Experts in Business and Financial Systems

The Top 8 Inventory Best Practices for the Food and Beverage Industry

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The Food and Beverage industry in Canada is a competitive market as producers thrive to outperform their competition. With new government regulations, changing health trends and pressure to deliver the freshest products, companies are under pressure to comply. From our research, an efficiently run organization has a direct correlation with higher sales margins, employee satisfaction rates and reduced costs. It is a constant challenge in the industry for Food & Beverage Manufacturers and Distributors to maintain freshness of their products.

TGO Consulting’s vast experience has enabled them to solve business issues with the help of technology based solutions. TGO has compiled the Top 8 Inventory Practices by working hands-on with Managers and C-level executives. This whitepaper describes how you can increase efficiency and productivity by adopting these best practices for your warehouse.

Dispose of unwanted inventory

First, let us differentiate between stock and unwanted inventory. Stock is the product that you are selling to the customer and the items necessary to meet the customers’ expectations of product availability, such as measuring instruments or packaging material. Unwanted inventory is everything else, such as old promotional items, outdated computers, etc. There are many strategies for getting rid of excess inventory, other than just throwing it in the garbage, including:

• Transferring surplus stock to another company location where it is needed• Returning material to the vendor• Selling off materials to other suppliers• Offering vendors a monetary incentive to sell out the product• Donating unwanted inventory to a non-profit organization (a possible write-off for the company)

Remember, unwanted inventory is valued by what someone is willing to pay for it. The extra cash is considered “found money”. By liquidating unnecessary inventory, you can free up additional space for other uses.

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Lost inventory is a major challenge for most manufacters and distributors because managers cannot keep track of what moves in and out of the premises. Developing and maintaining an inventory-related policies and procedures manual can reduce the rate of inventory inaccuracies. How to create and maintain an inventory policies and procedures manual: To begin your inventory policies and procedures manual:

2. Organize stock in a way that works for your business

Traditionally, warehouses organize their stock in bin locations based on product line, for example, all produce, all dairy, and all dry ingredients. From a layout perspective, this does not allow for ease of access, as it requires employees to spend more time walking around the warehouse fulfilling orders.

3. Accurately record all material transactions

Suggestions: • Items with the same purchase frequency should be grouped in the same bin location - saving your employees the time and effort of collecting the product

1) Create a list of inventory-related transactions, such as normal/unexpected stock receipts, requisitions, sales, write-off stock and returns on goods 2) Develop a step-by-step guide on how material transactions will be recorded, usually with a combination of a computer system and manual submission, such as, hanging a clipboard at every exit of the building to serve as a reminder for employees to record any inventory movement 3) Once the policies are in place, it is everyone’s responsibility to ensure that material transactions are recorded at all the times 4) Creating these policies should be a collaborative effort amongst everyone involved in the inventory process - to ensure nothing is left unaccounted for and everyone has “bought into” the procedures

from various locations of the warehouse• Your fastest moving stock should be stored closest to your shipping, staging and recieving areas of your plant - this will allow for minimal transfer time • Your slowest moving stock should be stored furthest from shipping area or on the higher shelves - therefore picking activity is minimized

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Depending on the size and growth of your company, there are many factors to consider before choosing to expand your operations:

4. Ensure your company complies with government regulations

Government regulations are increasingly important to the Food and Beverage industry. This is especially important because of the large financial penalities that can be incurred, public safety concerns and brand reputation. Due to new regulations, such as the HACCP and the Bioterrorism Act, it is crucial to react as quickly as possible.

According to the Aberdeen Group, only 8% of surveyed manufacturing companies have eliminated the manual process for their compliance programs. Using a manual process runs the risk of inaccuracies and time delays, ultimately putting the public’s health at risk. There are 6 important automatic processes to consider for your plant’s operations to promote government regulations:

5. Rethink the number of locations

• Lot traceability• Audit trails• Digital electronic signatures• Quality control• Document signatures• Security features

• Can you deliver items faster to a customer at a new location than at the central warehouse?• Is the cost of continually shipping material to customers from a central location far greater than maintaining a stock of products in a local branch?• Can a local stocking location show a commitment on the part of the distributor to serve a specific local market?

If you answered yes to any of the above questions, you may want to consider multiple branches as it will save your company costs and improve customer service and vendor relations. Continue to keep your operations all in one warehouse if:

• All employees work in the same building and they can easily communicate and avoid a lot of miscommunication and many misunderstandings • Upper-level management is on-site and can directly supervise all departments and processes • One common inventory of stock products can serve the needs of all customers

While a single branch location is more suitable for most Food and Beverage manufacturers and distributors, consider all the options above and ensure that you have the right Enterprise Resource Planning solution that can handle your growth.

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6. Implement a barcoding system

Barcoding is a great way to improve efficiency and accuracy in the everyday operations of your warehouse. It allows for: • Items to be picked up or put away • Code to be printed on the bin location or product itself and with the pull of the trigger, the employee ensures that the two match up and the order is filled correctly • Computer records to be updated instantaneously, without the tedious task of data entry • Radio-frequency barcode units to be updated on your computer immediately, providing real-time breakdown of inventory on hand Overall, the risk of human error is greatly reduced, since everything is run through the computer system.

7. Maintain a customer service level of 95%

In a perfect world, the goal would be to have a 100% customer service level, but in reality, that does not always happen. An appropriate level to aim for is 95%. So how can you calculate the customer service level? Use the following formula:

Note: Do not include special order items (items that are stocked, but are specially ordered to fill specific customer requirements) and direct shipments (materials sent directly from a vendor to your customer)

Ideally, you should maintain a customer service level of 95%, that is, 95% of the time your customer will receive their complete order.

# of line items for stocked products shipped complete in one shipment by the promise date

Total number of line items for stocked products ordered

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8. Stop conducting an annual physical inventory checkDoes that mean that physical inventory checks are no longer required? No! But you can make the task less dreaded by your employees. Suggestions: • Instead of one massive yearly inventory count - products should be counted on a regular basis and not all at once • Products sold most often (regardless of quantity sold) are counted more frequently than those products sold less often (which can be counted only once a year) • Set up a schedule for the entire year of your cycle count, leaving extra time in case a count goes over A more organized warehouse with accurate levels of inventory will ensure greater efficiency and less disgruntled employees!

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Conclusion:

This white paper has provided a detailed look at the best inventory practices to help companies streamline warehouse operations, increase productivity, control margins, and improve profitability. 1. Dispose of unwanted inventory 2. Organize stock in a way that works for your business 3. Accurately record all material transactions 4. Ensure your company complies with government regulations 5. Rethink the number of locations 6. Implement a barcoding system 7. Maintain a customer service level of 95% 8. Stop conducting an annual physical inventory check

Again, these inventory practices are most effective when complimented with a system that can manage and streamline operations in an easily accessible and centralized system. To be competitive and efficient you have to have an ERP solution in place. TGO Consulting delivers the latest technological solutions to help industry leaders implement leading-edge business management solutions. Our financial and business experts have proven knowledge in the Food & Beverage industry and work with management to increase operation efficiencies and save costs. Over the past 25 years, TGO has been committed to their clients and have helped them grow and become industry leaders.

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Contact us today for a free consultation on how your organization can benefit from TGO Consulting. Visit us at: www.TGO.ca/FOOD

Experts in Business and Financial Systems

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