Best practices for improving warehouse picking productivity

Order picking is one of the essential functions of a warehouse operation. Utilizing the right picking
methodologies, leveraging technology to streamline processes and following sound hiring practices will
go a long way in optimizing your workflows and contributing to the bottom line.

To help you further optimize order fulfillment workflows, let’s take a look at best practices for improving
warehouse picking productivity.

Design your warehouse for optimal flow

Each functional area of your warehouse should be designed and positioned to flow from one activity to
the next. This design is based on how inventory flows through each area, from receiving to outbound
shipment. For instance, goods flow through a typical warehouse this way: Receiving – Storage –
Replenishment – Order picking – Sorting – Packing – Shipping.

Such a logical flow of inventory eliminates scenarios in which associates have to double back across
areas to perform an order fulfillment activity. Also, each area should be designed to accommodate the
expected amount of traffic. Aisles should be wide enough to facilitate the smooth flow of associates and
equipment without causing congestion — even during periods of high-volume traffic.

How to prevent excess and obsolete inventory?

4 steps to reduce excess and obsolete inventory

Identify your excess and obsolete inventory.

Evaluate whether the excess inventory is 'risky' (could become obsolete)

Understand the causes of your excess and obsolete inventory.

Use these rules as proactive strategies to help prevent excess and obsolete inventory.

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1. Identify your excess and obsolete inventory

Try to categories your stock into three categories:

Healthy inventory: Also called cycle stock. This is the inventory you plan to sell, based on demand
forecasts.
Excess inventory: When stock levels for a product plus buffer stock exceed forecasted demand.
Obsolete inventory: When stock remains in the warehouse and there is no demand for it over a
prolonged period of time (typically for at least 12 months).

This information is a great starting point to understand if you have a problem with excess and obsolete
inventory.

2. Evaluate whether the excess inventory is ‘risky’ (could become obsolete)

Sometimes it’s OK to have higher levels of stock than demand requires. For example, if you have high
volumes of fast-moving items that continuously sell well, no problem! You can easily lower current stock
levels by reordering less and using up the surplus.

However, excess stock becomes a risk when you have high volumes of items sat in your warehouse that
are slow moving or have volatile demand e.g periods of low or no sales, or have declining demand i.e
they are coming to the end of their product life cycle. You therefore need to identify these items and put
a plan together to reduce their stock levels and prevent obsolescence.

3. Understand the causes of your excess and obsolete inventory

There can be many reasons why you have excess inventory. Most often it’s down to:

1. Poor demand forecasting capabilities

2. Needing to mitigate supply risks e.g the consequences of a no-deal Brexit or regularly inconsistent
supplier lead times
3. A desire to ensure 100% stock availability (service levels)
4. A complex supply chain (this could be multi-tier (echelon) or multi-site)
5. Purely bad decisions

4. Use these rules as proactive strategies to help prevent excess and obsolete inventory

Rule one: Prevent excess inventory with better demand forecasting

If your demand forecasting regularly leads to over or under stocking, it’s time to look at ways to improve
it. For starters, forecasting based on number of stock days is an over-simplistic and inadequate method
for predicting demand. Instead you need to consider moving to demand forecasting techniques that will
take into account demand trends, seasonality and promotional activity.

Statistical demand forecasting carried out by inventory optimization software, such as EazyStock, will
analyses every product in your portfolio and assign a demand type according to its position in the
product life cycle. This means that as a product moves through the growth, maturity and decline stages,
and its demand patterns change as a consequence, the algorithms used to calculate demand will also
dynamically update to make forecasts as accurate as possible.

Read more on demand forecasting accuracy or EazyStock’s demand forecasting software.

Rule two: Don’t use excess stock to mitigate supply risks

Carrying excess stock is not the answer to alleviating issues with your supplier lead times. Instead you
need to address this problem by:

Planning for supplier holidays in advance: If you know when your suppliers shut down e.g for annual
holidays, Chinese New Year etc, add these periods of closure to your lead times and adjust reordering
points accordingly.

