Stop the Leak: Five Simple Ways to Curtail Inventory Losses

Kenneth Wilbanks

December 2005

There isn’t a building materials firm in the world that hasn’t spend a significant portion of worry time fretting and figuring out why products have disappeared from the shelves. You think that your receiving processes are intact. You have a team of experienced sales people. You watch your daily invoicing like a hawk. You think that load check is pretty consistent. Maybe. Maybe on a good day, when everything runs smoothly, when everyone has gotten enough rest, in the weeks just before annual reviews, or just after last year’s awful inventory count. It is just so darned hard to be disciplined, even more difficult to instill a sense of discipline in your staff. You cannot ever have another product loss like this one ever again. Where do you begin?

I know how this feels. I know each and every operator reading this has felt that roller coaster. The resolve to do better next year. The pride felt during the first weeks after an inventory count when the team awareness is running high. The inner sense that the best practices are slipping as business picks up through the busy season. The gnawing in your belly when your computer inventory levels are off again and again. The cycle counts start off ok, then, little by little, the trouble shows up all over again. By the time your inventory count comes around in another year you feel like crawling into a hole because you know it isn’t going to be any better.

Some of the best practices are undeniably simple and simply must be followed. These are the ones where there is no quick trick or magic wand to make it all better. Fundamental steps, such as 100% load check on all delivery orders, cannot be replaced with anything else. You simply have to do it. Such as an agreed upon, step-by-step receiving procedure, each and every time. No room for missteps. None. Last minute add-ons to pre-built loads are notorious for creating inaccuracy. The urgent “hand grenade order” always get incorrectly pulled and loaded and never gets a thorough load check. The solution is better partnership with customers who assist and control their materials needs for all projects. This partnership with customers is the key area where sales people can contribute to accurate product handling.

In controlling losses, there are as many details as there are different building materials, too many to list them all in brief article. Here are five of my favorites that I know make a measurable difference every time in reducing and even stopping losses.

Proper product identification in yards and warehouses

Identify all products in the yards and in the warehouses with clean, fresh, crisp and simple signage. Customers and employees need to know beyond a shadow of a doubt what they are loading. Make no assumptions. Accurate information provides the greatest possibility for accurate loading. Be certain that the information of the identifying signage is exactly the same as the description and information that appears on your loading tickets. Also be conscious of the over use of your organization’s particular nomenclature. When creating description of your products both on your identification for invoice language and product identification signage, be sure to use widely understood, complete names of products. The key is to communicate to employees and customers in a way that is most likely NOT to be misunderstood. Company “speak” is usually way too confusing to customers and new employees alike.

Excellent service levels in warehouses and yards

Poor execution is not because people don’t care about service. It is usually due in the first place to a lack of leadership effort in scheduling, staffing levels or defining a high service level strategy for the yards or warehouse. It is usually one of the most poignant examples of the “Curse of Tradition” that is so prevalent in this industry. As a leadership team, take the time to define exactly what you want a customer to experience in your yards and warehouses. Then take the steps to enroll all the right partners for that effort. Be certain there is enough staff to cover the existing terrain of warehouses, sheds and acreage in the yard. Constantly measure the peak traffic times and adjust the scheduling to meet the actual customer demand. Place the most commonly loaded products closest to point of sale for condensed service potency. Get all like-items and system components proximal to each other for greater efficiency and heightened service perceptions.

Another measure in this response category for controlling losses and increasing service levels is the acknowledgement that there are actually two different businesses being conducted in our yards and warehouses each day. One business is the delivery effort including pulling loads, staging orders, checking loads, and actually delivering the goods. The other business is serving the pick-up customer, whether pro or consumer. Without a doubt, my clients who have reduced inventory loss and improved yard/warehouse service are those who have adequately addressed this division of labor and resources into two teams to deal with these two radically different processes. I have never seen a case where the delivery orders didn’t take priority over pick-up customer orders, leaving pick-up orders to be handled in the industry tradition: Self-serve. Self-serve strategies for yard and warehouse leave you wide open for losses. So how do your afford the extra payroll? Consider that when you split the businesses correctly, you will gain in recovered inventory, in increased service, in better salesmanship in the yards, and in better execution of your deliveries. I know you will find that you can easily afford the extra couple of individuals to make this work. How can you afford not to do it?

