Placing inventory effectively in a Fast-Moving Consumer Goods (FMCG) distribution center is crucial for utilizing storage space, reducing picking time, and lowering costs. It requires strategic product placement based on demand, product features, and logistics flow. Here is a structured guide to help you optimize inventory placement in an FMCG distribution center.
1. ABC Analysis for Inventory Placement
Classify Products by Demand:
The ABC analysis helps categorize products by their demand and contribution to sales:
- A-items: High demand, contribute significantly to sales (usually 20% of items but account for 80% of sales).
- B-items: Moderate demand, moderate sales contribution (typically 30% of items and 15% of sales).
- C-items: Lower demand, minimal sales contribution (50% of items but only 5% of sales).
Location Strategy:
- A-items should be placed near the dispatch area for quick access and to minimize picking time.
- B-items can be stored further away but still easily accessible.
- C-items can be stored in the least accessible areas to save space for more frequently used items.
Practical Example:
Imagine a major FMCG distributor handling personal care products. They would place popular shampoo brands like Pantene or Head & Shoulders in the A-category due to their consistent, high sales. In contrast, niche items like premium facial creams might belong to the B-category as they have moderate demand. Seasonal items such as sunscreen lotions could be classified under the C-category, but during summer, they might temporarily move to the A or B category based on demand forecasts.
This dynamic classification helps FMCG businesses optimize inventory placement and stay responsive to shifting market conditions.
Read Also: Retail Inventory Management: A Comprehensive Guide for Retailers
2. Zoning of Products
- Temperature-Controlled Zones: Place perishable or temperature-sensitive goods in cold storage or specific temperature-controlled areas to ensure product integrity.
For example, a grocery chain’s distribution center would use temperature-controlled zones to store milk and frozen vegetables. These products require constant refrigeration, and using dedicated cooling zones within the warehouse helps them meet health regulations.
- Hazardous Zones: Items that could pose risks, such as chemicals or cleaning agents, should be stored separately in designated hazardous zones.
Case Study: Unilever’s Distribution Centers:
Unilever is a global FMCG company with multiple distribution centers across the world. As a company dealing with products ranging from food to cleaning agents, it must ensure the safe handling of chemicals, especially those used in household cleaning products. Unilever’s distribution centers often follow stringent safety protocols, particularly for items classified as hazardous materials (e.g., bleach and detergents with strong chemicals).
In several of its European facilities, Unilever uses specialized zoning for the safe storage of these hazardous products. These areas are equipped with fireproof cabinets, ventilation systems, and spill containment systems, complying with local and international safety standards like the Seveso Directive, which governs the control of major chemical accidents in the European Union. By investing in such measures, Unilever ensures not only regulatory compliance but also the safety of its workers and efficient handling of hazardous products.
- Bulk Storage vs. Pick Zones: Reserve high racks or bulk areas for storing large quantities, while smaller, frequently picked items should be kept in lower, easy-to-reach pick zones.
- Fast-Moving Goods Zone: Create a fast-moving products zone near the shipping area for efficient handling of popular items.
3. Slotting Strategy
➤ Product Slotting: Slot products according to their picking frequency. The most commonly picked items should be placed in the most accessible locations.
➤ Vertical Slotting: Place fast-moving, smaller items in middle racks, as they are the easiest to access. Larger, slower-moving items can be stored either at the top or bottom.
➤ Velocity-Based Slotting: Using data from a Warehouse Management System (WMS), determine which SKUs move faster and place them nearer to packing and shipping areas for quicker processing.
Example:
A well-known FMCG company handling large quantities of beverages such as soda and water bottles might store their highest-selling products closer to dispatch areas. Smaller bottles or seasonal drinks, on the other hand, are stored in higher racks and accessed less frequently. This strategy ensures that frequently sold products are retrieved quickly, while less urgent items are efficiently stored for longer periods.
4. Optimizing Pick Paths
- Batch Picking: Group multiple orders for simultaneous picking to reduce travel time within the warehouse.
- Zone Picking: Assign specific areas of the warehouse to individual pickers, allowing them to focus on their zone to streamline operations.
- Wave Picking: Wave picking organizes orders into waves based on specific criteria, like order type or time sensitivity. This method helps reduce the time required to prepare shipments, particularly in busy FMCG distribution centers. For example, during holiday periods, wave picking can help meet deadlines for a large volume of orders, grouping them into waves based on priority.
- Place high-demand items along the most frequently traveled routes to make pickers’ paths shorter and more efficient.
5. Space Utilization Strategies
Vertical Storage and High Racking:
Utilizing vertical storage is a cost-effective way to increase capacity without expanding the warehouse footprint. In a typical FMCG warehouse, high-racking systems are often used to store bulk items like bottled water or canned goods. These products, which are less frequently accessed, can be stored in upper racks, freeing up space below for fast-moving items.
Some distribution centers have gone even further, installing automated retrieval systems (AS/RS) that allow products to be stored and retrieved from high racks automatically. This reduces the need for human operators and minimizes the time spent retrieving stock from elevated shelves.
Cross-Docking:
If space is limited, cross-docking allows goods to move directly from incoming to outgoing shipments, bypassing storage. FMCG companies with tight delivery schedules or high-turnover products (e.g., dairy or fresh produce) often use cross-docking to ensure quick movement of goods. This system not only saves space but also reduces the need for extensive storage infrastructure.
Seasonal Storage Adjustments:
Adjust the placement of seasonal goods based on demand to ensure high turnover during specific times of the year.
- Utilize mezzanine floors to store small items in otherwise unused vertical space.
6. FIFO and LIFO Strategies
FIFO (First In, First Out):
This method is essential for perishable items to ensure that older stock is sold before new stock, preventing spoilage.
