Inventory management stands for the seamless digital recording of all inventory movements in intralogistics in order to obtain reliable information about the storage location (where?), quantity (how much?) and quality (what?) of all products at all times. The statements are collected from information from the host system and the warehouse management system (WMS), merged and compared with each other.
The inventory is interpreted differently by the software systems involved – such as the warehouse management system (WMS) and the ERP or host system – but with a common goal: both system worlds must always show the same inventory levels in the totals!
Inventory – definition
Our definition is based on two types of stock. On the one hand, the stock within a retail company, and on the other hand, the stock is also managed in production. The latter includes, for example, the quantities of raw materials, consumables and supplies. However, so-called semi-finished products that are further processed for production, for example, are usually also stored temporarily until they are processed.
The classic inventory is kept in the distribution center, central distribution center, as well as in the conventional warehouse. This is generally the stock of items/goods. It is therefore also referred to as a physically available or planned stock of articles, goods or merchandise. Production, logistics and intralogistics always aim for a minimum stock level, also known as safety stock (see stock types), in order to prevent production downtime and ensure replenishment. Important: The stock generally represents the property of the respective supplier and must be subject to regular stocktaking – also to be individually assessed for new events.
Commercial and logistical stocks
As a rule, the WMS has stock sovereignty because only the warehouse management system knows the exact stock in relation to each storage location and each pallet. Other project-specific logistical ‘stock qualifiers’ (attributes) can also determine the logistical availability of each individual item (or pallet, carton (packaging material), storage compartment)
The ERP system, on the other hand, only knows the so-called total stocks and the attributes relevant for a commercial system. Logistical inventory qualifiers such as inventory in motion or individual storage bin coordinates are usually not known to the ERP. The commercial view therefore concentrates on the following events:
- New available stock is created on goods receipt.
- When customer orders are dispatched, available stock becomes reserved stock.
- On dispatch, the reserved stock is reduced again by the dispatch quantity.
This is a very simplified representation. It is usually complicated by numerous special cases. Examples of this:
- Corrections to available stock due to finer ‘stock qualifiers’ such as blocks due to unchecked or insufficient quality, customs status, country of origin.
- Stock corrections due to shortages or new stock finds.
- Shift between reserved and available stock due to order changes, such as cancelations.
The ERP system often only receives information about inventory changes (see inventory comparison) cyclically and thus updates its data vis-à-vis the warehouse management system. The reasons for this are
- Inventory that is currently being moved.
- Blocked inventory.
- Pre-orders.
- Stock changes are not posted online.
- Returns / damaged and not yet booked inventory.
Inventory comparison
Regular inventory comparison, for example between online retail (online store) and the inventory levels in merchandise management, is extremely important nowadays. As a rule, each system keeps its own inventory – online store and merchandise management (distribution, brand, intermediaries) use different databases. Only appropriate interfaces enable the stock of both systems to be synchronized, usually with a time delay.
The difficulty today lies in the diversity of the different sales channels – they can all draw on the same stock; however, due to the different system levels, the higher-level system (merchandise management) overwrites the stocks of the lower-level systems.
Inventory comparison is a cyclical report of all stocks in the system, which corrects errors, for example in the transfer of stock reports, manual bookings or order confirmations.
In the meantime, stationary retail (point of sale) has reacted and optimized its so-called store logistics for merchandise management. Using mobile devices, local retailers can access the entire range of merchandise management products – the central distribution center displays the entire inventory in ‘real-time’ and automatically carries out the above-mentioned inventory notification and correction to the aforementioned Stock Keeping Unit (SKU), for example when a sale is closed – but this is not an inventory comparison. Nevertheless, the advantage is obvious: reduction of -rates (stock gaps). This type of gap can occur when the following situations arise:
- Items in local stores are no longer returned to their designated location (misplacement).
- The inventory arrives too late at goods receipt (missing notification) and therefore cannot be delivered to the retailer on time.
- Stock shortages due to shrinkage: This describes, among other things, theft, expired shelf life, damage to items (including packaging) and errors during picking (miscounts).
Important information during an inventory comparison
For an ERP system, information such as quantity, item number/SKU and quality (A-goods, B-goods, C-goods) is important – less so the minimum shelf life. Nevertheless, specific project requirements may require additional attributes, such as the location (where do the inventory reports come from: central distribution center, store, online store).
In addition to the storage and retrieval of goods, from the perspective of the warehouse management system in inventory management, stock that has already been recorded during a stock transfer is also managed. The current location is unknown and the inventory is therefore temporarily unavailable. Good examples of ‘movement uncertainty’ when determining the current stock are, for example, transports between reserve and picking warehouses or transfers between decentralized warehouse locations.
Important: Prompt data exchange between warehouse management and the host is a mandatory prerequisite for up-to-date stock information in the ERP and error-free synchronization between the two systems.
