February 11 2014
By: Staci Cretu, M.S.
Marketing and Communications Manager
Managing and maintaining inventory is one of the most important tasks for efficient warehouse operations and can be completed in many different ways. Inventory consists of raw materials, work-in-progress (WIP) products and/or finished goods. Effective inventory management can save an organization significant logistics and operational costs while improving service levels.
Let’s first focus on the widely used inventory management technique, First In, First Out (FIFO). This inventory management technique utilizes the concept of shipping product in the order that it is received or produced. FIFO helps to reduce cost of obsolete inventory and is most commonly used when a manufacturer wants to ensure that its inventory is consumed in the order that it was produced. Financially, FIFO is the most beneficial way to manage inventory because it minimizes outdated products and allows items to move quickly.
FIFO tends to be the standard technique for inventory management in many industries, but is not the only method. For instance, a common technique used in retail environments, apparel industries and automotive industries is Last In, Last Out (LIFO). This method is typically used when there is a demand for maximum shelf time. In a warehouse environment this method assumes that the products produced or received last are the ones that will be shipped first.
A third inventory management method, most commonly used in the food and beverage industry, is First Expired, First Out, or FEFO. This technique ensures that those inventory items closest to expiring are retrieved from inventory first assuming that you have older product that expires later than newer product. In an automated warehouse, the Automated Storage and Retrieval System (AS/RS) utilizes a Warehouse Management System (WMS) like Westfalia’s Savanna.NET® to direct the picker to pick the inventory ensuring perishable items are retrieved before they expire and become unsalable. To make sure products do not get into the hands of customers after they have expired, FEFO extracts the oldest products from inventory first.
According to Dave Williams, director of solutions delivery at Westfalia, “Each SKU is assigned a FEFO ‘window’, which is then used in determining the pallets of a SKU that are eligible to be used to fulfill shipping requests. The FEFO window is typically short (e.g. less than 180 days) with the exception of water and soda, which could typically be a year or more. Westfalia’s WMS, Savanna.NET® routinely uses the FEFO window determining the best product to fulfill the request.”
All three inventory management processes discussed can be supported utilizing a variety of warehouse automation solutions. As discussed above, by utilizing a WMS like Savanna.NET®, the AS/RS maintains accurate records of which lanes are using the inventory processes, whenever pallets enter or leave the dedicated lanes, the WMS records the movement allowing for real-time data processing and reporting. This increases the accuracy and visibility of all inventories for the warehouse manager.
These automated warehouse systems enable full process and product traceability, less energy usage while greatly reducing customer complaints.