Your warehouse is a limited resource environment. You have a finite amount of people, equipment, products and available storage space. Slotting will help you make the most of the cubic space you have.

At its most basic level, slotting is the series of tasks that precede the decision of where to put away inventory based on space available within your warehouse facility. Who benefits from better slotting? Any organization that needs to improve resource management, increase shipping performance, respond to seasonal variances in product shipping, or optimize a limited number of pick faces. Good slotting practices are a prerequisite for optimal picking. You’ll optimize space utilization and minimize the time and effort required to efficiently receive and store incoming products.


Slotting Benefits
When you optimize the storage of goods in your warehouse through slotting and reslotting, you’ll increase productivity and greater facility throughput. Two critical components to this optimization are the locations where products are slotted and the distance people have to travel to pick them—especially when it comes to fast-moving items. Do a few products account for most of your workers’ visits to the pick face? Do their visits spread across a wide number of bins? The more your inventory activity is concentrated in fewer SKUs, the greater the benefits of slotting improvement. You’ll be able to reduce operational (especially labor) costs and increase facility throughput without adding personnel.

Let’s look at some specific slotting benefits:

Reduced labor costs
This is critical. According to industry insiders such as Tom Singer, author of the DC Slotting survey report, “few operations can afford to ignore slotting because product location is the key to optimizing warehouse operations.” Improving picking productivity reduces costs, particularly if your staff is paid hourly rather than salary.

ROI Insights: If you’re not updating your slotting strategy, your labor costs are higher than they should be.

Maximize space utilization
Your warehouse space is valuable so optimizing product placement is essential. Efficient slotting helps ensure that no storage space is wasted. You’ll also increase the opportunity to absorb new products or SKUs into your warehouse.

Minimize picker travel
By optimizing SKU locations to make pick paths more efficient, you’ll reduce the distance pickers have to walk every day. They’ll pick faster and build pallets faster, providing you with improved fill rates and more on-time, accurate shipments.

Tips: Some companies have found that re-assigning slow moving products to bin shelving can significantly decrease pickers' travel times and free up warehouse space.

Improved worker health and safety
Optimized slotting reduces visual search time and the movements pickers must make to retrieve items. Easier-to-reach placements improve worker safety as well as reduce ergonomic problems, which can in turn reduce worker compensation claims (and premiums).

Increase key performance indicators
As your warehouse efficiency rises, you will be able to track related improvements in many of your key metrics (KPIs) such as picks per hour, cycle times, and inventory turns.

Reduction of multiple object handling
This one is self explanatory. Configure your warehouse to minimize the number of times an item, case, or pallet is touched and you’ll save money.

Reduction in stock damage
Fewer touches of items, and easier, more ergonomic access to them will reduce damage to SKUs and their packaging.

Slotting 101
If you want to implement slotting, you have a variety of options to figure out where to put your Stock Keeping Units (SKUs):

Fixed
This is the simplest, and, arguably, least efficient approach. Without analyzing potential operational improvement in areas such as workflow or labor usage, you simply assign SKUs to locations based on item size or physical characteristics. If you choose this method, cross your fingers and hope for the best.

Spreadsheet (Microsoft Excel)
You can also use a spreadsheet or database tool to help you manually assign SKU locations. You have to dig through a lot of data to arrive at your slotting decisions if you’re going to be successful with this method.

Manual
Using your knowledge of how slotting decisions affect individual SKUs in the warehouse, you select locations based on physical characteristics or units of measure. The manual method differs from the fixed method in that the manual method allows you to control where to place those items and you have control of the type of slotting you want to use.

Slotting in the Field
How prevalent is slotting in a sector like retailing? A work in progress, if you believe a Supply Chain Consortium March 2007 survey of 100 top retail and related companies. Only 31% of respondents categorized their slotting plan as efficient or near optimal in terms of minimizing picking travel times. Slightly more than half (51%) reported using an internally developed spreadsheet, database tool or slotting software package to develop their slotting plans. Strangely, the majority reported that they do not use sales forecast data to support slotting plans.

ROI Insights: At minimum, you can gain some impressive ROI numbers from simply basing your slotting implementation on weekly velocity).

Types of Slotting Strategies
Whatever method you use to implement slotting, generally speaking, you place slow moving items in manual picking areas, and faster turning items in automated areas.

Slot by velocity
You can slot items by velocity into locations based on fit and picking flow in your warehouse. For example, fastest moving items are stored closest to your pick/pack station.

Tips: Don’t allocate 100% of your fast mover area. Keep some empty bins and shelf space available so that you can fill them up with unexpectedly popular items.

Slot by velocity w/bulk picking
You may be able to slot by aggregating smaller units into bulk picks.

Slot by fit
You can select a location that closely fits the item and sequence defined by its velocity will maximize cube utilization.

Balancing slot zones
You can choose to balance picking zones by distributing velocity across zones as evenly as possible. For example, put a few fast moving items in each row if you use zone picking and assign pickers to different rows. This way your picking work is more evenly distributed among your pickers.


