While images of ships, trains and trucks are emblematic of the freight industry, effective management of the supply chain entails many diverse activities. The risks inherent in each supply chain operation are impacted directly and indirectly by an array of roles and activities. One such is the effective management of stockholding and order flow, referred to here as inventory management. Failure to exercise adequate controls can have enormous consequences for security, reputation and contractual liabilities.

Systemic organisation 

Theft risks tend to escalate in environments characterised by confusion or disorganisation. Inventory management is central for maintaining security since it defines the very system by which organisation is maintained. Inventory management runs quietly in the background until something goes wrong. Unfortunately, small issues can turn into large and costly errors where they are not quickly observed and rectified. Further, they create the conditions for overt threats to security.

Theft risks tend to escalate in environments characterised by confusion or disorganisation

Warehouses are often managed using a combination of systems, including a warehouse management system (WMS), an order management system (OMS) and a transportation management system (TMS). Where they exist in concert, each system communicates via an electronic data interface (EDI) to ensure that actions taken in one system are recorded in the others. Where stockholding is managed by a third party, the central stockholding database may be managed by the owners of the stock using enterprise software (ERP). This adds further complexity in data management coordination between disparate organisations.

Errors may emerge through miscommunication between the various systems; each is highly complex, designed for a specific function. The TMS manages the movement of cargo in the wider supply chain. Once cargo enters a warehouse, the WMS tracks the movement of stock around the warehouse. The OMS manages orders from customers and, as such, often sits between the WMS and the ERP database. Accuracy in data input and communication is fundamental to avoid the potential for errors. Where different businesses or internal departments are responsible for managing the data stored in the various systems, it may be some time before discrepancies are uncovered, resulting in ongoing and costly errors.

Traceability 

The ultimate goal of managing these data is to provide full traceability of goods as they move through the supply chain. A well-designed system should systemically mirror all physical movements of goods. When auditing the security of a particular item as it moves through the supply chain, it is prudent to focus attention on circumstances where traceability breaks down. This may occur when a user fails to adhere to the correct process. For example, an inbound stock process may dictate that each pallet of stock should be scanned into the system. Contrary to this process, a rushed operative may decide to unload a container and move all the pallets it contains into a storage location without scanning. The goods will likely be added to the system eventually, either by scanning or back receiving the goods in bulk, but, regardless, a gap in traceability has been introduced.

There are also circumstances where a lack of traceability forms standard operating procedure. This may result from a failure to map physical procedures adequately but it may also result from limitations of the systems themselves. For instance, some systems may prohibit storing 'picked' stock in warehouse locations.

Stock that is not traceable is at risk. It may be stolen or may simply go missing and it is very difficult to determine where the process has broken down. It is important that supply chain operators responsible for management stockholding be aware and seek to maximise traceability throughout the entire journey of a particular item of stock.

Stock that is not traceable is at risk

Best practice vs. commercial reality 

Stockholding requires constant tending to maintain accuracy and full traceability. Physical inventory cycle counts should take place at regular intervals so that each warehouse location is audited multiple times per year. Full stock counts, whereby the entire stockholding is counted, should take place at least once per year. In order to do so accurately, it may be necessary to stop all order processing, as well as inbound and outbound movements of stock. It may be beneficial to involve an independent auditor to observe the stock count and certify the results.

The best practice described above is costly and the reality is that inventory management practices are often a result of a commercial decisions taken by actors far removed from the reality of managing the security of the warehouse. As inventory management is an opaque aspect of the supply chain, commercial managers may fail to anticipate the importance of the agreements they make in this regard. While customers within the supply chain may hesitate to invest in stockholding management, supply chain businesses should not underestimate the cost of failure.

Security culture 

Few aspects of site management impact on effective security culture to the same degree as inventory management. Well-defined stock control procedures help to ensure that the stockholding is maintained in an orderly state and that opportunities for theft are minimised. Furthermore, enforcement of established procedures to maintain traceability of goods throughout their supply chain journey is essential, even when those procedures are time consuming.

It is equally important to respond appropriately when things don’t go according to plan. All discrepancies should undergo thorough investigation. Such discrepancies may be the result of theft or operator error, but it is important to be mindful also of discrepancies in data held by the various IT systems. Systemic discrepancies may be difficult to uncover, but very costly if left unaddressed.

Systemic discrepancies may be difficult to uncover, but very costly if left unaddressed.

Summary 

Inventory management is vital for supply chain security, promoting organisation and reducing theft risks. It relies on accurate data input and communication across diverse systems. Traceability throughout is crucial for uncovering discrepancies promptly. Best practices include regular audits and strict procedures, stemming commercial decisions that prioritise cost over security.

Recognise that the consequences of inadequate inventory management can be severe, extending beyond the cost of cargo loss and theft, risking negative impact on commercial relationships. It plays a key role in fostering a security culture within supply chain operations by enforcing procedures, maintaining traceability, and responding to discrepancies effectively. Overall, prioritising effective inventory management is essential for both security and efficiency in supply chain operations.

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