In 1896, Italian economist Vilfredo Pareto made an astute observation. He noted that 20% of the population owned 80% of all the land in Italy.
Upon further study, he saw this ratio emerge in all aspects of nature: business, economics, athletics, health, and beyond.
The phenomena become known as the “80/20 Principle.” The core thesis is that roughly 80% of consequences come from 20% of causes.
This rule has become a staple of business strategy, proving itself out in almost all aspects of commerce.
Business strategists began to see that roughly 80% of revenue came from 20% of the best customers. 80% of internal value came from 20% of the most hard-working and talented employees. And 80% of business failures flow downstream from a core 20% of problems and obstacles.
The four problems listed below are the cause of almost all inventory management and warehouse failures. For eCommerce business owners looking for more efficiency and growth in their inventory operations, this is the vital 20%.
This post will dive deep into each of these problems and specific solutions on how to fix them.
If there’s anything that the 80/20 rule can teach business owners, it’s this: the key to sustainable growth is to fix the big leaks in your boat, not get caught up rearranging the chairs on the deck.
With all that said, let’s dive into our first problem.
Problem #1 – Inventory Ignorance
We’ve mentioned it before on our blog, but it’s worth repeating. There’s one resounding pain point that we hear from prospective customers: “I have no idea what’s in my warehouse.”
And then there’s the closely-related issue that often comes on the heels of the first: “Even if I know what I have in my warehouse, I have no clue where exactly it is.”
Both of these stem from a root of inventory ignorance. Building your eCommerce business on inventory ignorance is like building a house on a foundation of sand.
No matter how much revenue you bring in or how much growth it appears like you’re enjoying, you’re constantly at risk of a collapse (especially as you scale).
Thankfully, the solutions to inventory ignorance are simple. That said, they do require a commitment and trust in the process.
Solutions to Inventory Ignorance
Solution #1 – Regular cycle counts
There’s no way around it. The first step to eliminating inventory ignorance is a thorough audit of your inventory. However, this doesn’t need to be the apocalyptic, “all-hands-on-deck” audit that requires shutting down your operations for a full day or more.
We’ve written previously on our blog about how this audit strategy is unnecessarily expensive and inefficient.
A better way forward is to categorize inventory into high-value, mid-value, and low-value SKUs based on historical revenue data. This is called “ABC analysis” in the inventory management world.
In other words, you divide and conquer, prioritizing a count of the high-value SKUs while still maintaining normal business operations.
The next day (or however long it takes to count the first category), you assign personnel to count the mid-value SKUs (this is your “B” category in an ABC analysis).
You rotate personnel to ensure counts are accurate and repeat this cycle on a monthly, quarterly, or bi-annual basis. You’ll want to tailor your audit processes to your specific business goals and available human capital, but there’s no arguing that it’s the necessary first step to eliminating inventory ignorance.
Solution #2 – An electronic inventory management system (IMS)
Alright, so you’ve performed your cycle counts, and you’ve got a solid strategy in place for keeping inventory ignorance at bay in the future. There’s only one problem: warehouses are highly dynamic.
This means your inventory numbers won’t stay static. Consider these fluctuations in inventory and how they affect your overall inventory ignorance:
- Employees may physically relocate product (intentionally or by error)
- Products are regularly ingested into your warehouse via incoming purchase orders and shipments
- Products are processed and shipped to customers as part of regular business operations
All of these things could take place in a single business day, rendering your initial count inaccurate in less than 24 hours.
You need something that changes with your warehouse; a single source of truth for all your inventory.
While Excel is an invaluable staple of business and offers lots of automation potential, it doesn’t hold a candle to the flexibility and scalability of an IMS.
Because warehouses are dynamic, you need a dynamic system.
IMS platforms also eliminate the time and effort required to sort products in specific physical locations. Product locations are now all centrally recorded and kept in your warehouse’s “brain.”
You can sleep soundly knowing everything is accounted for, including the physical locations of all SKUs.
In addition to tracking physical locations of inventory, IMS platforms help business owners:
- Forecast sales
- Track reorder points
- Generate intelligent and efficient pick lists for warehouse employees
And much more.
For a taste of some of the other benefits offered by an IMS, check out what SkuVault offers eCommerce operations through our platform here (or reach out to us for a personalized demo, and we’d love to show you ourselves).
Problem #2 – Personnel Waste
Payroll is often the steepest expense on a business’s cash flow statement. This is true across almost every sector and especially relevant in eCommerce.
Humans are the most valuable parts of any business. They are truly the most significant “cash-producing assets” you can invest in.
That said, you want to make sure the investment in your people produces a positive return for the business. This often means one of two things: increasing their productive output or decreasing personnel waste.
More often than not, shoring up the latter will improve the former. In other words, eliminating waste often begets more productivity.
