The True Inventory Story

This story takes place on a nice spring day in a warehouse. A manager and I are discussing the implications of inventory. Surprise waits around the corner. Join us.

The first tour:

"Our inventory gives us a competitive edge," said Peter as we walked through the warehouse inspecting row upon row of boxes of goods. "Nobody else can respond as quickly as we can."

I reached up and inspected the date on an inventory tag. "How old is this stuff?" I asked, brushing the dust from my fingers.

"I'm not sure but this lot number would make it about 18 months old. We sell a lot of this product and marketing wants to make sure we never run out. We do a pretty good job of preventing back-orders. That's good isn't it?"

"It's not that much, Steve. Our controller says that we can borrow money at 9% and we save almost 5% by buying in truckload quantities. So inventory is really cheap for us."

By that time we had walked around the corner and I was inspecting a pallet of mismatched boxes. They were all damaged or dirty. "Pete, what's this?" I asked.

"Looks like some old damaged product that the warehouse crew set aside. It's part of our quality program. We won't ship anything that doesn't look good. We're proud of that."

"Is it on the inventory?"

"Yeah, it probably is but maybe not. Once every year or so we go through and clean things out and adjust the inventory. It is tough to throw the stuff out though. Sometimes we can repackage it and sell it off at a discount."

"Pete, these shelves are pretty full. Does that create any problems for you? It also looks like there's been some damage to the shelves. That damage has to cost something. What's going on?"

"Business has been growing so fast we've had to add another row of shelving to this warehouse. Fortunately we were able to squeeze it in by reducing the width of the aisles. I guess the downside is that the forklifts hit the shelves once in a while. But we've saved a lot of money by not using any more outside warehouse space."

"What do you mean by additional outside warehouse space?"

"Well, we use about 25% more space than this at a contract warehouse. It was cheaper than building new space ourselves. And we really don't have the room here at this site yet. We're trying to buy the adjacent property so we can expand by next year. We really need the room to expand. Business is great."

"Pete, it's nice to hear that business is great but I'm not sure you need more space to handle it. It's really expensive to buy new property. The closing costs alone will cost you tens of thousands of dollars and then you'd have to invest a bundle into renovating that property. Maybe there are some alternatives."

"We've looked at the alternatives. There's just no way we can handle our new business without more space. You should know that." By that time we'd come to the loading docks where several trucks were backed up to receive the day's shipments. Things were hopping. There were fork trucks and people everywhere. "Just look at this. We get any busier and there's no way we can make our shipments on time. It's tough enough as it is."

"Pete, this looks like a zoo. Aren't you afraid someone is going to get hurt? There's not enough room to stage the materials and work around the pallets. Why don't you clear out a staging area that has enough room? You could also smooth out the flow of materials in and out. It'd be safer and more efficient."

"There's no room. We had to move inventory into this area over a year ago. That's what I've been telling you. We need more space. It is dangerous. We've had four serious accidents in this area in the last six months because it's too congested. We're trying to stop the accidents but the turnover has been hurting our training program. It's tough to find and keep good people these days."

"That's sounds like a major issue. Accidents are very costly. Are these guys on overtime? It seems to be late in the day to be doing this work."

"Yeah, we run about 100 hours a week in overtime. It's the only way we can get it all done. It takes a long time to check in and put the incoming goods into the warehouse so by the end of the day, we often have to work the crews over. It takes a lot of my time and the Superintendent's time to make sure we have enough people on to get this all done. We don't want to be late with our shipments. We do that all too often and the customers are mad enough at us. We need to improve our quality. We instituted a checking program so that every shipment is double-checked before it goes out but that doesn't seem to be working. I'm really frustrated. I can't wait until we get the new warehouse and can hire some more people."

"Pete, I don't think you need any more space and I think you need fewer people."

"Hey, Steve, you're nuts! Can't you see what's going on around here! I brought you in to help me and here you are talking like you're going to stab me in the back. I need support from the boss to make this happen, not more grief. How can you help me as an efficiency expert?"