Planning Your Slotting Strategy
There aren’t any quick answers. The contents of your warehouse are not static so don’t expect that your slotting activities can remain forever unchanged. Plan on continually tweaking your slotting strategy in response to unforeseen events or deviations from plan. Ideally, your slotting strategy would change in sync with your historical or forecasted product usage information, and things would remain fairly smooth. Unfortunately, though, the deviations from plan may be bigger than expected. Demand for one of your products might take off…or plummet far below your sales projections as demand for it never materializes. Beyond sales projections, you should also include criteria such as historical and forecast demand, seasonality, marketing and advertising programs in your slotting planning.

Tips: You need to continually balance what you thought was going to happen against what is happening.

Make sure you identify slow moving items. Remove them from prime warehouse locations. Keep the better locations for faster moving items. Ideally, you would have downtime to decide which slower moving items you want to move and move them before you hit your peak. If you’re an online retailer, for example don’t wait until Thanksgiving to reslot.

Tips: Peak activity periods make it challenging to reslot. Do it before your seasonal rush. You should also plan how you are going to account for seasonal and promotional products for which you are moving lots of items within a short period of time.

An important consideration is how much effort will be required to maintain your new slotting plan. If you have a Warehouse Management System, will it support the slotting program you want to implement? How much does your product line change during the year? Do you typically carry over 70-80 percent of the items from year to year? Do you have the proper sizing of pick locations? You might even have to invest in new racking, shelving and wire decking.



Moving Forward

Tips: Don’t let your company be one of the many that never adjusts its slotting strategy.

If you didn’t know it already, improving slotting practices is a complicated process. There's a lot more to improving slotting than simply shortening the pick path. Hopefully, you’ve seen the benefits and understand that it’s worth making the effort. You might be surprised to learn that some companies create new slotting plans every day. For them the ROI is worth it. Regular slotting analysis (even if it is much less frequent than daily) ensures that fast moving items in inventory will be regularly moved into the fast turnover area slots and that slow movers will be removed.

Tips: Solicit and listen to suggestions from warehouse pickers. You might also consider hiring or designating a slotting coordinator who can perform regular slotting evaluations.

Our Best Practice series is designed to set you on the path to inventory and warehouse management excellence. To supplement our chapters, you should continue reading as widely as possible on inventory and warehouse management subjects. An excellent slotting resource is World Class Warehousing and Material Handling by Dr. E. Frazelle, published September 18, 2001, ISBN-10: 0071376003 and ISBN-13: 978-0071376006.

If you don’t have time to read Frazelle’s book, here is how to get started on your own:

1. Find out the level of sophistication your warehouse management system will support
2. Make a task list of everything you need to do to optimize your inventory
3. Calculate the expected ROI for making each change.
4. Prioritize this list
5. Start at the top with the task promising the greatest return. That’s it
6. Start tomorrow

Kevin Collins,
Director, Product Management

SmartTurn, Inc.
1000 Broadway
Oakland, CA 94607
USA

Sales: 1-888-667-4758
Tel: 1-510-267-5150
Fax: 1-510-208-5754

About SmartTurn
SmartTurn™ Inventory and Warehouse Management System is the first true on-demand warehouse management system to provide enterprise class functionality at a fraction of the cost of traditional license and install software. Designed for quick implentation, ease-of-use, real-time inventory accuracy and warehoues performance, the SmartTurn system provides visibility on every item across single or multiple warehouses. Founded on the premise that software should be smart, simple and safe, SmartTurn’s customers span the value chain of most industries to include manufacturers, wholesalers as well as 3PLs. SmartTurn is privately held and backed by leading investors, NEA and Emergence Capital Partners. Website www.smartturn.com

About the Author
Mr. Kevin Collins joins SmartTurn having been in the warehousing and distribution business for over 15 years, where he fulfilled leadership roles for a military distribution company (www.cpfd.com), a third party logistics service provider and distribution center (www.weberdistribution.com), a heating, ventilation and air conditioning supplier/manufacturer (www.calcooling.com), and two other retail service warehouses (Big Bear Distribution and Fleming Foods) where he also partook in two acquisitions. Mr. Collins has spent his entire career learning the art of warehousing and logistics, and has been in every conceivable role within a warehouse; from picking to distribution systems management and everything in between. During that span, Mr. Collins has also had the privilege of working directly with application developers learning about software from inventory and procurement to transportation and warehouse management systems. Mr. Collins brings to Smartturn an invaluable background and information about processes, software and logistics, and the intricate balances between them.

Is inventory accuracy a possibility or an oxymoron?

If you can’t find the numbers of parts, finished goods or product your inventory system says you have, you’re undoubtedly wasting time looking for them, holding excess “just in case” inventory (and thus raising your inventory carrying costs), delaying customer orders, wasting time in production and order fulfillment, or generating unnecessary return processing costs.

The main reasons for the difference between what your Warehouse Management System (WMS) system thinks is in your warehouse and what you discover is actually on-hand are unrecorded or inaccurately recorded inventory transactions. A box of inventory placed on the wrong shelf. Forty pounds of steel fittings sent to manufacturing that were actually recorded as four pounds. A size 4 skirt whose packaging is incorrectly labeled as size 6 generates a return because the customer discovered it to be too small. When the product is returned into inventory, the receiver might just scan the bar code, updating the system with a phantom size 6 item. (This assumes, of course, that the packaging has not been destroyed, which in this case would be beneficial, because it would most likely lead to discovery of the incorrect labeling). The panacea for this is accurate real-time inventory data.
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There are two ways to track inventory. You can either do a periodic physical inventory count, which is usually an annual event, or you can implement a cycle count program.

