May 15, 2019
How to minimize damaged, spoiled and expired inventory
In our previous article, we examined inventory loss as a result of theft and we gave some tips on how best to reduce these problems. This week, we’re going to look at reducing risk on damaged, spoiled, and expired inventory — and we’ll discuss tips on how to prevent goods from becoming spoiled in the first place.
Spoilage can be production units that are either fully or partially completed that do not meet the intended specifications of the customers and are either discarded or sold at reduced prices. For example: defective shoes, shirts, and jeans, or defective plastic items that get sold to plastic manufacturers for remelting to produce other plastic products. Spoilage is also synonymous with the spoiling of food and other perishable goods.
A business owner can determine what their normal vs abnormal spoilage should be relative to the type of business they have. For example, normal spoilage for a fruit importer will be a lot different from the normal spoilage of a chocolate manufacturer. Each business will be able to determine the average percentage of normal spoilage and write that into the cost of goods sold.
Abnormal spoilage is spoilage that goes far beyond the acceptable limit and may be due to defective machines, low-quality materials, or even incompetent machine operators. Abnormal spoilage is charged as expenses incurred or a separate cost that is not able to be recovered.
To minimize spoilage, you need to take a look at your processes across the entire supply chain. An excellent place to focus is the packaging and distribution aspect, as this link in the chain is most under immediate control where changes can be made quickly. Damage done in transit due to bad packaging, poor handling, or inadequate shelf life can be managed to a minimum. Over the years, packaging has advanced from merely providing protection to being able to ensure a longer shelf life for fresh produce as it makes its way from the farm to the wholesaler or processor. For example, there are now reusable crates with specifically designed ventilation holes to ensure product longevity. Another tip is to look at packaging that is retail ready, reducing the handling to a minimum so products can last longer.
Once the goods are in the warehouse, take care to:
- Ensure that your refrigeration levels are always correct. Install sensors that trigger alerts when levels drop to an unstable level.
- Check expiration dates and if they are nearing the end of life. Sell them at a discounted price or donate them to a charity rather than having to throw them out.
- Ensure your pallets are in good working order and there are no broken or faulty parts.
- Ensure staff are trained on how to load and wrap the pallets without causing product damage.
- Check the lighting in your warehouse – this will help to avoid errors in packing, picking, and product handling.
- Ensure your warehouse is clean, uncluttered, and has plenty of space for your forklifts to move around without bumping into inventory and causing damage.
- Ensure that your shelves aren’t overloaded. Know what the shelf capacities are and post this on the storage unit.
- Ensure you have the necessary safety equipment. Rack netting, for example, will prevent boxes from falling and breaking open while also preventing staff injuries.
- Ensure your workstations are set to the correct height so that your employees don’t have to operate at angles that cause discomfort – this will avoid product being dropped, crushed, or spilled. If needed, install hoists or lifts to reduce physical stress further.
Inventory loss due to damage and spoilage is inevitable and will happen. Some of these tips may not pertain to your specific type of business, but if you monitor your product damage by collecting and analyzing the data to determine the most frequent cause of damage in your business, you can put measures in place to reduce this.
One more key item: inventory loss affects your inventory replenishment. No matter the cause of the loss, you need to have visibility into your items in order to know how to correctly replenish your warehouse. If you're relying on a spreadsheet to keep your levels balanced, you're going to run into costly problems regularly. Take a quick look at this video on how the NETSTOCK dashboard puts you in control and helps you drive more profit:
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Written by Craig de Kock
Craig comes from an engineering background, receiving his degree from the University of Pretoria in the early ’90s. His experience in supply chain started in 1992, where he joined a team developing ERP and logistics solutions for local organizations in South Africa. Focusing in supply chain, Craig moved to a specialist supply chain business in the early 90's and moved through the ranks to eventually end up managing a team of consultants on various supply chain projects in SA. Craig joined Barloworld logistics as General Manager of product development and was responsible for the development, testing, and international rollout of their inventory optimization product. Craig later expanded his talents and joined a team to manage IT infrastructure, IT Projects, Warehousing, Operations and Supply chain in a cellular business as the COO and later CIO. In 2011 Craig went back to his supply chain roots and joined cloud-based Inventory Management company NETSTOCK. He began his journey at NETSTOCK, building the business from the ground up. Today Craig is President for NETSTOCK in the USA and CIO for the group. Craig focuses on NETSTOCK customers, empowering his team to make sure they have the right systems and processes in place to deliver a superior customer experience.