just how complicated this Home Inventory thing would actually be.

Shifting gears for a second, think about a business that does $100 million in sales revenue. The value of their inventory will range between 6% and 20% of their Top Line sales. In layman’s terms, they will have on their shelves between $6 million and $20 million of inventory at any given time. That same principle applies to your home as well. If you live in a home with a real value of say $500,000, your assets in the home, garage, attic, basement, front and back yard will equate to somewhere between $30,000 and $100,000. That might help paint a picture as you begin to realize how complicated this process actually was for my wife and I.

Most people only think about the easy to remember assets: refrigerator, stove, sofa, dining room furniture, bedroom furniture, etc. But I challenge you to think about the, “Oh Yeah! I didn’t think about those types of assets.” Such as: ceiling fans, pots, pans, silverware, clothing, hats, toys, tools, lawn furniture, etc. That does not even include construction upgrades to the home.

Getting back to the task at hand, as my wife and I created the inventory of our Assets, I thought about all the times I said I was going to inventory everything we owned, prior to the fire, but never got around to actually doing it. My insurance agent told me when I purchased my Homeowner’s Policy, to create an accurate record of our Assets in case of catastrophe or theft. My attorney told me, when we were creating our Living Trust, to create an inventory of our Assets. I even thought about friends of ours that had gone through a divorce, they said the worse thing they had to do was to inventory their Assets for the Judge so they could be divided equally. The signs were there, and each time my wife and I said we would go through and inventory everything, we never actually did. Now, we were sitting in a hotel room at night, walking through a burnt out house during the day, while listening to our 3 year old saying, “Daddy I’m ready to move back home and play with Shaka and Baby again! Shaka and Baby are our two dogs we had to leave at the house because the hotels in the area would not accept animals.

Through the ordeal of my home inventory chore, I thought a lot about the people affected by Katrina. I felt really sorry for all of those people, knowing less than 20% of homeowners have an accurate inventory of their assets. Then I began to think about the fact that approximately 40% of all small to medium sized businesses never reopen after a catastrophic event. Lee Eagan, CEO of Oliver H. Van Horn Co. explained the devastation after Katrina at the Industrial Supply Associations Annual Meeting. He said, “Nothing survived, no inventory, no records, no photographs, NOTHING. 103 years gone! Many of our employees lost everything, their homes, their cars and most importantly, their memories. Last week our insurance carrier gave us three days to deal with either a cancellation, or accept only 34% of the pre-Katrina limits with a premium of 8.6 times. Not good.

Would the organization you work for be able to produce a list of its Assets? The sellable inventory probably. But what about the number of: desks, chairs, keyboards, fax machines, paintings, cubicles, filing cabinets, telephones, calculators, cash registers, book shelves, racking, etc. It is often difficult for organizations during mergers and acquisitions to document their assets for one another. Remember the, “Burden of Proof” is on you, the policy holder, not your insurance provider.

We all live in a different time now! The number of natural and man-made catastrophes has been increasing on a global scale for 20 years. Already there have been as many major storms in 2000-2005 as in all of the 1990s. Seven of the ten most expensive hurricanes in US history occurred in the 14 months from August 2004 - October 2005: Katrina, Rita, Wilma, Charley, Ivan, Frances and Jeanne. Our changing world and times now include the threat of terrorism on top of the increasing number natural disasters. Now is the time to ensure you have an accurate record of your assets and now is the time to ensure you have copies of your important documents. Such as: Insurance policies, Mortgage Titles, Marriage Licenses, Passports, Veteran documents, pink slips, birth certificates, employment forms, etc. It is in your absolute best interest, as a homeowner, a business owner, and as a parent to your children. Yes, your kids will want their toys, video games, bicycles, etcetera replaced along with your important items.

We are back in our home now and have replaced 55% of our assets. It has taken more than 2 years and we are finally receiving our final payout from our insurance provider. My son is happy he gets to play with our dogs again. We have since welcomed our second son, who was born six weeks premature. My wife says it was because of the stress we were going through at the time. Whatever the reason we are just happy he is here. We have begun speaking to everyone who will listen about the importance of generating an inventory of their assets. Most people are receptive and now understand the importance of it with all that is taking place in our own backyards. Catastrophic events are no longer relegated to other parts of the world anymore. Hurricanes in Florida, tornadoes in Iowa, earthquakes, fires and mudslides in California are proof we all have to be prepared.

Don’t pay on an insurance policy year after year only to not receive all that is owed to you. As I said, it has taken us over two years to receive our final payment and it was not all the insurance company’s fault. Do you have an inventory of your assets? If not, why not? Don’t wait for a disaster to strike and don’t get caught unprepared like my wife and I, and so many others. Believe me, when you are forced to take an inventory by memory so you can replace everything you ever owned you will wish you had taken the extra time to Cover Your Assets!

About our Founder:The fire referenced in this article that conceived our product CYA (Cover Your Assets - Home Inventory Software and Service) www.itstime2cya.com occurred in November 2004.

Rene’ Jones founded Total Logistics Solutions Inc. (www.logisticsociety.com) in 1997 headquartered in Burbank, California (US). Mr. Jones has been published, quoted and referenced in over 100 industry trade magazines and he is also the author of several books, including This Place Sucks (What your warehouse employees think about your company and how to change their perception!). Mr. Jones speaks at several major industry events throughout North America and was named one of the Top 25 Pro’s to Know by Supply Chain and Demand Executive magazine. Rene’ can be reached at (888) 807-0958 or via e-mail at info@logisticsociety.com.

Gas is more than $4.50 a gallon, transportation costs are going through the roof, your employees are struggling to keep their homes and your customers are scrutinizing every line item on their invoices.