Loss management debriefing immediately after fiscal inventory

The perfect time to assemble a forum for strategic planning for loss management is right after compiling the summary results of a fiscal inventory. Study the products at the top of the list in both the number of items missing and total dollars lost. Focus your organizational efforts on those specific items or categories that are the biggest problems. Resist the temptation to over generalize or demand sweeping changes. Target your efforts like a rifle where measurable results can be quickly realized. DO so by aiming your attention on a few items and all relevant processes. Focusing on too many is just too overwhelming, with minimal or even worse results. Prioritize your top loss items in terms of both number of items missing in a period and total dollars missing in that same period. Then focus on a set of ten to fifteen items at one time, the ones that are eating up your money. Keep fire on these items and the material handling processes related to them and you are sure to get results that add up fast.

Another potent measure is to assign a cross section of employees from all positions to be involved in the solution process. Include salespeople, yard and warehouse staff, drivers, load pullers, and even a few of your best customers. You can’t imagine how much this quorum of stakeholders and participants can add valuable depth to your loss prevention strategy. I have facilitated TQM inspired transformation teams through inventory responses many times, always achieving remarkable success. These are the people who are at the forefront of the daily business where the losses are occurring. Their acts of participating and owning the solutions will make considerable difference in the potency of new processes, policies, best practices, attitudes and habits.

Proper receiving process with weekly debriefing

We all know that each load of material needs to have a proper piece count. We all know that each item needs to be verified against the purchase order and the packing slip. Do we all do this? Do we properly educate our staff responsible for receiving to repeat these steps carefully, completely, and continuously? We must do so, if we want our losses to be reduced. Add a routine weekly debriefing, covering any mistakes and outlining any enhancements recommended for your codified best practices. Who attends? Those who have made the errors. Who teaches the class? The person catching the mistakes. Or the person making the most mistakes in a week! The class should address how to follow the correct procedure and how to avoid errors in the future. This weekly routine gradually and deliberately creates a culture permeated with education and verification, both essential for loss prevention.

Product knowledge training

Ask yourselves; does your organization provide dedicated routine product knowledge training to all sales, administrative, yard, delivery, and warehouse employees? I bet that the yard/delivery/warehouse staff is left out. Why? Because “that’s the way it has always been.” The yard/delivery/warehouse staff will likely handle each and every product two or more times before it is finally sold and delivered to a customer. Take the right steps. Be sure these unsung heroes of our industry are properly educated to do their jobs well. We train the heck out of our sales people, or at least we should. We need to do the same for all other people who handle the product and interact with customers outside of the sales floor.

Here’s a common scenario. An executive calls and I hear that familiar, even painful tone of voice as I am informed, ” We just can’t seem to get a handle on our product losses. It is getting worse every year. We have to do something.” I hurt for that person on other end of the line. I hurt because any mistake that can be made, any mistake related to inventory management for the purpose of loss prevention, is one I certainly have made, usually more than once. I can show scars all up and down the track of my career, where valuable lessons were learned the hard way.

I tenderly listen to the suffering leader in his call. I respond quietly. My questions are simple. ” Are all of your products properly identified? Are your yard/warehouse teams separated from your load building and delivery teams? Did you debrief after that last inventory count? What were your top loss items by number and dollar? What were your specific strategies related to each item and product category? Who were the participants in your response team who analyzed and produced this strategy? Do you conduct a weekly educational debriefing with those involved with receiving your products? Do you offer intensive product knowledge training for salespeople, drivers, load pullers, receiving and administrative staff and your yard/warehouse personnel?” His answers are easy to guess.

I ask us all, what more can we do to make a real difference in preventing inventory losses? We must faithfully execute the basics. Never miss load check. Establish a receiving procedure, teach it and stick to it. Revise it as is required to be current with your products and facilities. Continually get more pro-active with materials management for your pro customers. Beyond those essential basics, if you follow my five favorite simple strategies as I outlined them above, you are sure to see immediate measurable results.