Monitoring supplier lead times: Keep track of your suppliers’ lead times – are they sticking to their
service level agreements, or are they often late? If it’s the latter, get the issue sorted at source. In the
meantime, add adequate safety stock, (buffer stock) to your inventory to cover delays.

Read our post on effective inventory replenishment for more information on managing supply and
demand variables to reduce excess inventory.

Rule three: Stop carrying excess inventory to prevent stockouts

It’s a massive misconception to think that holding lots of stock is the only way to ensure product
availability – this is simply not the case!!! Of all the tips in this post, this is the biggest takeaway. It’s
possible to have high service levels and achieve excellent stock availability without carrying high
volumes of every item in your warehouse. The key is to use inventory optimisation techniques when
setting your stocking policies.

This means going beyond simple ABC analysis. Instead, you need to priorities which inventory items to
carry based on multi-dimensional criteria, such as demand types, pick frequency, demand volatility and
cost to sell (or profitability). This allows you to set the stock levels of every item in your warehouse
according to how well it sells and how much it costs the business. A typical inventory policy matrix may
look something like this:

Here, the items in the light orange, bottom right categories are picked most frequently and are cheap
the sell, so are usually stocked in greater quantities than those dark orange, that are picked less and are
more expensive to the business.

Every company’s inventory matrix will look different (and you can have more than one for different
product categories), for example, a catalogue business may wish to stock all items and would therefore
have all boxes shaded in to some degree.

For each category, you should set a service level (stock availability) target. Typically, these would be
higher for products that are picked more frequently and have a lower cost to sell. The aim is to find a
balance between the capital you invest in stock, versus your ideal availability targets.

With stocking policies in place for every SKU that define individual stock levels and associated fulfilment
targets, the risk of excess and obsolete inventory is dramatically reduced.

Obviously, creating an inventory matrix with this much detail could be very challenging without
inventory optimisation software. A tool such as EazyStock will undertake all the hard work for you and,
as demand, pick frequency and costs change, will automatically move inventory from box to box,
dynamically adjusting recommended stocking levels.

Rule 4: Optimise inventory levels along your supply chain

If you have a multi-tier (echelon) supply chain or carry stock across multiple locations it can be difficult
to prevent excess inventory from building up. For example, if you have decentralized ordering its very
common for inventory planners to order ‘a little extra’ and inflate their forecasts to cover the risk of run-
out. But do this across each stock location and these ‘little extras will amount to high levels of surplus
stock.

The answer is to plan and manage inventory with one centralized view. Systems, such as EazyStock,
allow forecasting and reordering to be based on point-of-sale demand data, not demand at each stage
of the supply chain. In addition, with a view of stock levels across all locations, inventory can be
balanced out. This means excess stock at one location can be redistributed to other sites, where levels
of the same item are low, before needing to order more from the supplier.

By managing your inventory across all echelons, or locations you’ll quickly remove surplus stock from
your supply chain and the risk of obsolete items appearing on warehouse shelves.

Rule 5: Buy stock wisely

It’s easy to be tempted to buy in bulk to get the best price on an order. And, if the items will move
quickly off the shelves, it may not be a bad idea. But, if it the goods are slower-moving with erratic or
declining demand, you should think again. It’s no good getting a cheap price for inventory that’s going to
tie up capital and even worse, be at risk of becoming obsolete and sold at a discounted rate.

Excess inventory may also be a result of setting your minimum order quantities too high. If this is the
case, renegotiate! Do the math’s: it may be better to pay a higher unit rate for smaller order quantities,
than have cash tied up in stock that isn’t moving fast enough through the warehouse.

Summary

Excess and obsolete inventory can be very problematic to businesses, and finding proactive ways to
prevent stock build up can bring major benefits. Improved cash flow, more working capital, a better
inventory turnover ratio and lower storage costs will all help ensure a healthy profit margin.