Counting Once
On the surface, physical counts provide a measure of reassurance to your financial auditors. However, one-time annual physical counts are expensive, and can shut down production or shipping functions for one or more days. There are some important downsides to physical counts, which include the temptation to cut corners. In many ways, a one-time annual count such as this often introduces new errors that may not be found for several months. This is particularly aggravated if you are counting on a day-off like a Saturday and no one wants to be there. There is also the time consuming task of planning the physical inventory. You’ve got to take many things into consideration –how many counting teams are required, how many man-hours it will take to get the job done, how much overtime you are willing to impose on your team on their day off, how many recounts are required, how much equipment is needed, whether you have enough gear or material, how much food you will need to buy – and if that isn’t enough to keep you busy, have you planned out strategies for “no-shows” and do you have enough instructions for everyone to understand what to do?

Counting Many Times
In contrast, cycle counting, when properly implemented and managed, delivers more accurate inventory data. According to the American Production & Inventory Control Society Online Dictionary, cycle counting is:

“An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. A cycle inventory count is usually taken on a regular, defined basis (often more frequently for high-value or fast moving items and less frequently for low-value or slow moving items). Most effective cycle counting systems require the counting of a certain number of items every work day with each item counted at a prescribed frequency. The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors.”

The elimination of errors is one of the benefits of auditing inventory accuracy and choosing to reconcile errors on a cyclical schedule rather than annual. Organizations that implement cycle counting increase the probability of highly accurate real-time merchandise inventory. Who are some of these organizations? In December, 2007, the Aberdeen Group surveyed 552 companies to determine which warehouse capabilities had the strongest correlation to improved performance in the warehouse. According to their research, companies considered to be Best-in-Class were 49% more likely than their peers to practice cycle counting over physical inventories.

Another way of looking at cycle counting is confirmation of on-hand quantity. Accurate inventory data is one of the key foundations to better cooperation and collaboration between warehouse and client (internal clients such as production, for example, as well as external clients such as a retailer). Merchandise promotion, merchandising, and replenishment programs run more efficiently when the inventory numbers are accurate. There are improved order cycle times, reduced freight cost and returns are handled better.

Here are some of the benefits of cycle counting:

• Reinforces the importance of accuracy in your organizational culture
• Generates focus on continuous improvement at the organizational level as well as within specific departments such as purchasing, warehousing, and manufacturing
• Greatly improves your ability to identify and fix inaccurate data, such as misplaced, mislabeled, or lost stock
• Improves your supply chain operations through more accurate inventory data
• Improves accuracy of data analysis, whether initiated by the manufacturer, vendor, owner, or the accounting department
• Reduces out of stock SKUs through real-time inventory accuracy
• Helps identify and correct receiving, shelving, ordering, packaging, labeling, returns, and fulfillment errors
• Improves inventory turns because you can measure what’s in stock and moving out the door
• Improves customer service through higher fill rates
• Raises productivity and efficiency through more accurate data – leading to reduced operational and inventory-carry costs

A Better Christmas for Everyone
Consider a Christmas shopping scenario when you might have visited a store to track down a gift. It was out-of-stock, but the clerk called the regional warehouse and ordered it for you. Is the item really in stock as the WMS shows? Will you be able to pick it up two days before Christmas?

Cycle counting needs to become part of your organizational DNA. Once you are up and running, you should be counting in a highly disciplined manner. You may end up counting three or four days per week. Sure, this may sound a lot but it beats the tedium of an annual count. Be aware, however, that if you only cycle count infrequently, you guarantee mediocre results. The only way to get the full benefit of any cycle count program is to count regularly, keep excellent and accurate records (particularly your data entry process to transfer the numbers into your WMS), and ruthlessly investigate errors.


How to Implement a Cycle Counting Program

Here are some areas where you need to make decisions before you start.

Frequency
How often are you going to count? First, you need to calculate how many counts per year you can perform and work backwards, calculating the number of counts per day that you can do. You should consider the effects of cycle counting on customer service, production, shipping and receiving. One way to calculate your frequency is to time yourself. Count the number of items you are able to count in a single hour and you can quickly calculate how long it will take to count every item. While this is a rough estimate, it’s a good starting point. Realistically, you should be counting your entire facility in cyclic quarters. As you progress through the first two quarters, you should be able to identify those items that need to be counted less frequently but no less than once or twice per year.If you cannot count your entire facility in one or two cyclic quarters, you may be understaffed.


Your Counting Strategy

Tip: Try not to over-complicate your strategy in the beginning. Pick three to five core methods and deviate only if you need to improve.

This should be fairly obvious: figure out how you’re going to count well before you assign the counting. Are you going to count by location, item, expiration date, value, vendor, category, or another method? One popular way to keep cycle counting manageable is to rank your inventory, using the ABC method. This method uses classifications to determine count frequencies: you assign an “A,” “B,” or “C” classification to each of your items depending on how often that item enters or leaves your facility. Then, the most frequently used or shipped items are counted more often. For example, you might count class A items bimonthly. Class B items are counted monthly and class C items are counted twice a year. You might count slow moving items only once a year, this is class D. Inventory statistics generally show that the more often an item enters and leaves your inventory, the more often your data is incorrect. If the quantity is changing daily because it is a fast mover or popular item, it shouldn’t be surprising that you are continually introducing opportunity for errors. Cycle counting by classification is a good method to catch errors quickly, where they are most likely to occur: with fast moving items.