Personnel waste commonly manifests itself in two forms:
- Motion waste – inefficient physical movement within the warehouse in the course of normal business operations
- Waiting waste – inefficient allocation of effort during lulls
Learning to leverage your warehouse talent will accelerate growth and free up human capital you didn’t even realize you had.
It’s a story we’ve seen time and time again. Small warehouse operations get accustomed to inefficient warehouse processes that get the job done.
Orders come in sporadically, and a handful of employees fulfill them on a first-come, first-serve basis.
After all, what startup (or even growth-sized business) wants to spend time crafting operational policies that scale well? It’s not exactly something you see on entrepreneur Instagram.
The problem occurs when the business grows. Before you know it, SKUs are expanding and orders are rolling in like the chocolates in that iconic I Love Lucy scene.
This requires more full-time hires, exponentially compounding your warehouse complexity (and the potential for waste).
Now, with orders flying in, one employee may get a 15-item order while her peer gets a two-item one.
The picker assigned to the smaller order must wait for the large order to be processed in the processing area. Only then can the small order be processed before it’s boxed and shipped, leaving the employee with nothing to do in the meantime.
This is especially pernicious if there’s no predetermined policy or training on what to do during lulls. Are employees supposed to help other pickers get their orders done more quickly? Or would that just unnecessarily disrupt the pickers’ flow?
These are all common (and costly) issues that eCommerce businesses face as they grow their warehousing operations. Fortunately, there are effective solutions to both waiting waste and motion waste.
Solutions to Personnel Waste
Solution #1 – Efficient picking strategies
Thankfully, proven picking strategies can eliminate both waiting and motion waste.
We’ve written extensively on our blog about some of the best picking philosophies and how each of them solves specific problems.
Take wave picking, for example. Wave picking is a highly effective picking strategy that utilizes short interval scheduling (SIS) to ensure all employees are working together to fulfill an established group of orders.
These orders are batched by certain predetermined criteria and organized in waves that are released (often electronically through an IMS) over the course of normal business hours.
Each employee is assigned particular items to pick based on their physical location in the warehouse (or whatever other criteria you choose). The net result is an equally distributed workload and highly optimized warehouse.
For more information on how to get started with wave picking (and a summary of the other popular picking philosophies), be sure to check out our comprehensive post on it here.
Solution #2 – Rearrange the warehouse for maximum picking efficiency
A straightforward way to eliminate motion waste is to optimize your warehouse to facilitate efficient picking.
You can organize according to a number of different criteria, including:
- Placing SKUs often purchased together in close proximity
- Arranging top-selling items near the processing area for reduced motion waste
- Placing seasonal items near the processing area for reduced motion waste
For example, let’s say you own a sporting goods company that sells surfboards, skateboards, and snowboards. Thanks to the historical forecasts produced by your IMS, you know that skateboard and surfboard sales peak in July and snowboard sales peak in December.
You physically relocate your products according to this seasonality, placing the high sellers immediately next to the processing station for minimal motion waste.
Going a step further, you can use an IMS like SkuVault to determine the most common cross-sells or bundled items with these high sellers. After determining that helmet sales historically correlate with skateboard sales, you store those items near the skateboards in the appropriate seasons.
Stacking these physical optimization strategies will significantly reduce motion waste in your warehouse.
We often say that time in this business is measured in seconds, not minutes. Any time you can shave seconds off of an order, that value compounds over time and results in a higher return on your human capital investment.
Solution #3 – Policies and training
One of the easiest things to neglect as a growing enterprise is scalable policies and procedures. These are documents written by leadership detailing how employees ought to conduct themselves in the normal course of business.
While having the benefit of legally protecting the organization, they also ensure employees are working from the same basic understanding of their core responsibilities. These policies often include detailed processes for how orders ought to be picked and fulfilled in the most efficient manner possible.
That dovetails perfectly into employee training.
- Eliminated inventory ignorance
- Implemented an IMS platform at the core of your operations
- Optimized your picking strategies
- Written a few succinct but comprehensive policies that govern your business operations
It’s time to get your team trained up and on the same page.
That means spending time (and potentially capital) on training your warehouse workers until your desired behavior becomes second nature to them.
Take special care to make sure your employees are well-trained on your IMS platform, as it will often be the most frequent touchpoint in their day-to-day operations.
Training employees on new systems and technology may seem like a chore at first, but it’s a worthwhile investment that will pay significant dividends in the months and years to come.
Problem #3 – Warehouse and Operational Waste
On the list of the most devastating things to an eCommerce business’s cash flow statement, personnel waste is number one. Second only to personnel waste is warehouse and operational waste.
This is a catch-all term used to encapsulate all the waste generated by inefficient storage, ordering, picking, fulfilling, and scheduling processes.
