by Scott Stratman

By now we have all heard the credit card advertisement asking, “What’s in your wallet?” 

For distributors, the question begs another: “What’s in your vault?” 

The vault is your safeguard against total cash flow collapse. It is where all your major assets are stored. It is where you spend most of your time, dealing with its headaches, ins and outs and overall operation. So how does your vault stack up with others?

The vault is without question the backbone of a distributor’s success. Basic vault management is critical to bottom-line success. Similar to a bank, managing your cash in the vault begins with a good vault manager. Simply putting someone in that position without giving them input on how the vault should be managed is a huge mistake.

The vault manager should be part of every major decision regarding the flow of cash (inventory). For example, if you decide to use an automated warehouse management system, the vault manager should play a critical role in making the decision and selecting the tools. The vault manager not only manages the vault personnel, but manages the cash invested in your vault.

How that cash is managed has a huge impact on everyone else in the organization. The success of the vault clearly impacts the effectiveness of the sales personnel. Being able to quickly provide customers with the right products at the right time has a major impact on your ability to manage your accounts receivables.

Determining what is really in your vault is the foundation for good inventory management. Therefore, how your vault is set up, laid out and managed will greatly impact your purchasing department. If you can determine what is in your vault by product, quantity and where it is located, purchasing can make better cash-based decisions. I have yet to meet a distributor with so much cash on hand that poor purchasing decisions go unnoticed. So, what makes a good vault? How can everyone in your organization help the vault manager manage your largest asset?

Receiving matters
Good vault management begins at receiving. This is the one place you can get it right or wrong. You need to have the most experienced of vault personnel handling the receiving function because errors at this point tend to spawn additional errors.

Remember, you always have more coming in than going out, so putting control points, check points and extra effort here will help you in all aspects of inventory management. For example, if items are received wrong into the system, put away wrong or simply not put away at all, the data purchasing uses to make their decisions is incorrect.

What is done at receiving permeates the entire replenishment process. Purchasing needs to know when products arrive on a very timely basis. The accuracy of the receipts, the timely updating of the system and the correctness of the data input is the foundation for their next purchasing decision. Sales personnel are always anxious to get product received and put away properly, as they continue to sell and turn that inventory.

When the vault numbers are not correct, purchasing will make mistakes. The mistakes they make are costly because they are spending large amounts of your other precious asset – cash. Making purchasing decisions based upon incorrect on-hand shelf stock and available-for-sale quantities only compounds the errors we make in receiving.

Most often, they will purchase a quantity that does not need to be purchased at this time. They will spend critical cash, dip into a credit line or cause you to be in an overstocked position when getting it right at receiving would have prevented this series of mistakes.

A place for everything
A well-designed vault allocates maximum space for receiving. Provide enough space to bring in a huge shipment, a large preseason buy or a special buy that must be broken down and received with care.

Often, when receiving is cramped, distributors stack product down the aisles and stage it until there is enough room to break them down and receive them properly. It's often moved twice or three times because order picking requires the aisle space to fill orders. Once you start to move items around just to make space, you improve the chance of damaging the product, not getting into the system on time or putting it away wrong.

Take a look at your vault and see if you have enough space allocated to receiving. Can you find a way to expand the flex space in receiving? This might be as simple as taking out a few racks. You might want to move a few rows of shelving back about 10 feet. You should always provide receiving with a good bit of floor space to use as needed. Give them space to stage receipts until they can properly receive larger shipments. They might not use this open floor space all the time, but creating it will be a huge advantage to them when needed. You might use it for staging outgoing shipments at certain times of the week, month or year.

Instead of taking every inch of space and filling it with racks and shelving, provide some flex space or open floor space for receiving to use. You might also want to do the same in the shipping area, as they often can use some open floor space to stage orders, gather products for a branch transfer or just use during a heavy shipping period.

Similar to a bank’s vault, the way the vault is organized and labeled is critical. Banks don’t throw the one-, five- and hundred-dollar bills on the same shelves. They sort them in some logical fashion so pulling, counting and restocking is easy and mistake-free. Your vault should be well marked and well lit. Every inch of the vault should have a label or address.

Even the open floor space should have some label. When you put away received product, staged items or future shipments in open floor space, the system must know where the product is located in the vault.

Open space should be broken down in sections (maybe 10 feet by 10 feet), each with their own label or address. As you use that space, tell the system what you put in each section. It most likely isn’t the permanent home for the product, but once you get it in the door, you need to know where it is.

I see this often when visiting distributors that always have one vault person who knows where everything is located. I hear it when talking to various managers who can’t find product in the vault. They will say something like, "Ask Bill, he can find anything."

That usually is true because Bill put everything someplace and he, and only he, knows where it is. This is very poor vault management. The system should know where everything is located in the vault, not Bill. If something tragic should happen to Bill, how will anyone be able to figure it out? Having a well-organized and well-labeled vault allows you to identify primary, secondary and temporary locations the moment the products are received in the building.

You can ensure your vault is managed well by conducting regularly scheduled inspections. Known as cycle counting, inspecting your real inventory compared to what the system says you should have is a huge step toward total inventory accuracy.

When your inventory levels are accurate (within a very acceptable variance), good things start to happen. The biggest impact is on the money spent in purchasing. If purchasing knows with a high degree of accuracy that the inventory levels in the vault are accurate, they can adjust their purchases accordingly. When they don’t trust the data and the accuracy of the inventory in the vault, they adjust upward to cover their suspicions. In other terms, they needlessly spend your other valuable asset (cash). Frankly, I rarely meet a distributor who does not have cash flow challenges.

The color code
You can often get new vault personnel up to speed about where product is located by using colors to help identify various areas of the vault.

Let’s say you stock pumps from a variety of vendors. Hanging a large, colored sign from the ceiling where pumps are located would help your new personnel learn item locations much quicker. Then, you might want to break down the pumps by vendor or size using other defining colors. Marking the rack, the carton or the product would help them pick the right product more often.

There are often similarities among products from different vendors that are complementary products or substitutes. An OEM pump might look exactly like a knock-off pump, but picking it right is often confusing.

Using colors can help you pick the right pump more often, and therefore reduce your shipping errors, increase your customer service and reduce your returns.

When you have products that vary slightly by width, depth, size, voltage, opening or purpose, colors can be very helpful in determining which ones should be put away where, and which ones should be picked to fill the orders. This is common with pipe, board-feet products and electrical products with variations in the voltage. The best time to make the color work for you as a differentiator is at put-away time. Develop a color chart that is used for both put-away and picking; your accuracy rate will increase into the high 98 percent range.

Manage and control your vault just like the bank vault. Make sure you don’t have strangers cruising through the vault unescorted. Make sure only vault personnel put away and pick products. If you decide to let all your personnel, vendors, truck drivers and customers cruise your vault, you will have inventory accuracy issues. Lock it down and have tighter security.

I guarantee if the shelves were full of hard cash, you would not manage it the way you do today. Your security would be much higher. You would know exactly how much you had of each denomination of bills. If your goal is to have a high degree of inventory accuracy, manage your vault like it's full of hard cash. You will be amazed how it will impact many other areas of your business.

Scott Stratman is president of The Distribution Team, located in Colorado Springs, Colo. He founded the firm with retired inventory expert Gordon Graham. Contact Scott at (719) 579-5978, sstrat9@aol.com or visit his Web site at www.thedistributionteam.com. The Distribution Team will hold two upcoming inventory management seminars. The first will take place April 1-2 in Colorado Springs, Colo.; the second will take place May 13-14 in Portland, Ore. To register, click here.

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