Tip: Cycle counting does not offer a “one size fits all” system. How, where and what you count are very dependent on your specific operation.

You might decide to count by a category or ABC classification. But you can also count by geography or physical location, which is arguably a version of annualized physical counting, albeit, reduced in scope so you can finish it in much less than one or two days. If you plan to count by location, divide your warehouse into physical areas, such as aisles, doors, sections, departments, shelves, or bins. Plan an orderly and consistent counting pattern that covers the entire area and ensures that all items are counted and entered into your WMS. Cycle counting by location is a good method to find misplaced or lost items hidden in corners or underneath shelving.

Tip: Until you are comfortable with the cycle counting process, it is recommended that you leave the quantities visible.

Are you going to provide counters with on-hand quantity visibility or are you going to conduct “blind counts”? In blind counts, your counters locate the appropriate item, count it and either write it down on a piece of paper or enter it in a real-time mobile device that sends the count directly to the WMS application. The opposite situation is where a counter knows the inventory and is essentially trying to confirm what is written down on paper or visible on a screen. The temptation, or course, is to cheat and confirm whatever the number is. Particularly if it is late in that person’s workday or the pizza lunch ended more than four hours earlier.

Tip: Perform cycle counts when no other transactional activity is taking place. For example, schedule your cycle counts during a down-time or when shipping and receiving is not taking place. Familiarize yourself with your warehouse management system (WMS) to ensure you know how to achieve your desired results.

Another important issue is timing your count. Scheduling your cycle counting depends entirely on your business and all of the other schedules that make your business unique. If you are counting items that are in the process of being received, moved or picked, you will need to make sure that your WMS keeps you informed of what is taking place or does automatic inbound/outbound validation for you. Make sure your written procedures include what the WMS handles or doesn’t. If there is no validation, you will have to figure out a method of rationalizing inbound and outbound flow as well as the net. A WMS system is invaluable for this purpose. To do this, you need a comprehensive and global understanding of all of your organizational processes to figure out how to handle transactions.

Tip: Radio frequency enabled mobile devices can save time in recording cycle count information.

Whether you count with spreadsheet in hand or through an automated software application, you should consider the most efficient method for your operation, for instance, whether the chosen method will support your unique process, including setup time, strategy, and frequency of counts. Most efficient methods include the use of a radio frequency enabled (RF) mobile device. You key in data and through radio frequency signals the mobile device sends your data back to the database automatically, saving you time from manual key-punch. Real-time gives you, the person in charge of counting, “control” to update inventory in a real-time live mode. You benefit in many ways such as the elimination of double entries, reduced labor hours, just-in-time availability, collaboration and accuracy. Other mobile devices allow you to enter your data on the device and then batch upload your data when the device is placed in a cradle and hooked directly up to a computer. If this method is chosen you will need to consider the pitfalls of losing your data if the device fails, is mis-placed or if someone forgets to place the device in the cradle.

Who is in Charge (and Other Personnel Issues)
Who is going to take responsibility for ensuring that your cycle count program actually works as planned? You need to identify someone, and give him/her responsibility and—more importantly—accountability for the accuracy of the inventory. You also might want to make this same person responsible for training staff on counting procedures and the value of inventory accuracy.

Tip: Include cycle counting and the importance of inventory accuracy in orientation programs for new employees.

Whoever is responsible for cycle counting needs to understand and accurately estimate the likely counting performance against the time available for counting. Ensure that sufficient staff are available and appropriately trained so that you can complete the count as planned. This means having necessary supplies on-hand. If you’re using bar code or RFID scanners, make sure the battery is charged and users are trained on how to operate the device and navigate through the WMS application..

A Toe in the Water
Start small. In fact, start really small. Gently introduce your organization and employees to the brave new world of cycle counting.

Tip: Start with limited cycle counting and work the kinks out in your processes before you spread it across the organization

Here is a sample program to get you started with cycle counting:

1. Select 200 items/parts/products/finished goods from your inventory
2. Divide them into counts of 50/day, that you will do Tuesday through Friday
3. Accurately count and record all items
4. Investigate variances each day
5. Keep track of daily accuracy/variance percentages
6. Investigate causes and origins of errors
7. Localize cause and correct inventory record
8. Determine cause and delegate responsibility for fixing it
9. Select another 200 parts/products/finished goods from your inventory for week two
10. Keep checking until accuracy exceeds 97% for minimum of two weeks

Tip: Select slow moving items/parts/products/finished goods for your first cycle counting tests. You won’t have to deal with or account for transactional movement of stock (either in or out of inventory), which will be a future issue when you start counting more frequently moved items.

Once you have completed this two-week baptism, review the process and results. What worked well? What didn’t work? What surprises/unexpected information did you gather? After a few tests, adjust your cycle counts in manageable chunks that allow you to completely inventory your entire facility in three months. This will reduce the error rate if/when you perform an annual inventory.

