Inventory Management vs. Warehouse Management

Although Inventory Management and Warehouse Management terms are used interchangeably,

However, there are subtle differences between the two …..they are distinct concepts, and it’s important for a business to know the difference. This is especially so if they are considering buying inventory management or warehouse management software packages, that are becoming more commonly used and vital to business success in the current decade.

Similarities

Before going into the differences between inventory management and warehouse management, it’s first useful to point out their similarities. Inventory management and warehouse management systems both involve monitoring product levels – tracking parts and products with barcodes, cycle counting, picking, packing, and shipping items, and receiving orders into existing inventory.

Differences

One commonly noted difference between inventory management and warehouse management systems is that warehouse management is more complex. This is true to the extent that warehouse management is a more focused and detailed system for the operations in a business’s warehouses. Warehouse management will typically divide warehouses into many compartments and bins, allowing specific items to be located in a specific area of the warehouse when needed. By contrast, inventory management is more product-detail oriented, and not simply focused on what is in the warehouse. So for example, where a warehouse management system can give the precise location of an item within a warehouse, an inventory management system will typically tell the user which warehouse an item is located in.

Warehouse management is not just about locating items, however, it also precisely controls what happens in the warehouse. For example what actions warehouse staff take and when, how items are stored and treated, and what processes are to be used for different items in the warehouse. Some systems integrate warehouse management software with equipment such as forklifts, packaging machines, and conveyor systems, making the warehouse even more streamlined and efficient.

Inventory management is less equipment-specific than warehouse management, but depending on the inventory management system used by a business it can be equally complex and connected to the business’s operations – assisting in multiple facets of operations. It can track key performance drivers like sales, average mark-up, and profit margins, which decision-makers can then analyze. It can assist with the purchase of new inventory, allowing the user to plan how much to buy, from whom, and in what currency. It can track inventory as it’s moved between locations. It can also provide integration across segments of the business, for example when the retailer needs an item, it can directly let the manufacturer know that more stock is required. Inventory management can be deeply complex if the system used by the business allows these functions to be performed.

Let’s keep it simple

Inventory is the lifeblood of your business. It’s what flows from node to node. And at each node it’s critical to figure out that perfect balance of supply and demand, or else suffer dire consequences.

If you have too little inventory you risk lost sales and customers from “out of stocks.” If you have too much inventory you’ll need more of everything—more space, more transportation, more handling, more labor, and more money.

Even after figuring out the correct amount to keep in stock you’ll still need to execute the proper flow. But it’s not only about the timely movement of the physical goods from your suppliers in Asia to your stores all over the U.S. It’s also about managing the vast amount of information associated with those goods in order to keep it moving to the next node—even before it gets there.

Consider inventory optimization tools

Inventory optimization tools have been gaining ground as companies seek to evaluate their entire network and determine the best inventory policies for each product at each node in their supply chain. These are typically stand-alone software tools that use data from WMS and ERP systems.

“These optimization tools take into account demand variability, supply variability, and replenishment parameters to determine how much inventory to hold in order to guard against that variability, You want something that when the results come out, and with minimal human intervention, it can execute on those results. It may seek approval for a few items, but will work seamlessly with business systems on most recommendations.”

Employ business solutions that use real-time analytics under one platform

Powerful sales and operations planning solutions are now using real-time analytics that take a unified data model of demand, supply chain, and financial data, analyze them at any level of granularity, and instantly provide responses. You can even perform rapid, interactive scenario planning and simulation with this data to support inventory and other planning decisions,

Operating on one platform where data is shared is key, You have one picture of inventory, one picture of costs, and one platform to plan against. This allows you to have real-time inventory within that one model and even track who owns that inventory—even if I’ve got a product that has been consigned to me from my supplier, it’s still in the same inventory model.

With all of these systems providing users so much real-time information at their fingertips, managers can capitalize on unique opportunities for moving inventory, such as completely bypassing the DC.

Don’t treat all SKUs the same

There is no such thing as a one-size-fits-all solution.

