FIFO Strategy for Location Directive Inventory Picking Aging
This blog post explains how to use first in, first out (FIFO) location aging directive strategies during inventory picking. These strategies work in conjunction with the aging dates that are recorded for locations to track when inventory first entered the warehouse.
Perhaps one of the most alarming lessons for companies hit by the 2019 pandemic is the necessity to develop resilient supply chain management. Even the leading business incurred considerable financial losses due to all the disruptions and inventory management challenges.
The Economist Intelligence Unit Survey
Based on a recent survey from The Economist Intelligence Unit, the pandemic affected 45% of the firms with significant unsettling impacts, and 8-10% of businesses faced annual revenue declines in North America and the EU. In addition, several companies also faced reputational damages from client complaints concerning inadequate supplies and failed orders.
In times like this, the key to having conventional WMS is all about finding the correct order picking system. It will not only increase the efficiency of your warehouse operations but also enhances order accuracy and ultimately boost customer satisfaction.
However, finding the correct order is one thing, while having updated license plates for incoming and outgoing stocks is another story. Every item in your warehouse should have an updated license plate for the location directives to work correctly.
Today’s post will explore one of the most infamous chaos in the warehouse that a business can face and how Dynatuners can assist your way through it. For that, let’s start with inventory aging and how it can become an issue.
An Insight into Inventory Aging
Every business owner loves it when their products are flying off their shelves, and they have enough available inventory to dispatch every sales order. However, a more frightening part is when your SKUs start collecting dust.
An excess inventory can cause severe issues within your business, from ascending storage costs to dropping profit margins.
At Dynatuners, we’re helping our clients in supply chain management to manage inventory control while improving fleet management and optimising workflow.
We implement solutions that leverage D365 Warehouse Management. As a result, we offer a viable solution to avoid the traps of stacked inventory and keep your cash flowing as it should be.
What is Inventory Aging?
Inventory aging is a well-known metric among businesses dealing with products prone to aging. An insight into aging inventory offers exceptional visibility within your warehouse, allowing us to adjust location directive strategies accordingly.
A beneficial tool to deal with aging inventory is its report. It shows which of the items entered when. The table below reveals vital financial information that businesses can use to evaluate the overall health of their old and new inventory.
Stockpiling your inventory is never a good idea, especially when time significantly affects its value. Let’s take an example of one of our clients trading in tires.
The sample data shown below reveals key financial data that we use to evaluate the overall financial health of our client’s business.
|Industry: Automobile Period Length: 1 Year Start Date: 5/12/2022
Location: WH616 Product: All
|Products||1 year||1-2 Years||2-3 Years||3-4 Years||4-5 Years||Over 5 years|
The above report includes three different qualities of tires listed on the left and the number of units in inventory grouped in a year of increment. According to this report, sub-standard and standard tires have sufficient momentum; nonetheless, high-quality tires are not in demand, especially tires aging more than five years. Customers prefer the tires with a minimum age, so they have more chance of becoming a scrap. The pie-chart below can further clarify the percentage quantity for high-quality tires.
Aging Frequency for Premium Tires
Likewise, tires within the age bracket of 4-5 years are also old compared to the newer ones. So, the evaluation department should reevaluate their market value to see if they are getting obsolete.
The report makes it evident that the demand for premium quality tires is less. So maybe the company isn’t targeting the right market, or its price is higher than the competitors. Either way, they need to revise the warehouse strategy if they want to evade possible losses.
Your warehouse should never be the “final resting place” for the inventory. Warehouses are to maximise throughput, and the faster you can move products through a warehouse, the quicker you can generate revenue related to that inventory. After all, consumers dislike when they hear, “We don’t have it in stock – let me check the warehouse,” and then wait. We at Dynatuners can help you keep your inventory rush while maintaining accuracy.
The aging inventory report offers valuable insights into inventory management. The use of this report can help product base companies in several ways. For example, it helps identify products with slow movement, spot obsolete inventory, plan work orders, etc.
Enter Location Directives
To an outsider, an inventory management system may look like a chaotic event; however, the insiders know that a smooth-running warehouse is a sensibly choreographed dance. We understand how challenging it can be to acclimate continuous workflow so that the dance doesn’t break the rhythm. This brings us to the location directives.
You can access location directives by navigating:
Warehouse Management > Setup > Locations Directives
These location directives give specific instructions to your warehouse management. Let’s say you just received an order of 4 premium tiers that just arrived at your warehouse last month. Here, location directives will allow you to strategize your work in conjunction with the aging inventory.
Using location directives, you can play with user-defined rules to help identify the order and location for pick and put for the smooth inventory movement.
You can apply location directives to put incoming inventory, specify items for outbound, pick and put production material, and replenish locations.