If the upside, that is, the lure of more accurate inventory data, is too appealing to ignore, consider gradually expanding your cycle counting program in your organization. There is always room to improve on a cycle count. You can set up different cycles, add more items or locations, group items together, separate complex items/locations. As you progress, find the methods that aide you in doubling or tripling your items or locations during a count. This will enable performance efficiencies during this process, and let’s face it, it’s nice to be the hero every now and then.

You should now be ready to expand cycle counting into the darkest reaches of your organization. Once you have reviewed your cycle counting system, and optimized procedures for investigating and resolving errors, you can expand your counting program to include all inventory items.

Garbage In….How to Reduce Errors
Errors are part of the cycle counting life. Mistakes are a good thing, though, if you learn from them. Think initially in terms of discovering errors, then reducing them, and then ultimately eliminating them. Not only are you going to uncover multiple errors in inventory count, you’re probably going to experience errors in the counting. One of the great benefits of cycle counting is continuous improvement. Various warehouse industry experts point to an error reduction circle, in which continuous improvement is the goal. Here is how this cycle looks:

1. Find the error
2. Research it
3. Identify its cause (misplaced items, misshipped items, incorrectly entered orders, etc.)
4. Address and eliminate the cause (take corrective action based on what you learn)
5. Continue cycle counting and implementing process improvements to raise inventory accuracy
6. Repeat
7. Repeat again

Consistency is king. Spend the time to unearth errors and eradicate them from your operations. As long as your inventory accuracy is improving, pat yourself on the back.

Tip: Focus on your consistency rather than industry benchmarks. (You probably have no idea what metrics this industry benchmarker is using anyway).

The Power to Move the Yardsticks: who gets to?
You’re also going to need to implement a process to approve and adjust inventory levels for “lost”, “found”, or damaged items. The person responsible for doing this must understand the effects of adjusting inventory to account for “lost” and “found” items. A “lost” product noted in a Monday count might have generated a purchase order two days later because the forthcoming forecast requires it. What happens, then, if the product is located on Thursday? How do you reconcile all of these micro and macro effects on your inventory? In this case the carrying cost will go up because more product is purchased. You now have less space for other items. You’ve added an additional item to receive increasing inbound labor. And in some cases the “Buyer” may appear to be at fault for ordering too much product. On the other side of coin if you over-count during a cycle count, or in essence over-state your inventory, the reverse applies and has a much worse affect because the product cannot be found. Your fill rate suffers, your customers might be agitated, you struggle to look for “missing” inventory that never existed in the first place and the buyer doubles the order to make up for lost sales and now has the same affect as if the product were lost.

Tip: Cycle Count accuracy is an equally important criteria just as receiving, production, picking, and shipping. Assign responsibility appropriately.

If your cycle counting program is successful, there is little benefit to conducting an annual physical inventory. Some of the people in your organization might be reluctant to forego the annual physical count. If you can prove the accuracy of your inventory (that has been developed using cycle counting), you should be able to persuasively argue against the annual count. You’ll save on pizza money and employees will be really happy you didn’t ask them come in on a snowy Saturday in January.

Kevin Collins,
Director, Product Management

SmartTurn, Inc.
1000 Broadway
Oakland, CA 94607
USA

Sales: 1-888-667-4758
Tel: 1-510-267-5150
Fax: 1-510-208-5754

About SmartTurn
SmartTurn™ Inventory and Warehouse Management System is the first true on-demand warehouse management system to provide enterprise class functionality at a fraction of the cost of traditional license and install software. Designed for quick implentation, ease-of-use, real-time inventory accuracy and warehoues performance, the SmartTurn system provides visibility on every item across single or multiple warehouses. Founded on the premise that software should be smart, simple and safe, SmartTurn’s customers span the value chain of most industries to include manufacturers, wholesalers as well as 3PLs. SmartTurn is privately held and backed by leading investors, NEA and Emergence Capital Partners. Website www.smartturn.com

About the Author
Mr. Kevin Collins joins SmartTurn having been in the warehousing and distribution business for over 15 years, where he fulfilled leadership roles for a military distribution company (www.cpfd.com), a third party logistics service provider and distribution center (www.weberdistribution.com), a heating, ventilation and air conditioning supplier/manufacturer (www.calcooling.com), and two other retail service warehouses (Big Bear Distribution and Fleming Foods) where he also partook in two acquisitions. Mr. Collins has spent his entire career learning the art of warehousing and logistics, and has been in every conceivable role within a warehouse; from picking to distribution systems management and everything in between. During that span, Mr. Collins has also had the privilege of working directly with application developers learning about software from inventory and procurement to transportation and warehouse management systems. Mr. Collins brings to Smartturn an invaluable background and information about processes, software and logistics, and the intricate balances between them.

You already knew after reading the Best Practice Series for Inventory and Warehouse Management introduction that implementing a Warehouse Management System (WMS) was inevitable.

You might have already implemented one. You might even be currently editing a WMS Request for Proposal as a first step. Or, your eyes might be closed shut, hoping that WMS vendors stop calling you, and Modern Materials Handling writers stop writing glowing WMS case studies. Sorry, you can’t ignore their ample benefits any longer. You really need a WMS to implement your industry’s best practices. But what type?

