Real estate and labor – these are, by far, the top sources of expenditure incurred by distribution centers, warehouses and similar facilities. Both are closely tied to inventory management – the bigger the business, the larger the DC, and the more the number of people required to deal with inventory operations. With the ever-increasing velocity of supply chain, and relentless need for higher operational efficiency, technology plays a central role in helping DC stakeholders optimize their real estate and labor investments.
Whether it is specialized equipment that can navigate very narrow aisles or autonomous vehicles that allow human labor to be freed up for higher-value activities, automation is playing a central role in the disruption of the supply chain industry, including drones for logistics. Inventory counts are part of this journey – and one of the keys to the successful digital transformation of DC operations.
How Cycle Counts Help Match Digital Twins to Reality
While it’s a fond hope that the most advanced warehouse automation technologies will make cycle counts redundant one day, the reality is that 90% of distribution centers today have to do random and/or full cycle counts ever so often – or risk shrinkage, stockouts, customer dissatisfaction and loss of market share. The danger of not counting distribution center inventory frequently enough is the compounding of the error in inventory records stored in the warehouse management system.
Full Counts Too Expensive? But Are Random Counts Enough?
Imagine a DC housed over a million square feet. On average, 40% of the area is likely to be racked. That’s 400,000 sq ft of racks, meant to store full pallets, partials and individual cartons. As real estate becomes expensive, more and more of the aisles in this area will change from traditional (i.e. 10 to 12 feet wide) to VNA (i.e. 6 feet wide or less). Similarly, the rack heights will grow from 25 feet to nearly 40 feet. Assuming standard bays (~ 10 feet in length), aisle length averaging 200 ft and six-high racking, this works out to over 100 aisles (over 200 racks) and over 10,000 locations.
Even if all 10,000 locations had full pallets with just one location identifier and one barcode to be scanned, it would take over 100 man-hours to do a full cycle count. In reality, many of these locations may have individual items with front-facing barcodes and thus dozens of barcodes to be scanned for each location. Thus, a full cycle count could take ten times as many man-hours. That’s 4 people working in 1 shift for an entire month – an expensive, time-consuming exercise! No wonder inventory stakeholders have made peace with random cycle counts – with single-digit percentage of inventory being counted and used to statistically arrive at an ‘equivalent’ full count.
To improve the accuracy of random cycle counts, data collected over time is analyzed by warehouse management systems to inform which locations should be counted, how often and when, based on location inaccuracies observed in the past. Each day, each cycle counter is automatically assigned a set of tasks by the WMS – the data thus manually collected is fed back into the WMS to match the ‘digital twin’ to its real-world counterpart. Of course, climbing ladders, using forklifts to scan barcodes 30 feet in the air, and stretching arms to ensure that each barcode is correctly scanned remains the ugly reality of manual inventory counts.
Inventory Audits Are A Must, No Matter How Long They Take!
Quarter-end and year-end inventory audits are a way of life for GMs of distribution centers owned by listed companies. Financial regulations require that the entire inventory be accurately accounted for so that the corresponding line item on the company’s balance sheet is correctly reported in the tax filings. These inventory audits tend to be resource-intensive; besides the full-time resources involved in daily inventory counts, an army of part-time and/or over-time staff is brought in, so that the entire distribution center inventory can be counted in a relatively short period of time.
In fact, the less the frequency of regular cycle counts, the more challenging is the audit count, since there are likely to be more and larger discrepancies between what’s on the shelf and what’s in the warehouse management system. These audits have a much bigger impact than just the time & money involved in the labor and equipment, viz.
- The entire facility might have to be shutdown, thus harming fulfillment metrics and resulting in loss of revenue,
- Theft, misplaced inventory, loss of perishable goods, etc. all will raise auditor concerns that require immediate resolution – further delaying the shut-down,
- The inherent lack of accuracy & repeatability of such laborious tasks – combined with the lack of traceability of manual counts – may hinder the resolution of audit queries.
Customer SLAs Are Sacrosanct for 3PL Providers
While inventory audits may not be mandatory to private (i.e. unlisted) companies, those in the 3rd party logistics (3PL) business do have service level agreements (SLAs) with their customers that are subject to internal and/or external audits. The business driver here is not financial regulation but the importance of inventory accuracy to the 3PL customer – who is relying on data from each 3PL facility to inform their supply chain and ensure the satisfaction of the end customers. The direct revenue impact from timely order fulfillment – or lack thereof – makes inventory-related SLAs an important determinant of 3PL success.
The nature of 3PL business models dictates that 3PL customers have direct, automated visibility into the inventory data at 3PL facilities – making manual inventory counting increasingly ineffective. Ideally, customers want their own IT systems to proactively trigger inventory searches, counts and SLA audits – via the 3PL provider’s WMS or IT infrastructure.
The Time Is Ripe For Drones In Distribution Centers
It is but obvious that automated inventory counts – especially those that leverage cost-effective, reliable, autonomous drones and intelligent automation software – are bound to disrupt the way inventory is managed at DCs. With the possibility of full-cycle counts much more frequently, quarter-end and year-end audits will become far more manageable – that too without the pain of hunting for over-time staff or shutting down the entire facility. Drones and logistics are thus turning out to be an ideal match w.r.t the promise of automation.
Drones used in logistics can do the inventory management tasks at-least 3X (and possibly 10X for case reserve) faster than manual counts. Accessible commercially via a SaaS model, such drone solutions tap into existing budget allocations, with minimal capital investment – resulting in payback periods in months, not years! In fact, the biggest advantage of drones in logistics is likely to be the possibility of full-cycle counts done daily – with deployments of dozens of drones for distribution centers in parallel.
Streamline your DC inventory audits, and honor your 3PL customer SLAs, by deploying drone solutions that come with live video feeds, date-wise image archives, and location-wise barcode data.