SINCE THE EARLIEST DAYS of warehousing, operators have searched for the most efficient method to store and retrieve inventory. For a long time, finding the proper procedure eluded most warehousing professionals, as SKU data was very difficult to gather and even more so to process. Now, however, technology has developed to the point that anyone with the right inventory tracking system and a desktop PC has the resources to perform at least a rudimentary product analysis. One important thing to remember, however, is that when you use the results of a product assessment, you must recognize and remember the potential shortcomings of your analysis. SKU profiling demands that the right steps be taken in the right order so that products are assigned to the appropriate storage and picking media while each SKU also has enough locations dedicated to it. The following ten-step process should enable you to accomplish this effectively:
Set a goal
People profile their products for a variety of reasons. You may want to determine the cost of or justify the purchase of new equipment. You may want to fine-tune existing systems and equipment. Your goal may be to reduce picking and/or replenishment labor. Or perhaps you are simply trying to make the processing of the 20% of SKUs that make up 80% of your lines more efficient. Whatever the goal, it should always be foremost when performing an analysis. Ambling off track to explore unrelated information is not useful and can be an expensive waste of time.
Verify data accuracy
Getting data that truly represents what is going on in the operation is sometimes the most difficult step for companies. First, the data must be gathered from the right source. For example, data from enterprise resource planning and warehouse management system software will not necessarily be the same. Just getting the data isn’t enough, either. Remove orders and/or lines that are not valid or were not processed using the system. The amount of data collected should be representative of your business climate and the frequency with which you are going to perform this analysis. Keep in mind the less obvious issues that affect spikes in your product demand, such as the level of seasonality, new product introductions, and promotional giveaways. Getting cleaned-up data is the only way to truly know the facts. Bad data will lead to bad results every time, regardless of how thorough your analysis is.
Educate yourself
Research the marketplace to select the right tools for your operation. There are a wide variety of types of storage and picking media, all with different characteristics. Do you want the operator to travel to each pick location or the product to be brought to the operator? Do you have consistently sized products or a wide variety of differing sizes? What are your requirements from a lines-picked perspective? Do you need a tool flexible enough that adding resources can increase picking output? How flexible does the equipment need to be regarding re-profiling items? Can picking and replenishment occur concurrently?
Make the solutions fit
Now that you know the potential solutions available, you must determine which ones can be incorporated into your business. Not all solutions are adaptable to all situations. If you require strict lot control in picking items or follow FIFO rules, this could restrict the type of storage media you consider. Does your system bring the tote/shipping carton to the pick location, or is the order picker required to retrieve it? Do you pick all of your items as full cases, all as split-case picks, or some combination of the two? Are these different types of picks going to be performed in the same physical space? If they are going to be separated, your analysis should also be separated by type of pick, since an item that is popular as a split-case SKU might not be a popular full-case SKU. If you are planning to process these separately, do your operations provide you the room to consolidate the orders downstream of picking?
Look at forecasts
Historical data may not accurately reflect the future for a SKU or product family. Demand for this SKU may increase much more than the current historical data shows because of the release of a new product. Conversely, demand may be predicted to drop off because of a scheduled product retirement. Data on business units or acquired product lines to be brought into your facility will not be reflected in the current demand data. Forecast information may not be accessible to you, so you may have to work with other organizational divisions such as sales, marketing, and research and development.
Define replenishment frequency
Even the best SKU profiling can look terribly inefficient if not enough resources are dedicated to replenishing it. The amount of labor dedicated to replenishment tasks will determine how much of each product must be kept in your pick location. Dedicating more resources will enable you to run leaner, allowing for more SKUs in a smaller area.
For some SKUs, a minimum number of units are required to be stored in your picking locations. This will help ensure that the product is available when needed. For other items, an average quantity of demand can be kept in this pick location. Doing so will keep enough product in the location to cover most days’ demand, but it might allow for a small blip to exceed what is available in the location.
Conduct a reality check
Step back and scrutinize your initial results. A computer does not know if you want items that are always ordered together close to one another, or if you want to balance the workload by separating them. The software may assign an item, such as aerosol products, to an inappropriate storage medium. You may want to increase or decrease the number of locations allocated to some products. Putting several smaller items in a given space instead of one larger, slightly faster-moving item is a more effective use of this real estate.
Plan your processes
Think through the reconfiguration process step by step. Are you going to “create” orders to pick the balance of the item from each location, or will you allow the item to deplete naturally through the fulfillment of incoming orders? The latter might not be efficient enough if the item has had a downturn in demand. Does your software provide the functionality you will require to move the product efficiently? Do not assume that you can flip a switch and the system will be reconfigured overnight. Depending on the type of equipment, re-allocating locations to new items might take some time in addition to the actual movement of the product. Unless you have seasonal demand in which you can take advantage of a lull, this effort could have a noticeable effect on productivity.
Perform the reconfiguration
Your analysis will be for naught unless you follow through with the reconfiguration. Putting it off until a better time may guarantee that it never occurs. For rapidly growing businesses, there is no better time to increase operational efficiency to support that growth.
Analyze the results
Prior to profiling your products, select some relevant performance measurements and monitor them for a while. Then, after reconfiguring your products, analyze these same measurements to evaluate your success.
All companies benefit from establishing a continuous improvement culture throughout their supply chain. SKU profiling should be set up as a key initiative within this effort. Evaluate SKU data and perform system reconfiguration on a scheduled basis to optimize operations and maintain distribution on demand. How frequently you analyze your SKUs depends on your company’s business conditions. Merchants who have dynamic SKU bases because of seasonality and new product introductions or retirements should perform an analysis more often than should retailers with mature products that have steady demand over time.
Alan McDonald is a systems consultant with FORTE, a distribution consulting and systems integration firm in Mason, OH. He can be reached at (513) 398-2800.