To SaaS or not to SaaS
We’re going to start our WMS conversation from the perspective of Software-as-a-Service (SaaS) vs. on-premise software. It is vital to understand their similarities and differences. The applications loaded on your laptop or desktop are examples of on-premise software. A common example is Microsoft Office. QuickBooks hosted on your network server is another. The commonality is that you own (or rather, technically license from the software vendor) the application and host it on-site at your place of work. In fact, if you read the fine-print of your on-premise license agreement, you’ll discover that rarely do you actually own the software.

Defining SaaS
OK, it is growing in popularity but what exactly is SaaS? In the SaaS delivery model, software vendors host applications over the Internet and deliver them to customers for a recurring license fee. The simplest definition is software accessed via Firefox or Internet Explorer. Industry analysts Gartner Group define SaaS as “hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics.” One of the most common SaaS delivery models is the single instance, multi-tenant arrangement in which a common version of the software is hosted at a central location and used by many different companies.

Winds of Change
While on-premise has been the application delivery standard for decades, the Software-as-a-Service delivery model in which you access applications through a Web browser is a more recent (and increasingly popular) application delivery option. SaaS enables software companies to build powerful, highly secure, and flexible applications and then deliver them to a broad customer base.

Benefits of SaaS
There is much to love about SaaS. It is not for everyone, to be sure. But it certainly delivers technical, operational and financial flexibility that the smaller inventory and warehouse operation needs to service existing accounts and develop new revenue opportunities. Here are some of the key benefits that many SaaS users have experienced:

Reduced initial costs compared to on-premise applications
SaaS is almost always much cheaper software to both evaluate and deploy. Customers who would have previously evaluated software in-house prior to purchase can now simply visit a SaaS vendor’s web site and try the software before buying.

More predictable, usage-based recurring costs
SaaS users will experience a sharp reduction in their software management costs. That’s a very good thing. Configuration, maintenance, and updates/upgrades tasks disappear. You simply eliminate the need to maintain some of your infrastructure. To see what the savings might look like, do a quick “scratch-paper” cost calculation on how much you are paying to back up your current data. (You are backing up, aren’t you?)

ROI Insights: SaaS users can redirect their scarce IT resources to strategic initiatives, such as business process improvement. Studies have shown that most IT managers spend over 85% of their time on maintenance instead of innovation.

Fast application deployment, often shortly after signing-up
Few companies use exactly the same processes. The majority of software users require changes to optimize software functionality for their own situations. On-premise vendors typically meet this optimization need by customizing their products. To do this, they write new code. Historically (in the pre-SaaS world), if you wanted a system with custom fields, custom user profiles or data access, you needed a customized system that required either extra payments to the software vendor or payments to a consultant. In contrast, customization with SaaS usually means spending time appropriately configuring the system before using it. As you can imagine, configuration is much faster and cheaper than customizing software code.

Reduced complexity
With SaaS, you don’t have to buy or install additional software or hardware. You don’t need to tap IT resources to deploy your new WMS. You’ll avoid resource allocation issues. Reduced complexity with SaaS delivers important financial benefits in the short-term (through avoiding capital investments), as well as in the long-term (cheaper operating costs). Consider that the average on-premise deployment for a mid-sized company can take up to 12 months. An entire “plan-configure-run” cycle for a WMS SaaS system can take less than a month. Much of this faster time-to-deployment is due to eliminating complex on-premise setup planning. SaaS systems also offer the option of dynamic modification, which is especially helpful if you haven’t mapped out your business processes as well as possible. Non-IT users can even make business process changes. What if one of your customers needs to have a “first expired, first-out” picking policy, or you decide to switch from LIFO to FIFO for some of your items? With SaaS, a configuration change is all it takes. To handle these types of evolving business processes, or if you have an organizational habit of making it up as you go along, SaaS is definitely the way to go.

Better support
SaaS vendors add new features and updates incrementally, delivering them to all customers at once and keeping the user interface as consistent as possible. This “common-delivery-to-all” approach eliminates the burden on each customer to test and implement software updates and changes. It’s also much easier to customize the software for the customers because of the shorter development cycle. Support becomes ubiquitous because all SaaS vendors need to constantly deliver on the promise, otherwise customers can easily depart.

Tech Insights: Due to the homogenous nature of SaaS software and the SaaS vendor’s absolute imperative that it function as promised, the SaaS model generally provides a better user experience.

Ongoing free upgrades
SaaS vendors handle software updates, upgrades and patch management issues.
You’ll have the freedom to focus on your core business. Most feature improvements happen transparently. New feature updates occur in waves of functionality, remaining hidden till you want to turn them on.

Access and scalability
SaaS offers global accessibility. Scalability is not a concern. As long as there is Internet access and a browser handy, you, your employees, your business partners and your customers can access your WMS data. A SaaS model can instantly connect multiple warehouses. All your trading partners and customers can access and manage inventory across the supply chain in real-time, modifying orders, demand-planning, ATP, CTP, safety-stock and reorder points.

In reality, though, most SaaS WMS customers first want to realize small improvements within their own warehouse. Simply migrating from a spread-sheet or legacy based system alone is a huge improvement. Extending a WMS upstream to suppliers or retail partners can follow later. These small improvements eventually aggregate into great improvements on the bottom line. If you are a 3PL or Logistics Service Provider, these issues multiply across your entire customer base. Customers want to reduce logistics costs, but they also want to maintain control of their supply chains. As a 3PL, the SaaS model delivers an infinitely better model if you have to change profiles, access, configuration, and items.

