Logistics and Inventory Management

Stock, or stock inventory, is all the material and goods that are stored, whether they are intended to complete the production process or for sale to the customer. Efficient warehouse inventory management is a challenge for logistics companies or those with a warehouse or distribution center, because it is the management of stock inventories that will largely depend on profitability.

The importance of stock in a warehouse

The accumulation and storage of products is important because, first of all, the stock avoids the shortage of the product with which the company is working. Then, generally, the more units there are, the lower the unit cost of the product. Finally, having the product in stock allows immediate availability in response to customer demand.

This is why the management of the stock is as important as the stock itself. Indeed, any imbalance (out of stock, excess stock, etc.) in the quantity of products that are stored can take away from the competitiveness of the company.

Types of stock or inventories

Before discussing the key aspects of inventory management, here is a brief analysis of the different types of stock or inventory that exist:

Types of stock from the functional perspective:
Cycle Stock: This is the stock in a warehouse to meet normal demand over a long period of time.
Safety stock: These are stocks filled to meet unexpected demands or to be able to meet demand under exceptional circumstances that would have caused problems (for example, unexpected delays).
Seasonal stock: this is the seasonal stock for products whose sales increase significantly at specific times (example: nougat for the end of the year celebrations).
Salvage stock: these are the products that can be reused in part or in full.
Dead stock: this is the inventory of obsolete goods, which cannot be reused and therefore must be removed from the warehouse.
Speculative stock: if sales of a given product are expected to increase in the short term, stock of that product is accumulated before the increase in demand occurs and thus can store cheaply.

Types of stock from an operational perspective:

Optimal stock: the optimal stock level is the stock that gives us the highest profitability. In other words, it is the inventory that maintains the balance between an appropriate response to demand and maximum profitability of storage costs.
Zero stock: this is the quantity of stock associated with the Just In Time (JIT) management system, the characteristic of which is to serve on order, and therefore to minimize the inventory of stocks in the warehouse. Zero inventory is characteristic of the automotive industry.
Physical stock: physical stock is the number of products that are available in the warehouse at a given time.
Net Stock: This is the existing stock in the warehouse minus the unmet demand.
Stock on hand: This is the sum of inventory, or physical stock in the warehouse, plus pending orders to suppliers, minus unmet demand.

Opening stock:

the amount and value of products or materials that a company has available for sale or use at the start of an accounting period:
This year’s opening stock was actually last year’s closing stock.

Variables in stock management in the warehouse

Inventory management includes how to organize the flow of inventory in the warehouse. It is extremely important for the competitiveness of companies. It must be mainly oriented towards the provision of an adequate level of warehouse stock to be able to meet customer demand competently and at an optimal cost for the company.

The main variables that directly affect stock management or warehouse inventories are as follows:

Planning and purchasing management.
The desired quality of service.
Sales forecasting.
The Product Storage System: Finding the ideal industrial storage solution for businesses can make the difference in inventory management, and therefore, in the viability of the business. Optimizing warehouse and distribution center space plays a decisive role.
The delivery time of suppliers.

Inventory management methods

Here are the main inventory or stock management systems that are employed in logistics companies:

FIFO method (First in, First Out):

With the FIFO-style inventory management system, the first goods to leave the warehouse shelves will be the first to enter. It allows optimal stock rotation and is perfectly suited to the storage of perishable products.

Some of the industrial racks that fit this management method are dynamic pallet racks or the compact drive through solution. The pallet shuttle solution also adapts to this method. To find out if this is the correct method for managing inventory in your warehouse, learn about the benefits of the FIFO system.

LIFO method (Last In, First Out):

In the case of the LIFO type inventory management method, the last unit load to enter the warehouse will be the first to exit. This is an ideal method for non-perishable products, which neither expire nor lose value over time. The merchandise is easily stacked on the shelves and when it is needed to access it, it can be done easily and without having to move the rest of the load units.

Dynamic push-back racks or Drive in stacking racks are ideal solutions for applying the LIFO stock management method in the warehouse. The shuttle solution offers great flexibility and can also be applied in this stock management system. See more details about the LIFO system.

ABC management method:

In the ABC inventory management method, inventory is classified into three categories: A, B, and C.

Category A: These are the highest value products in the stock inventory and therefore require more monitoring. They usually occupy 20% of the stock. Controlling these stocks is fundamental to avoid stockouts and all the problems that this could cause.

Usually, these products occupy the lowest positions, with more direct access to industrial shelving.

Category B: According to the ABC management method, these are the products that require lower control from the company, since they have lower turnover. The inventory is usually updated in batches, not by unit. They represent about 30% of the warehouse stock.

They are placed halfway up the shelving or in another less central area of ​​the warehouse.

Category C: These are the items that have the least turnover. They can constitute up to 50% of the inventory. Controlling this stock is simple since it has almost no rotation.

Usually these items are replaced as soon as they leave the warehouse. They usually occupy the higher areas of the racks or other less central areas of the warehouse.

Just In Time (JIT) model:

Organizations that are governed by the Just in Time (JIT) inventory management model have the necessary and fair raw materials for every moment of the production process, with minimal storage requirements. This model requires a very strict organization in order to avoid delays or out of stock. The automotive sector is the clearest example.

Wilson Model or Optimal Order:

Wilson’s model for inventory management determines how much or how much of an order you want to process, in order to optimize the inventory management system. We calculate when and in what quantity to order the products. The mathematical formula takes into account the annual demand for the raw material, the cost of the order and the cost of storage.

In conclusion, warehouse stock management is differential in an organization’s performance and there are many factors that must be taken into account when deciding how to manage the flow of goods: what type of stock it is, how much what resources we have to control it, what are the planning and forecasting of purchases, relations with suppliers and the storage capacities of the installations.