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In a recent article we looked at the problems of excess stock at distributors and again we look at inventory but this time at 3rd Party Logistics Providers (3PLP). While stock counting is part of the 3PLP service, it is your money and your customer service which can be negatively impacted.
Stock control and counting is such a pain that it is lucky if you are only required to count inventory once per year, under most jurisdictions. However, count your inventory only once per year and you are asking for a huge and unexpected hole in stock level and value. In most cases it really is ‘your stock’ even if it is not under your roof so you need to ensure you play a full part in the 3PLP process of keeping inventory under control.
An annual stock counting policy leaves your stock integrity open to genuine human errors and more deliberate stock ‘shrinkage’ variations. This is not all about stock loss; it is more about stock accuracy. If your system indicates a stock of 100 pieces and a client orders 100 pieces but it is not actually present then that is a probable lost sale and an unhappy customer. Potentially you have also lost the value of the actual stock (plus VAT in most countries), a real triple whammy!
You need to be counting more frequently when SKU numbers are high and they usually are in FMCG. The discipline of caring and counting for stock is not something that can be switched on and off.
What can you do to help your 3PLP keep stock under good control?
- Unambiguous Contract. Your contract must identify which party is responsible for losses, shortages and damages. Any allowances or thresholds must be clearly defined and rigorously applied without any special or conciliatory terms. (An understanding of the 3PLP record on inventory with other clients should be part of a rigorous tender process.)
- Ownership. Going beyond the legality of a contract, the 3PLP and their staff must understand they are morally responsible for the stock under their control – this is an important must-have mindset. The 3PLP does not own the inventory so must display rigorous care and attention on a daily basis, night and day; rain, hail or shine!
- Master Data Alignment. If you do not have accurate and reliable master data then expect discrepancies at the 3PLP. You do not need misunderstandings about the unit of measure, outer case configuration, bar codes or even the names of your SKUs. Your 3PLP may first in class and employ the best and most honest people but master data being out of line will affect inventory control and customer service.
- Goods Reception. This is not simply someone dragging product out of a truck with a trans pallet before it is put in a rack. This is the opportunity to spot errors right at the beginning of the process or else you leave yourself open to a stock ‘bull-whip’ where small errors and variations snowball into much larger and complex problems over time. Be thorough at goods reception when the faults are fresh and before they appear in an ERP or WMS as ‘fact.’
- Inventory Counting Skills. Not everyone or every role is suitable for the inventory counting process. As a minimum, counting teams must be 100% honest, dependable and unaccustomed to short-cuts. For cycle counts they can be made up of one 3PLP worker and one or more producer employees. The producer employees do not have to have Logistics or Warehouse experience and some of the best stock counters are unsurprisingly in Accounting roles. Dummy counts and ‘planted errors’ are effective ways of training for inventory counting and raising awareness.
- Cycle Counting. Do not be afraid of cycle counting. Initially it may sound daunting and laborious but eventually it will help the 3PLP to keep your stock level and accuracy under tighter control than is possible via a single annual count. The system requires counting of different SKUs or aisles or columns repeatedly over a period of time. Unlike the legal count, it can be conducted while the warehouse operates. You and the 3PLP must ensure the fastest moving and highest value SKUs appear more frequently in the count as that is where the expensive errors will surface. Do not waste time counting very slow moving SKUs as fewer transactions will have taken place since the last count.
Count the stock on a rolling basis four times a year and you will have a reasonably accurate stock record prior to the legally required count. Inevitably errors will still occur but by cyclic stock counting you will have a far better chance of finding the error(s) over a lower number of transactions.
- Annual Stock Count. For the annual or compulsory stock count you need to apply more rigour. To ensure impartiality the teams must be made up of at least three parties; a 3PLP operator, a producer logistics representative plus an Accounting colleague who has the overall authority and responsibility for booking the derived data in the accounts. (To engage in a little team development you can even task your sales, marketing and HR colleagues to join!)
- Annual Count Timing. The annual count may require down-time of several days in order to record everything at the 3PLP. Even a modest 5000 pallets of FMCG stock may require 5 days of idle operation depending on the SKU assortment plus availability of equipment, systems and qualified personnel. Also, this assumes there is only one holding location. If you have multiple stock holding points you must replicate people and processes in each location and coordinate fixed cut-offs.
- Nothing Moves! Despite the inevitable urgent requests from sales, all in/out activities at the warehouse must stop for the duration of the annual count. Do this by communicating the 3PLP restrictions well in advance to allow for notification to clients. This embargo includes any value added or co-packing activity within the same stock holding location.
- Reaction Speed. Speed is always of the essence when dealing with data in a warehouse or distribution centre as it is a fluid and dynamic operation. Once discrepancies emerge in reception, put-away, picking, damages, counting or returns, it is important they are recorded and reconciled quickly with all parties to keep physical stock honest.
No producer or 3PLP operation is ever perfect and mistakes will occur but these top 10 tips will help you minimise, identify and reconcile discrepancies quickly, keeping physical inventory (and customer orders) as accurate as possible.
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