As a result, your supply chain is now more crucial than ever to your organization’s success. If you don’t have the ability to provide your customers with what they want, when they want it, and at a reasonable price, the livelihood of your organization is at risk.

Distributor Woseley recently announced plans to close 75 locations and said its profit was down by 23%. Other distributors are feeling the crunch, too, and will ultimately begin “right-sizing.” Will your organization be the next one to shut down operations?

No one wants to hear that they have an “ugly baby.” But if your warehouse is in shambles, then you need to be told so, because it’s probably the only way you’ll end up doing something about it.

Do you have returns that sit around for days without being processed? Are your workers spending too much time in the warehouse checking stock because your inventory is so inaccurate? Is your warehouse bursting at the seams, causing your pickers to spend twice as long searching for products to fill orders, and your receivers twice as long to find put-away locations?

If your warehouse is in shambles, you will have no choice but to admit, you have an ugly baby.

Being in the distribution business, your organization depends on two things: Your people and your inventory. Which do you think is more important to your organization’s success?

The value of your inventory can be as high as 20% of your top-line sales. That means a $100 million company will have approximately $20 million of inventory on hand. And it costs between 20% and 35% of its value to stock that product.

How accurate is your inventory — 70%, 90%, 95%? If you’re a $100 million company, 95% accuracy means your personnel lose $1 million of inventory every year. Is that acceptable?

The value of your people is calculated differently, but is just as crucial. Labor accounts for 65% of the cost associated with distribution. How much turnover do you experience in your warehouse? Do you have a training program for new hires? How do you motivate your employees?

According to recent job polls, roughly 75% of employees are searching for a new job, while 20% say they are disengaged. Disengagement is costing U.S. organizations over $300 billion annually. That’s because 66% of lost customers can be traced back to employee disengagement or indifference.

Is it understandable that employees feel the way they do? Sure it is. Consider that a person making $10 per hour in your warehouse can spend as much as $100 per week for gas. That means they can spend as much as one week’s salary per month to make it to their job – a job where they feel underappreciated!

This cycle is about to come to a screeching halt. If you aim to attract and retain good employees, you will need to do something about it. Remember that your employees are the ones who control your inventory and communicate with your customers.

That said, what will you do differently to service your customers — internal and external — during this economic downturn? Will you evaluate your slow and dead moving inventory to free up much needed warehouse space? Will you evaluate your stocking methodology to create a more efficient picking and put-away process? Or will you bury your head in the sand and hope it all blows over?

I hate to say it, but the latter is what most organizations are doing. In this economy, they do not have the capital to invest in improving their warehouse or supply chain operations. And when business was good, they did not have the resources or the time.

The truth is, now is the best time to do the things you have been too busy to do. Address those inventory inaccuracies and picking errors. Improve the turnover you have been experiencing year after year. Motivate your workers, who are driving long distances to make it to a job they hate. Give them new incentives. Get them re-engaged with the business.

Now is the time to address your inefficient warehouse and get your people and processes into shape. It won’t be easy, but it’s a prime opportunity to turn your ugly baby into a beautiful thing.

As a distribution professional, you have several key performance indicators you are always aware of. The operations and fulfillment field includes many KPIs–quantifiable measurements that reflect the success factors of an organization.

But which warehouse KPIs are in your “Fav Five?” Here are mine, in descending order.

5. Returns processed
By this I mean returns processed as a result of incorrect product being shipped, or that the warehouse made a mistake. If you do not accurately track this metric, how do you know the effectiveness of your warehouse staff? You don’t!

4. Inventory movement
When was the last time you took a long, hard look at where your product is located within your warehouse? Most organizations don’t do this regularly—and they should. Did you know that 20% of your product is picked for 80% of your orders? And 55% of your pickers’ and receivers’ time is spent traveling to and from your locations? That’s why this metric is on my list.

3. Employee turnover
From recent studies, 40% of employees polled said they were actively looking to change jobs. The average employee will be with your organization for four years or less. A warehouse employee will leave your company for less than 50 cents more an hour–less than $4 more a day. How do you reduce turnover? That’s a whole other article, but keep in mind that “employees don’t leave bad companies, they leave bad managers.”

2. Inventory accuracy
If your pickers and receivers spend 55% of their time traveling to and from your locations, and the product is wrong when they get there, what does that do to the productivity in your warehouse? Several things—all of them bad. For one, it prevents receiving from being received and put away the day it arrives. It also means that returns may not be processed for weeks, and that orders will not be shipped 100% on-time. It can even prevent your warehouse from being cleaned. When it comes to inventory accuracy, your KPI cannot be based on the results of your annual physical. The value of your inventory can be as high as 20% of your annual sales revenue. If this metric isn’t in your Fav-Five, what you are measuring is irrelevant.

1. Profitability
There are a lot of things organizations measure, but let’s face it, the most important metric we all track is profitability. Without profit there will be no cash to grow. We all know we measure what we value. And that is why we place such an emphasis on sales metrics. Now that you have my distribution center Fav-Five, it’s time to think about your own. I’ll leave you with one more thought: In a rising tide, no one notices the rocks on the bottom of the river. But when the water recedes and the rocks begin tearing up the bottom of the boat, everyone wants to know how those rocks got there. By then, it’s too late. The water is definitely receding—are there rocks under your boat?

Rene’ Jones is the founder of Total Logistics Solutions, Inc. (www.logisticsociety.com) which as recently named, “One of the top 100 Supply Chain and Logistics Providers for 2007”. Rene’ is the author of the acclaimed book, “This Place Sucks (What your warehouse employees think about your company and how to change their perceptions!”). He can be reached at info@logisticsociety.com or www.logisticsociety.com