Improve supply chain and inventory management

in Business Hacks

by
Tino Laï (til)

Tips to optimize your warehouse management with accounting principle

warehouse

Simplify your whole supply chain management by using double entry system

There's no point searching for a totally different solution when you can use what you already know. You don't need to be groundbreaking to be successful, why reinventing the wheel when you can apply a perfect solution without lot of R&D?


In the case of 
warehouse management, using the same approach as for accounting is a good solution to improve your inventory management and the whole supply chain. The double entry system has been considered as best practices since the 13th century and nowadays it's widely-praised for its efficiency and accuracy.

What is a double entry system? 

The doubly entry system is based on keeping records of every transaction in two accounts.

For example, when you register a flow, you will record one input (incoming stock) in one account and one output (outgoing stock) in another account.

The whole system is structured around the fact that the sums of the two accounts must have the same value. You can’t give more than what you receive, if it doesn’t match then there must be an error.

To illustrate the concept of double entry system for warehouse, let's observe how stock moves:

1/ We order 30 posboxes from Supplier X and put them in Stock A, we record the following operations on receipt of the products:

Stock Move Operation from Supplier X to Stock A:
 
​Location ​Products
​Partner Locations -> Supplier X ​- 30 posboxes
​Physical Locations -> Odoo > Stock A ​+ 30 posboxes

2/ We deliver 14 posboxes to the customer XYZ and we get the following transaction for the delivery:

Stock Move Operation from Stock A to Customer XYZ:
 
Location Products
Physical Locations -> Odoo -> Stock A  ​- 14 posboxes
​Partner Locations -> Customers -> Customer XYZ ​+ 14 posboxes

3/ After these two operations, we will see the following stock in each location:

Stock Move Operation from Suppliers to Stock:
Location Products
Partner Locations -> Supplier X - 30 posboxes
Physical Locations -> Odoo -> Stock A  + 16 posboxes
Partner Locations -> Customers -> Customer XYZ + 14 posboxes

We can obviously see that the sum of the stock in each location is equal to zero. We can easily control each location by just watching the sum. Detection of problems and mistakes is really easy since you just need to check one value.

3 reasons to run your warehouse like your accounting

How to boost the performance of your supply chain.

1. Native Accuracy and Real Time Control

There is no place for “more or less” in accounting. It should be the same for your inventory. By the matching two entries each time, you naturally avoid making mistakes. A double entry system provides several forms of error checking that are absent in a single entry system. Its very structure allows you to detect discrepancies at any level. You can easily separate the flow for each location and detect which one frequently “loses” stock. Your software can immediately detect the wrong operation just by doing a search based on mismatching entries. You don’t need to wait for customer complaints to check for illegal traffic, you benefit from a real time check of your supply channel.

2. Flexibility, Scalability and Easy Tracking

The size of your warehouse structure can change for various reasons. The double entry system is fundamentally flexible and scales easily. Increasing the amount of nodes/steps of your supply chain means to only add a “board” in the system. Once you insert a new location in your channel, the process is always the same and the tracking keeps the same logic: comparing the sum of two flows. Extending this logic, you can also include information from external suppliers or warehouses in your system. The double entry system allows you to easily improve the micromanagement of your whole supply chain. It can be used for small business or big corporations.

3. Cost minimization and Fulfillment Times Optimization

We can observe a similarity between stock management and working capital management. In accounting, the management of working capital is defined as the decisions related to operating liquidity available and short term financing. Healthy accounting provides enough working capital to finance short term needs. When your estimated working capital is too low, you use short term debt to compensate. Of course, debts cost money. It's the same for stock management. If your stock doesn’t fulfill all your need (backorder), you have to use costly extra means to fill the gaps and you lose time. So, we can then employ the strategy used to optimize working capital to optimize stock!

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Examples of how to improve your supply chain

Following the logic of accounting optimization, we can easily improve inventory management and optimize the supply chain. We can automatize checks at each step of the process by using software that notifies when there is a mismatch. More than that, we can also use accounting insights/techniques to optimize the supply line.
 
