Inventory-management-and-The-Lost-Socks-syndrome

Inventory management and "The Lost socks" syndrome

Overview

This is a great example to explain what are the most common mistakes in warehouse and inventory management.


We are all aware of one of the greatest mysteries of all time - the lost socks! :)
The Internet is full of memes and comics covering this phenomenon.

But this phenomenon is a great example to explain what are the most common mistakes in warehouse and inventory management.

inventory management lost socks

There is an even pressure from the global market to handle this phenomenon. :)

The overall world market loses where so high that scientist formed a special group to fight this
out-of-the-planet mystery... (kidding)

But now for real - there was a recent study ordered by the famous appliance manufacturer for their new washer campaign:



In short, there was an attempt to try to calculate % of lost socks per washing cycle.
So, they even came up with the formula - that solves the mystery….

The science behind the scenes

Okay, now to get to the real things - what this has to do with the inventory management?

Behind this formula, there are basic thermodynamic rules guiding the entropy principle.
In short - It is not: “the order from chaos” but totally opposite: 

“When you have an order, during a time you will get chaos - if there is no influence by the order creating force.”

This same syndrome has been noticed in the warehouse management and inventory management.

This metaphoric example with socks is literally what happens in the supply management process.
There are some key phases in this process and in every phase, there are some critical steps. 

These steps, depending on the software optimization and organizational principles, can generate an error in the supply chain and inventory management process.
  1. Collection
  2. Distribution
  3. Processing
  4. Inspection
  5. Deliver
In the next picture you can see what happens in each process step and compare them:

inventory management lost socks

You can spot the analogy in the example - now let us see the logic in the inventory and warehouse example (the simplified model):



As these errors accumulate, they bring us the critical points in the process, which in the end lead us to:
  • stockpiling
  • return of goods management
  • orders overdue 
  • product swapping
  • mismatch
and overall boost business cost and downgrade our competitiveness.

Metric that is not shown in this chart and is also present is - TIME.
Now, loss of time from a small business perspective is devastating, why?

Usually small business tends to rely on a small group or, very often, one decision maker.
Also, these are often very vertically specialized people that bring more value to the end customer. And if that person needs to invest additional time to handle missing inventory, then they cannot deal with the real thing.

To get a bigger picture just look at these numbers:

Walmart, for instance, reported that in 2013 it lost $3 billion in revenue because of mismatches between its inventory records and its stock.

“Between 2003 and 2011, the U.S. Army lost track of $5.8 billion of supplies among its warehouses,” says Fadel Adib, the Sony Corporation Career Development Assistant Professor of Media Arts and Sciences MIT.

In 2016, the U.S. National Retail Federation reported that shrinkage — loss of items in retail stores — averaged around $45.2 billion annually.



That's why we need to address critical errors in the process and try to eliminate “missing socks” from our inventory and warehouse management. By doing that, we make our system more secure in repetitive cycles.

inventory management


By tackling each of critical step errors we can drastically improve the overall efficiency and drop costing. In ERPAG (https://www.erpag.com) we can:

1. Picking
  •  by predefined lists generated by the system
  • double check with lot/serials/QR codes
  • speed up with bin locations
  • If there is an error, the system forces employees to notify system and trigger handling procedures
2. Transfer
  • Automate procurement process with the automatic fulfillment process
  • Predefined supplier (prevent double entry)
  • defined lead times
  • expected dates
3. Processing 
  • already prepared load of materials
  • If there is an error, the system forces the employees to notify the system and triggers handling procedures
  • Tag items as they leave shop floor
4. Pack
  • Compare against awaiting orders
  • Automatically reserves quantities 
  • Using labeling and scanning speeds up the process and eliminates human readability errors
5. Delivery
  • Assigns packages to close the supply chain cycle
  • Automatic label printing from the system
  • Track delivery by status tags from different platforms (mobile, desktop)
And there you have it, folks! The mystery is solved:

Use ERPAG to manage your inventory, and there will no longer be ‘’lost socks’’ in your stocks!


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