Overview of stock types (selection)
- Physical stock – Physical stock is generally the stock of inventory that is available in the respective company at a certain point in time, for example during a stocktaking. As long as every stock movement is tracked promptly and correctly in the quantity in the system, the physical stock should always correspond to the book stock (see below).
- Book inventory – Describes the target inventory according to the accounting system. The book inventory can deviate from the actual inventory – see physical inventory – for example due to incorrect or delayed postings, errors in quantity recording or damage to the inventory, etc.
- Physical inventory – The book inventory at the end of the year (= physical inventory) is reported by the WMS to the commercial system. In terms of stocktaking procedures, we differentiate, for example, between permanent stocktaking and a yearly inventory. The challenge for the distribution center is that, on the one hand, no inventory may be moved in the warehouse during the key date count and, on the other hand, there must be no open bookings or orders, which is why key date inventories usually take place outside of normal warehouse operations.
- Safety stock – This is the lower limit of the available stock for procurement/purchasing and should not be undercut in the warehouse so that a smooth process is guaranteed even in the event of unforeseeable incidents. It covers the uncertainties of delivery time, demand and stock. It depends on actual consumption (day, month, quarter). Those responsible must also take into account the replenishment time, including the delivery time.
- Maximum stock level – The counterpart to safety stock: the available quantity of a product should not exceed a defined maximum quantity. Avoiding high stock levels prevents high capital commitment (this stands for non-liquid, unavailable assets: stock, machines, space).
Note: In practice, instead of these two absolute quantities (safety stock and maximum stock), ‘ranges of coverage’ are used (stock divided by sales per time = range of coverage in days, weeks, months)
- Available stock – This is determined by reducing the book inventory by the open orders / customer orders. Quantities that are not available for other reasons (e.g. inventory awaiting quality releases) are also deducted.
Identification of stock
To ensure that the identification of all stocks functions smoothly, the necessary information (e.g. unique identification number,batch number) is stored on the identification carriers or barcodes that are attached to the respective product. However, the ‘how’ is decided very individually and project-specifically on site. The minimum form is coding with a unique identification number in the system; an IT system is generally not required for more. However, employees are given the opportunity to make decisions without the IT system or to check plausibility independently of the IT system for security-related reasons. The labels on a storage unit are therefore usually supplemented with plain text information such as article, batch and other information. Changing properties of a storage unit, such as storage location and quantity, are not usually printed. The distribution centers use different techniques for the physical coding of the storage units. For example, an ‘over-corner label‘ can be used for direction-independent readings on the materials handling technology.
Important: For the ERP, the quantities in customer packages that have already been picked are usually still counted as inventory as long as they have not actually left the warehouse.
In addition to the inventory management of the respective customer products, the movements of empty goods such as returnable pallets, pallet cages and similar items often also need to be managed in a WMS.
Returns, food and medicines
Returns are also fed back into the system as stock receipts via stock management (returns processing). However, the commercial credit note is issued before the goods are put back into storage – the WMS is only informed of the receipt of a return when:
- the inventory has been unpacked, assessed and a decision on a credit note has been made – usually outside of warehouse management.
- the inventory has been prepared for dispatch again after a positive quality check.
- Conversely: If an incoming return is not put back into storage – i.e. destroyed – after assessment, it is of no interest to warehouse management.
In the case of foodstuffs and medicines, further tasks arise for warehouse management in connection with ‘batch management’. The statutory regulations must be observed during storage and retrieval, but also during relocation and sorting. As a rule, transport, storage and sales are recorded up to the end consumer and can be traced via the respective batch number.
Environmental conditions also play a role in logistics in that rules for selecting storage areas or shipping with certain carriers or services can be derived from corresponding specifications in the article master (‘chilled goods’).
Inventory management for duty-paid inventory
When importing duty unpaid inventory from non-EU countries
- the inventory must either be stored in a separate bonded warehouse until customs clearance (classic solution).
- the conditions under which an uncleared carton may be stored in the warehouse among the cleared goods must be negotiated with customs. However, if the inventory is not cleared through customs until it is removed from storage, the customs requirements are non-trivial.
- In practice, however, the inventory is often cleared at the time of delivery. The reason for this is that both of the above-mentioned variants are costly in practice.
Summarized
Inventory management is the central part of a WMS that keeps a record of all movements of goods. It also plays an essential role in stocktaking and keeps information in stock, such as blocked, available or unavailable inventory. The WMS regularly compares this data with the ERP system so that available and unavailable inventory is known to both the WMS and the ERP system. The described differences in the view of the inventory data between ERP and WMS systems make it difficult to synchronize the inventories on both sides.
For more information on inventory management, please also read the article “Order processing: loading order data” and the customs warehouse.