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