“Each and every product does not have the same supply and demand variability pattern, Focus on those 20 percent that statistically make up 80 percent of the volume and manage that inventory really well, so you maximize sales and profits. Some companies will not only plan for items differently, but they might also have different targeted fill rates for each item category, fast-moving A items should be filled at a rate of 99 percent, B items at 98 percent, and C items at 95 percent."

It’s called ...

"Service-Level Differentiation"

The goal, is to maximize resources on the more profitable A products, while minimizing the resources used on the less profitable C items. Each segment will then have different forecasting and stocking policies.

Keep an eye on your suppliers There are suppliers that don’t necessarily stick to their schedule or deliver on their commitments. It’s not only in terms of timing, but also fill rate, If you ordered 1,000 cases of pencils and the order shows up at the door with only 900, then that’s a problem.

I suggest closely monitoring supplier activity. Most systems track the inbound receipt of an item: There is a promise date, an actual receipt date, quantity ordered, quantity received, and the condition in which it was received.

These are metrics that can be tracked and analyzed to determine a supplier’s reliability. All of that data is typically available in a WMS, but has anybody really looked at it to determine unreliable suppliers?

After identifying unreliable suppliers, you can deal with them and resolve any issues and work toward improving a supplier’s performance—or hold more of their inventory to guard against their variability.

Track essential attributes Over the past few years, tracking product genealogy and traceability are at the top of inventory managers’ must-have lists.

It’s not enough to just track your lot number, If you used subcomponents and subassemblies that you mix into your product, you also need to know those lot numbers in case your product has a recall.

The key is to efficiently capture these attributes without increasing labor or handling costs. Electronically capturing data such as country of origin (COO), serial numbers, and vendor lot number then automatically sending that information via EDI/ASN to the next node on the supply chain.

“Without it, manual intervention, space utilization, and labor can get out of control quickly.”

The increased tracking also affords trading partners with increased visibility and the ability to make more timely decisions.

Leverage mobile devices Mobile technologies and mobile user interfaces are now ubiquitous for capturing data on inventory. It’s time for even businesses that don’t see themselves as complex to demand mobility solutions for accuracy. Most sales associates on the store floor now have mobile devices with real-time inventory of the store.

“Not only are they able to improve customer service, but when inventory is low, they’re able to generate a replenishment from the DC down to the store. Mobile devices allow quick access to accurate information and data so that managers can act quickly on their inventory decisions, especially in the DC. It also eliminates the errors and delays associated with a paper-based operation, improving accuracy, efficiency, and the general speed of your business.”

Be smart about your slow moving and obsolete items While it makes sense to focus on your more profitable fast movers, you can’t ignore your slower-moving merchandise. Every day that these items are not used or sold, they occupy space, utilize labor and resources, run the risk of obsolescence, and in many cases actually get in the way of your more popular items.

The more DCs that you store an item in, the more inventory you’re going to have. If you pull that inventory back into a single DC, you’re able to aggregate your demand variability, which allows you to reduce your required safety stock.

It doesn’t matter where you put slow movers; many DCs will need to deal with them. Control your SLOB—slow moving and obsolete items, These are products that everyone conveniently forgets about. Well-managed operations are going to put it on sale or send it to thrift channels and off-price retailers.

Lastly, don’t neglect slotting

Proper slotting not only delivers much needed space, but appropriately locates the fastest moving items closer to docks and more accessible locations, minimizing travel distance and maximizing overall throughput and productivity. Unfortunately many companies tend to neglect their slotting.

In the best companies, slotting is a daily activity not a quarterly or annual activity, As a daily activity, you can stay on top of it because it’s only a little bit of work and completely manageable. If you slot annually it becomes a major undertaking.

Conclusion

While inventory management and warehouse management have overlapping functions, they are two distinct parts of business management. The essential difference is that warehouse management is focused (often in detail) on everything that goes on in the warehouse, whereas inventory management provides broader oversight of business functions concerned with inventory. Neither function is necessarily more integral to operations than the other; ultimately this will depend on the exact system used by your business.