“It Has To Be Here Somewhere”

In the distribution business, having the Right Product, at the Right Time, in the Right Quantity and in the Right Condition are essential to providing superior customer service.

The amount of time we spend looking for inventory is staggering. The customer, the business owner, managers and the poor warehouse staff sent out to look for the product “one more time” all are impacted when we can’t find the product. Collectively, the search for inventory is often one of the most expensive endeavors we undertake. We certainly don’t need to erode our margin and customer service levels by “searching for product.”

Areas of Exposure

Losing inventory is typically related to one of the following:

  1. Identification. An item is identified as one thing when it actually is something else. This is very common at the time of receipt and check-in. This problem also can occur at the time of cycle counting, physical inventory and shipment.

  2. Unit of Measure. An item is counted in the wrong unit of measure. Again, this is very common at the time of receipt and check-in and also may occur at the time of cycle counting, physical inventory and shipment.

  3. Data Entry. An item is entered in the system incorrectly. This can occur at the time of receipt or shipment, and any time in between.

  4. Storage. An item is put away in the wrong bin location. This can occur in one of two ways. The item is put in one location and another location is recorded. If bin locations are not used, the item is put away with the wrong product. This commonly occurs when a pallet contains mixed product but is put into storage as one item.

  5. Damage. An item is damaged during day-to-day activities. Rather than face the perceived consequences related to the damage, some of our people can be very creative in disposing of the evidence.

  6. Theft. As much as we hate to think about it, some of us are affected by theft, either internally and/or externally.

There are a number of steps we can take to combat the loss of inventory. Remember that the key to attacking lost inventory is to reduce your exposure to the areas listed above.

Identification and Unit of Measure
Make a point to train your staff in the proper identification of product. Most of your veterans do not have a problem in this area. However, if you are like most distributors, your veterans have moved into branch management, outside sales or counter sales. Most of the new recruits seem to start out in the warehouse, your area of greatest exposure. Recognize that your staff is your number one asset and you are asking them to manage your number two asset, your inventory. Although it is a challenge to find the time to train properly, training is crucial to your success.


OSHA requires that forklift operators be trained and certified.

Data Entry
Automate the entry process wherever possible. Consider utilizing bar code technology to reduce your exposure. Studies have shown that a competent typist will make one entry error for every 300 keystrokes. Bar code scanning yields a read error rate of one in one million for a typical UPC code, used to identify most part numbers. Introducing scanners into the receipt process will not only eliminate data entry errors, but product identification will also become much more accurate. Picking verification on the outbound side will provide the same benefits.

Bin locations are critical to tracking your inventory accurately. Many distributors are leery of using bin locations because they feel it will disrupt how they do business.

Case in point: The typical distributor starts out with a few small, manageable lines. All the items are placed on the shelf in product number order. Over time more lines are added and the existing lines continue to grow. There is no longer room in a vendor section for the entire product offering, so items spill over into the next aisle. As new items are introduced, the distributor plays musical chairs with the product to maintain an item number sequence.

There is a better way! Introduce bin locations into your operation. Many distributors think they have to run a large distribution center before bin locations are beneficial. Bin locations are always beneficial, regardless of your size, because they introduce an extra level of control while providing added flexibility.

Some software packages limit the field size of your bin. Some require you to enter each bin into a maintenance file. Others will ask for a starting and ending sequence of bin locations. Still others allow free-form entry with little to no verification necessary. Talk with your software vendor as to how they can help with bin locations.


Use of flow rack speeds the picker's process.


The important thing is to use bin locations. The more adventuresome distributors recognize that storing items in bin locations will allow the mixing of product on the same pallet. This will help you to condense product, use more cube within your building and prepare for new receipts. Not all products will have to remain in vendor line groupings.

Bin locations enable you to be more efficient in your picking activities. Cycle counting becomes more manageable as well, because most systems will prompt you to count an item by expected location. Searching high and low for product that is not stored by bin is one of the main reasons distributors give up on cycle counting. Rest assured that product with no identified home has a tendency to move on without anyone knowing.

Most internal damage occurs because of poor material handling skills. Specifically, we have some poor forklift drivers out there. Educate your warehouse staff in OSHA’s guidelines for forklift use. Getting them up to speed on forklift operations will go a long way toward reducing internal damage. Again, taking the time to train your most important asset to manage your second most important asset is critical. And encourage your people to report damage. Accidents happen. Reducing the exposure is what we should be striving for.

Theft is one of those things that is difficult to measure. Unless you catch someone in the act, you really don’t know if it is going on and to what degree. Internally, some of our people feel that they are not paid well enough and help themselves to some product in order to make up the difference. Externally, some of our customers give themselves a price break when we are not looking.

Here are some helpful tips to reduce theft:

  • Keep an eye on your dumpster. One of the more creative ways to remove product from your building is to take it out with the trash and retrieve it after hours when no one is around.

  • Keep an eye on cancelled orders. It is not uncommon for product to go out on an order, sell the product under the table, and cancel the order after the fact.

  • Keep an eye on customers wandering through your warehouse. If you allow customers in your warehouse at all, at least make sure a staff member accompanies them.

Some Overlooked Techniques
Remember, management bears the responsibility. Creating an environment that is conducive to improving inventory accuracy begins with executive management. Organized warehouses, technology and “on-the-floor” visibility of management will go a long way toward improvement.

Communication and education must be ongoing. Communicate to all employees the importance of inventory accuracy in achieving your overall business objectives. Focus on the ageless radio station WIIFM (What’s in it for me?). Use the company newsletter, quarterly meetings and on-the-floor meetings as the vehicle.

You do not need formal meetings. Conduct mini or on-the-floor training sessions. Make inventory control and how it impacts income and customer service the topic of discussion. Point to real life examples that you observe.

Education versus Training. This old saying really holds true: “If you give people fish, you feed them for that moment; but if you teach them how to fish, you feed them for a lifetime.” Training is for a specific task, but education encourages creativity.

Remember that the main focus in reducing lost inventory is to identify the areas of exposure and do something positive to minimize or eliminate that exposure.

Gases and Welding Distributors Association
110c_belangerjc Meet the Author
Dan Belanger is president of The BELTECH Group LLC, a distribution consulting services firm located in Grand Rapids, Michigan, and on the Web at www.beltechgroup.com.