ROI Insights: The ability to connect with a pre-existing community of partners and provide them with inventory visibility and transparency is unique to SaaS.

Total Cost of Ownership
This is in many ways the biggest benefit. It is almost the “super benefit” in that all of the benefits cited above aggregate into a lower total cost of ownership over the lifetime of your use of a SaaS system. The lower long-term cost of ownership is not solely due to the considerably reduced up-front costs. Eliminating maintenance and upgrade costs also eliminates disruptions and downtime in operations. Upgrading to an on-premise software package can exhaust resources, a penalty that only expands in proportion to the level of required customization. With the SaaS model, users remain current with the latest version of the software.

Concerns About SaaS
As a delivery model, SaaS has been around for less than a decade. Non-users will justifiably have some concerns.

Data Control
Previously, companies exercised complete control over their data by storing it on-site. Lack of control of organizational data is perceived as the biggest downside to the SaaS model. Some SaaS proponents think this concern is actually counterintuitive, arguing that a move to a SaaS environment actually delivers more control and more value because the data remains in a high-value and highly available environment. If you’ve ever been at the mercy of an internal IT department that doesn’t share your priorities, you probably wish you had more autonomous data access, which is what SaaS delivers.

Data Backup
With SaaS, data backup is offloaded to the SaaS provider. This might sound scary but consider that the backup and data recovery strategies for most SaaS vendors are superior to many internal IT departments. Take the time to find out what they are. SaaS can deliver more than acceptable levels of availability, scalability and reliability a faction of the cost of on-premise options.

Tips: Make sure you research backup policies for any SaaS vendor you are considering using. Find out how they protect sensitive customer, sales and other data.

Application Failure
What happens if the application goes down? Can the SaaS vendor reboot the system faster than your own internal IT department or IT service partner? Again, ask about uptime performance and ask for customer references before you commit to one SaaS vendor over another. Contact existing customers to learn about historical performance. Ask to see their performance charts.

Network Access
If your Internet access goes down, so does your access to your data. This could be as much an issue of the reliability of your network provider and your contingency plans. Realistically, if your Internet access goes down, however, you’ll likely have much bigger concerns about how this connectivity issue is suddenly affecting your order management, email, accounting, and freight management systems.

Tips: Internet access provides much more than access to SaaS data. Take the time to revisit your network provider’s historical uptime performance. Perhaps it is time for a change or a Plan B such as a DSL modem on standby.

Integration and security
Software-as-a-Service also conjures up security and IT management issues. As these applications are delivered by third parties, and are often championed by non-IT staff, the IT department can be worried about the extra work they perceive they may have to undertake.

Tech Insights: Just because an application is web-based, it doesn’t mean it doesn’t have to adhere to a company’s security, privacy, and Internet use policy requirements. If you are considering SaaS, make sure you research the vendor’s security policies and practices.

As IT department become more familiar with the SaaS delivery model and SaaS vendors, IT departments will become more comfortable with integration and security issues when the data resides off-site.

Cost Issues of SaaS Options
Total cost of ownership is an issue regardless of what type of software you use. Companies pay for applications in one way or another. You either pay through purchasing and licensing, as is the case with on-premise, or you pay some manner of subscription or usage fee, which is the SaaS model. Most often, those companies are paying a monthly subscription fee; that may be a flat fee, or it may be based on the number of system users on the system or some transaction or volume estimate.

You’re already paying for desktops, notebooks, and Internet access anyway. Internet access bandwidth for in-house and remote users usually carries a fairly fixed cost structure, especially due to the commodity and competitive nature of the industry.

Cost Issues of On-Premise Software
On-premise software carries a variety of additional startup costs during the first year. You’ll have to budget for initial testing and evaluation of both the software and the necessary hardware to run it. You’ll have to buy the appropriate number of licenses for your site(s) and budget for user training, and tech support. In year two and beyond, you’ll have to pay either annual maintenance fees (usually 18-24% of the initial per-seat license fee), or just wait for the big software upgrade, which you can expect to face in year three.

Tech Insights: Maintenance and upgrade fees don’t exist in the SaaS world.

Pondering the Future
You haven’t reached decision day yet but we’re getting you there, aren’t we? When comparing the SaaS model against the on-premise option, the big question to ask is what does the application need to do? Your decision should not just focus on the money. Certainly look at what each delivery model will cost, but also consider other factors such as is what each software option will allow your company to do now and become later. Consider the amount of evaluation, installation and implementation time you will need. Factor in cost estimates of lost time (and possibly revenue, too) from integration and, in the case of on-premise, of future upgrades. What will a couple of hours (or more) of downtime cost in the future?

Moving Forward
Gartner Group researchers predict that 25 percent of all new business software will be delivered as SaaS by 2011. That is only three years away and the WMS industry is certainly contributing to this growth rate. It is hardly surprising that SaaS has become such a disruptive force in the application delivery industry as it is particularly well suited to the needs of smaller inventory and warehouse operations. In the Gartner research, many below average performers see SaaS as a way to quickly catch up to their competitors. For WMS operations that need to improve their game (or those already operating strongly), take a serious look at the SaaS model and you’ll quickly see how it will help you deliver a lot more value to your business partners and customers.