Even more to the point, here are a few real-world examples of warehouse and operational waste:
- Overly optimistic or pessimistic sales forecasts that result in either overstocks, dead stock, or stock-outs
- No reorder points or safety stock which makes the business susceptible to stock-outs and very unpleasant customer experiences
- Poor communication among warehousing, purchasing, and production causing any number of errors that directly affect your reputation and customer experiences
- Incorrect purchase orders leading to wasted capital and unnecessary expense
If you’ve managed or worked in a warehouse for any length of time, I’m sure you could add several of your own issues to this list.
I could tackle these one-by-one, but that goes far beyond the breadth of this post. Further, they’re all solved by the same solution.
Solutions to Warehouse and Operational Waste
Solution #1 – Implement a robust and feature-rich IMS
There’s really no way around it. The best way to solve each of the aforementioned problems (or any other permutation of warehouse waste you can imagine) is through the implementation of a reliable, feature-rich IMS platform.
These platforms are specifically designed to fix the most common inventory management problems.
Take our own platform, SkuVault, for example. With SkuVault, leaders have a wide swath of sales reports at their disposal. You can drill down into sales by channel, by SKU, or a series of other filters.
This means your forecasts aren’t optimistic or pessimistic. In fact, they’re not based on emotions like “optimism” or “gut feelings” at all. They’re based on cold, hard historical data.
This means you can place purchase orders with confidence, knowing that you won’t waste capital on products or SKUs you don’t need.
As inventory flows in and out of your warehouse, your IMS is like your own personal assistant at the core of your operations.
Everything is tracked electronically. This leaves nothing up to chance, mitigates human error, and helps eCommerce owners sleep peacefully knowing their inventory data is safe.
Problem #4 – “Firefighting” and Stunted Growth
A common obstacle we see in smaller, owner-led eCommerce operations is a “firefighting” mentality among the leadership.
Here’s what I mean. Most entrepreneurs are visionaries, right? Just the audacity to go off the beaten path and be your own boss takes grit, guts, and a lot of creativity.
But somewhere between the startup and growth stages of the business, a lot of owners lose their way. They become inoculated with the mundanity of tedious, low-value tasks.
Perhaps it’s the inability to delegate or hire the right talent. Or maybe they feel like they’re being pulled in too many directions.
The same imagination that helped them dream up and start their business in the first place is eclipsed by the granularity of putting out metaphorical fires in their warehouse.
This “firefighting” hamstrings growth, as the leader is perpetually in reactive mode as opposed to proactive mode.
And this doesn’t just apply to founders, owners, and CEOs. This also applies to warehouse managers. Warehouse managers are put in place to effectively lead a team. And while part of that requires getting their hands dirty every so often, they should be freed up to focus on high-level tasks.
“Firefighting” leaders have no bandwidth to plan, dream, or cast a vision for the business’s future. This is a real shame. Thankfully, there are tangible solutions to this problem.
Solutions to “Firefighting” and stunted growth
Solution #1 – Conduct an automation audit
This solution starts with the premise that the only way to stop getting caught up in low-value tasks is to automate those low-value tasks.
There are plenty of user-friendly digital tools available to help leaders automate almost anything. However, jumping into the tech first is a mistake.
A good builder never starts with a tool but with a task. Then, they choose the most appropriate tool to accomplish that task.
In the same way, it’s important first to identify the best candidates for automation. As you move through your week, make a note of the things that are:
If it seems like a robot could do it better, it’s a perfect candidate for automation. Specifically, in the world of inventory management, most IMS platforms have the built-in ability to automate common time-wasting tasks.
Solution # 2 – Use your IMS to automate common inventory management tasks
Here are a few examples of things that IMS platforms like SkuVault can help you automate in your eCommerce business.
- Reorder point alerts on a per-product basis, ensuring that you never incur stock-outs (and don’t have to hold that info in your head).
- Quality control reports that help you identify bottlenecks in your warehouse and help prevent both internal and external fraudulent activity.
- Automated product data entry via barcode scanners. Manual data entry is not only a huge time waster but introduces all sorts of unnecessary human error. SkuVault allows you to scan and track items at every point in their lifecycle.
- Mobile access to your inventory database. This eliminates motion waste and allows all stakeholders to access crucial information from anywhere.
- Holds and buffers, which allow you to set aside a block of inventory until a certain date and manipulate what’s displayed to the customers on a per-channel level (all without needing to edit each channel manually).
Take the Next Step in Fixing your Inventory Management Problems
We’d love to show you how SkuVault can help you solve all these problems, no matter the size of your business or warehouse.
We’re confident that solving this core 20% of obstacles will fix 80% of your operational hang-ups. And SkuVault can help you get there.
Reach out to our team today for a live demo or to learn more about SkuVault.