Companies just getting to know the WMS often struggle to set up location directives correctly. Often, they end up scheduling some work and still don’t get the system-generated automatic location selection. The reason behind this specific failure is rooted in the use of multi-SKUs.
The anatomy of Location Directives
To help us work with them, let’s break down the anatomy of location directives. Talking about location directive, it consists of two parts:
- Location Directive Header
- Location Directive Lines
Location Directive Headers
Location directives headers are linked to the Work Order Type and Work Type in Dynamics 365. Each location directive header is associated with the particular location and a warehouse combination. As a result, headers allow you to work with multi-warehouse sites and have varying rules for each one.
Location Directive Lines
Location Directive Lines allow picking a specific number of items from specific locations, locating a picking unit, or using order to split.
For instance, you can use lines to pick a complete set of 4 tires and another line to pick the remaining two tires in loose pieces, allowing you to use a split unit. Here, sequence numbers will act to set prioritized lines.
There’s one more degree of specificity in location directives: location directive actions.
This is for when you need to declare several location directives actions. We get a pretty good idea of what location directives are and how they work with headers and lines. The blow chart shows the mechanism of location directives in Dynamics 365.
Using Location Directives to Pick Aging Inventory
The need to enable warehouse setup for picking the oldest inventory first often hits our functional specialist’s task list.
To use FIFO with aging inventory, you must turn on this feature and set up a scenario for it. After that, you can set up and use FIFO location aging by performing the following steps:
Set up and use FIFO location aging
Navigate to Sales and marketing > Sales order > All sales orders.
In the Create sales order dialog box, on the Customer FastTab, set the Customer account field to US-001.
Set the Warehouse field to 63.
Select OK to create the sales order and close the dialog box.
On the order line, set the Item number field to A0001 and the Quantity field to 1.
On the Inventory menu above the grid, select Reservation.
On the Reservation page, select Reserve lot. Close the Reservation page.
On the Sales order page, on the Action Pane, on the Warehouse tab, in the Actions group, select Release to warehouse.
You receive informational messages. The system creates a shipment, adds it to a new load, and creates the required work.
On the Sales order lines FastTab, on the Warehouse menu, select Work details to open the work that was created for this sales order.
Notice that the line where the Work type value is Pick shows a Location value of FL-002. This location contains the license plate that has the oldest aging date (FIFO).
The FIFO method tracks down the location with the oldest inventory and then allocates the picking work regarding the aging date on the license plate. To have more information on how you can use location directives in different ways, don’t hesitate to contact us and ask all you want. The below chart shows how the FIFO inventory strategy works.
Our take on Warehouse Inventory Problems
The media worldwide addresses the supply chain constraints leading the CNN business to say that the global supply chain is about to get worse. Likewise, Bloomberg lies somewhere in the center, saying, “The USA maybe getting worked out, but it’s a worldwide crisis.
It is challenging to direct an ultimate decision with all the news hurdling the internet. Especially when we don’t know who to believe, where to turn, and what is the honest take on inventory issues.
At Dynatuners, we have been tweaking WMS for over a decade. But unfortunately, we have never seen anything quite like the current global or Marco crises during these years. Luckily, we have come across similar, more isolated challenges for countless companies spread across nearly every industry.
How we can be the Ultimate Solution
At Dynatuners, we have solutions that focus primarily on inventory management, shipment details collection, and workflow optimization. Our team can take your supply chain data and use it for actionable insights. The operations and technological portions of the supply can make the difference entirely.
We help our clients to equip IoT solutions and enable real-time data collection for your warehouse. In addition, we use Power Apps to help automate and optimize workflow while enabling remote services. Finally, to dive deep, we propose implementing Power BI and ADI data warehousing solutions for further actionable insights.
At Instructor Brandon | Dynatuners, we always seek innovative methods to improve your competitiveness and suit your Microsoft Dynamics 365 requirements. Our offerings are founded on defined procedures, industry experience, and product understanding. Moreover, if you’re interested in consulting with our technical solution experts on how we may help you structure your location directives for optimal warehouse operations, please don’t hesitate to Contact Us.
How do you analyze inventory Aging?
The analysis subtracts the item's reception date from the reference date to determine the storage period of a particular item amount. Then, the aggregated consumption quantities are deducted from the quantity present on the receipt date to select the number of items present on the reference date.
How do you find sales revenue from FIFO?
The FIFO technique determines the cost of items sold by using the oldest inventory. To determine the profit from those sales, the costs of the oldest inventory items are removed from revenue when sales are recorded for the accounting period.
How do warehouses and distribution centers differ?
A warehouse is solely for the storage of goods. On the other hand, a distribution center provides value-added services such as product mixing, packing, cross-docking, order fulfillment, and packaging. However, a distribution center stores products for much less time as compared to a warehouse.