Kevin Collins,
Director, Product Management

SmartTurn, Inc.
1000 Broadway
Oakland, CA 94607
USA

Sales: 1-888-667-4758
Tel: 1-510-267-5150
Fax: 1-510-208-5754

About SmartTurn
SmartTurn™ Inventory and Warehouse Management System is the first true on-demand warehouse management system to provide enterprise class functionality at a fraction of the cost of traditional license and install software. Designed for quick implentation, ease-of-use, real-time inventory accuracy and warehoues performance, the SmartTurn system provides visibility on every item across single or multiple warehouses. Founded on the premise that software should be smart, simple and safe, SmartTurn’s customers span the value chain of most industries to include manufacturers, wholesalers as well as 3PLs. SmartTurn is privately held and backed by leading investors, NEA and Emergence Capital Partners. Website www.smartturn.com

About the Author
Mr. Kevin Collins joins SmartTurn having been in the warehousing and distribution business for over 15 years, where he fulfilled leadership roles for a military distribution company (www.cpfd.com), a third party logistics service provider and distribution center (www.weberdistribution.com), a heating, ventilation and air conditioning supplier/manufacturer (www.calcooling.com), and two other retail service warehouses (Big Bear Distribution and Fleming Foods) where he also partook in two acquisitions. Mr. Collins has spent his entire career learning the art of warehousing and logistics, and has been in every conceivable role within a warehouse; from picking to distribution systems management and everything in between. During that span, Mr. Collins has also had the privilege of working directly with application developers learning about software from inventory and procurement to transportation and warehouse management systems. Mr. Collins brings to Smartturn an invaluable background and information about processes, software and logistics, and the intricate balances between them.

Benjamin Franklin and Albert Einstein are two giants of history who knew a thing about getting things done right. The observation that “insanity is doing the same thing over and over again with the expectation of different results” is attributed to both of them.

Does their observation characterize your inventory and warehouse operations?

If your operation is one of the tens of thousands of warehouses in the United States still using paper, Microsoft Excel, or processes first developed in the late 70s/early 80s, we’re here to help. To provide you tools, information, guidance, tips, proven methodologies, we offer you the forthcoming “Best Practice Series for Inventory and Warehouse Management.”

SmartTurn created this series for business owners, accounting staff, procurement managers responsible for inventory or warehouse operations, and anyone else who wants to demystify warehouse planning and operations. As a complement to the series, we’re also launching an experts forum and “inventory geek” section. (Expect to see this added here by May 1).

Learning from Successful Operators
We’re going to showcase really successful small to mid-sized warehousing businesses. You’ll learn from companies that can stretch a dollar and make three. We’ll look at what works and how well it works. We’ll detail how and why their success endures. They’ll discuss how IT investments in inventory and warehouse management improve everything from efficiency and order fulfillment accuracy, to accounts receivable and customer satisfaction.

To be published in the coming months in chapter form, the series will help you make your operation a higher performing machine. Sure, it is a lofty goal but you can do better; you just may not know how. We’re here to help you. We won’t preach; just teach. If you’re the owner or manager, this series is for you. If you’re responsible for making your warehousing workplace a more efficient and smoothly functioning profit center, this series is definitely for you. If you aren’t motivated by either making or saving money, this series isn’t for you.

What Are Best Practices?
Best practices are the things that successful companies do very, very well. Few companies know supply chain management better than McDonalds. Research and Development expertise? You’d probably look first to IBM. Branding and marketing expertise? Apple knows a bit about both areas. Coca Cola has always been renowned for its advertising expertise.

Best Practices are the most efficient (takes the least amount of effort) and effective (delivers the best result) way of accomplishing something. They’re techniques or methodologies that, through experience and research, produce better results than what was previously done. Better can mean a lot of different things; in general, though, we’re talking faster, cheaper and easier.

The Fine Print: Here is the caveat. A commitment to using best practices (in any field) is a commitment to using all the available knowledge and technology to ensure success. We assume that if you’re going to spend the time to read most (if not all) of the chapters in this series, you’re also going to commit to applying your new expertise and knowledge. We also assume that you are (or at least are interested in) using or learning more about Warehouse Management Software (WMS) technology, the implementation of which makes these best practices far more possible and practical.

According to industry analysts Aberdeen Group, just 47% of companies are currently taking full advantage of the enabling power of WMS applications to reduce labor costs and improve customer service metrics. After you finish our series, you’ll really wonder how the 53% justify doing less than they ultimately could (from much less to absolutely nothing at all), given the clear benefits that we’re going to detail.

How to use this series?
Read the chapters. Think about the lessons. Think about how much easier your life would be if you copied what really successful companies were doing. Think about how much more money (sales, revenue, income, etc.) you would have. Then do it.

What this series will help you do?
Make more money. Pay less overtime. Use fewer resources. Reduce operating costs. Lower headcount. Increase efficiency. Attract, grow, and retain your existing customers. Improve your business processes. Develop insights into your business so you can understand where your roadblocks are.

You’ll be able to raise your efficiency in receiving, putaway, picking, shipping and inventory management. You’ll be able to increase your on-time, and accurate shipping percentage, and lower overtime costs. You’ll garner insight and hopefully some understanding of the problems that are holding you back from making those next steps. What next steps? The next steps you need to increase your profitability, efficiency, etc.

Do you need to read every chapter?
Ideally! Everything is laid out in sequential, logical