Common problem in all warehouse's process is that we learn about the back orders always too late. We signal missing stocks when we are supposed to receive them but we tend to do the check only at the end. As for example during a online purchase, the ecommerce website would get notified only after complains of customers not receiving the product. Tracking the origin of the problem can be quite difficult especially when the supply route is complexe. 

In order to localize the problem the fastest possible, we recommand to separate each moves/actions in different categories and to use your warehouse mangement software to report in real time their statut.

odoo warehouse front screen
 
In a glimpse of an eye, you know immediately which process or place is subject to problems and where you should focus your improvement on. Since the software will summarize all the input of the supply chain, you will be able to undersand the weakness of your whole system.

 

Don't make the mistake of thinking that a location is just a location.

More you put details in your process more it will be easy to understand its flow and micromanage it. Responsiveness is largely improved if you multiply the steps in your route in order to get closer details on what slows your supply chain.

Exemple of classic ecommerce supply chain   

odoo warehouse basic structure 1
  
Your inventory manager would signal backorders at internal stock A. You know there is a is a problem at the "creation of the product" level but not exactly where. You have to contact and send someone to check it to get further information.


More detailed view where you add extra steps inside your supply chain.

odoo warehouse basic structure 2

By including the extra steps inside your "creation of raw product" process, you can localize the problem immediately. There is a problem after the packaging of the product and the delivery to the "Warehouse C". "Transit B" has no problem to deliver product to Internal "Stock A". You can send someone to fix the problem at warehouse C and as temporary solution, use "Transit B" to send product after packaging to itnernal Stock A.

odoo warehouse basic structure 3

Just by having a more detailed supply chain, you have been able to simplify problem detection and find a temporary solution in a sec.


Push the details even further by including each small actions inside your route. You can then optimize inventory management and your manufacture.

odoo warehouse location view
You can easily input small dispatch zone, shelf and other small location to optimize your process for each operation.
 

Optimizing your inventory process is also improving your customer satisfaction.
Don't forget to list and observe the recurrent final destination of your products. Some companies do the mistake of not review regularly their supply chain. The world changes and the trends too. As efficient as can be your current route, it is just temporary.

odoo warehouse distribution 1
The products goes from Location A to Location B, then Location C and then finally to Location D before being dispatched to the customers.

By analysing your best destination, you can observe that more clients are close to Location A. You can easily simplify the route by distributing immediately from Location A and reduce your delay.

odoo warehouse distribution 2

In a few secondes of observation, you are able to reduce the travel time of your product, serve your customers faster and reduce your cost. 
 
Following the logic of accounting optimization, we can easily improve inventory management and optimize supply chain. We can automatize check at each step of the process by notifying any mismatch with a software. More than checking for mistakes, we can use accounting insights to optimize the supply line.
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Anim pariatur cliche reprehenderit, enim eiusmod high life accusamus terry richardson ad squid. 3 wolf moon officia aute, non cupidatat skateboard dolor brunch. Food truck quinoa nesciunt laborum eiusmod. Brunch 3 wolf moon tempor, sunt aliqua put a bird on it squid single-origin coffee nulla assumenda shoreditch et. Nihil anim keffiyeh helvetica, craft beer labore wes anderson cred nesciunt sapiente ea proident. Ad vegan excepteur butcher vice lomo. Leggings occaecat craft beer farm-to-table, raw denim aesthetic synth nesciunt you probably haven't heard of them accusamus labore sustainable VHS.
Anim pariatur cliche reprehenderit, enim eiusmod high life accusamus terry richardson ad squid. 3 wolf moon officia aute, non cupidatat skateboard dolor brunch. Food truck quinoa nesciunt laborum eiusmod. Brunch 3 wolf moon tempor, sunt aliqua put a bird on it squid single-origin coffee nulla assumenda shoreditch et. Nihil anim keffiyeh helvetica, craft beer labore wes anderson cred nesciunt sapiente ea proident. Ad vegan excepteur butcher vice lomo. Leggings occaecat craft beer farm-to-table, raw denim aesthetic synth nesciunt you probably haven't heard of them accusamus labore sustainable VHS.

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