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What Is in Your Toolkit?
The Logistics and Supply Chain Toolkit was initially produced to assist managers in their day to day logistics activities. It is now in its third edition and continues to help managers with the introduction of more tools and advice.
Classic tools such as the ABC analysis can be used for both warehouse and inventory management enabling the user to identify the slow, medium and fast-moving products alongside those items which aren’t moving at all.
Managers are able to plan their warehouse accurately by placing the fast-moving goods close to the despatch area therefore minimizing travel within the warehouse itself. By undertaking the ABC analysis they can also work with their inventory colleagues to decide on which products should be reviewed and where possible and cost-effective, removed from the warehouse.
An ABC analysis, sometimes known as the 80/20 rule, can also be used to pinpoint the most important clients in terms of frequency of orders and total sales volumes and also the suppliers which provide the bulk of products.
An ABC analysis can provide significant information for managers throughout the business.
The idea is to concentrate on the 20% - the vital few - which tend to produce 80% of the sales in terms of volume or frequency. This can apply to both customers and products.
A consultancy client was surprised to find that during the previous year, 80% of their orders were placed for only 20% of their product lines – an exact 80/20 relationship. They had always monitored actual sales revenue rather than order frequency.
By undertaking the analysis another interesting discovery was that 60% of the orders came from less than 7% of the active product lines.
This reliance on so few product lines made the company vulnerable as many of those lines were for the same product family. A competitor producing similar products and entering the market at a lower price point could have dire consequences for our client.
This discovery allowed the client to take action and mitigate the risks. This showed the value of undertaking the ABC analysis.
The analysis was also utilized to produce a layout for their newly acquired warehouse – a task we were initially engaged to carry out - ensuring that all the fast-moving items were placed close to the despatch area thus minimizing travel within the warehouse which can amount to 50% of the entire picking process.
We were also able to define the type of storage medium and location within that medium for each product line which include pallet storage, shelving and carousels.
Furthermore, we were able to utilize a slotting algorithm which placed products which frequently appeared together on the same order in close proximity further reducing travel time within the warehouse.
The client now carries out an ABC analysis on its product lines quarterly.