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The Top 8 Inventory Best Practices

for the Food and Beverage Industry

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 Consultings 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.

1.

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outdated computers, etc.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.
1

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.

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
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

3.

Accurately record all material transactions

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:
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 everyones 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
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Ensure your company complies with

government regulations

4.

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 publics health at
risk. There are 6 important automatic processes to consider for your plants operations
to promote government regulations:

5.

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

Rethink the number of locations

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

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

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.

8.

Stop conducting an annual physical inventory check

Does 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!

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.

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

Copyright 2013 TGO Consulting Inc.

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