Example: In a supermarket chain’s distribution center, milk, and yogurt are stored using the FIFO method. Each batch is labeled with the date it arrived, and workers pick the oldest products first. This reduces the likelihood of expiration and ensures smooth inventory rotation. Warehouse management systems help automate this process, using barcode scanning to ensure items are always picked in the correct order.
Read Also: How do you make sure that you are practicing FIFO right?
LIFO (Last In, First Out):
Though rarely used in FMCG, LIFO may be suitable for non-perishable items, where older stock does not need to be prioritized. This method could apply to promotional items or other non-rotational goods.
For example,
During a promotional period, a company may bring in a large quantity of promotional cleaning products. Once the promotion ends, they might use the LIFO method to clear out this stock before introducing new inventory.
7. Leverage Technology for Inventory Management
- Warehouse Management System (WMS): A WMS helps monitor inventory levels, track demand trends, and adjust storage locations efficiently.
- Barcode/RFID Technology: Barcodes and RFID tags enable real-time product tracking, improving accuracy and reducing the time spent searching for items.
- Automated Storage and Retrieval Systems (AS/RS): In large warehouses, automated systems can help retrieve and place stock faster and more efficiently, reducing the need for manual labor.
Case Study: Coca-Cola’s Use of RFID Technology
Coca-Cola faced significant challenges in managing its vast global supply chain, especially when it came to tracking products across its distribution centers and ensuring timely delivery to retail outlets. To address these challenges, Coca-Cola implemented RFID (Radio Frequency Identification) technology, which provided real-time visibility of its products as they moved through the supply chain. This helped the company track stock levels more effectively and manage inventory replenishment efficiently.
The RFID system also enabled Coca-Cola to monitor product expiration dates, ensuring that older stock was prioritized for distribution, which is crucial for FMCG products with limited shelf life. By optimizing its inventory placement, Coca-Cola was able to reduce stockouts, improve order fulfillment times, and enhance overall customer satisfaction.
Moreover, Coca-Cola used data analytics alongside RFID to analyze demand patterns and refine its distribution routes. This reduced transportation costs and improved the accuracy of inventory placement.
8. Safety and Compliance
- Ensure heavy products are stored at ground level to avoid accidents.
- Adhere to fire safety regulations by keeping aisles clear and ensuring accessible exits.
- Mark and store hazardous products in compliance with local and international regulations to minimize risks.
9. Review and Adjust Regularly
- Data Analysis: Continuously monitor and analyze inventory and pick data to identify trends and make adjustments necessary.
- Staff Feedback: Regularly consult warehouse staff for their insights, as they may notice inefficiencies or areas for improvement that might be overlooked by management.
- Seasonal Adjustments: Reassess storage arrangements based on seasonal demands, promotional campaigns, and new product introductions.
10. Cross-Docking and Just-in-Time (JIT) Inventory Management
- Cross-Docking: For fast-moving products, cross-docking allows items to bypass storage and move directly from incoming to outgoing shipments, saving time and space.
- Just-in-Time (JIT): JIT inventory management can minimize excess stock by aligning product deliveries closely with demand, ensuring fresh stock, and reducing storage costs.
Read Also: What is a Just-In-Time Inventory(JIT)? A Complete Guide for Beginner on JIT Inventory
11. Dynamic Re-slotting
Continuous Re-assessment:
Regularly reassess the placement of products based on real-time data to respond quickly to changes in demand. For example, re-slot popular items near the packing area during promotions or peak seasons.
Re-slotting Based on Product Life Cycle:
As products progress through their life cycle—from introduction to peak demand to decline—adjust their placement to ensure they are always positioned optimally.
12. Utilizing Pick-to-Light and Voice Picking Systems
➤ Pick-to-Light: For small, high-demand products, pick-to-light systems use lights to guide operators to the correct picking locations, improving speed and accuracy.
➤ Voice Picking: Voice-directed picking systems offer verbal instructions to workers, enabling them to pick items more efficiently while keeping their hands free.
13. Implementing Lean Warehousing Principles
- Eliminate Waste: Focus on reducing excess inventory, unnecessary movement of goods, and redundant handling processes.
- Standardized Processes: Implement consistent procedures for inventory storage and picking to maintain operational consistency.
- Continuous Improvement: Regularly review operations to identify bottlenecks or inefficiencies and apply lean methodologies like Kaizen to make improvements.
14. Product Characteristics and Packaging Considerations
- Weight Distribution: Heavier items should be placed on lower racks to prevent accidents, while lighter items can be stored higher.
- Stackable Products: Group products that can be safely stacked together to maximize space and reduce damage risk.
- Fragile Items: Place delicate or breakable products in designated zones with appropriate safety measures to avoid damage during handling.
15. Integrating E-commerce and Omnichannel Fulfillment
E-commerce Integration: If the distribution center handles online orders, create separate zones for picking e-commerce items to streamline fulfillment.
Omnichannel Storage: Balance storage for both retail and online orders by using a hybrid storage model that serves both channels efficiently.
Read Also : Omnichannel Mastery: Leveraging SwilERP for Business Growth
16. Space Utilization through Palletizing and Racking Systems
Pallet Racking: Use double-deep or drive-in racking systems for dense storage of less frequently accessed items, making the most of available space.
Flow Racks: For high-turnover products, gravity-based flow racks ensure that items are automatically brought forward as they are picked, improving speed and reducing labor.
Mobile Shelving: For smaller, high-demand products, mobile shelving units allow storage locations to be adjusted, optimizing space.
17. Inventory Segmentation for Promotional and Seasonal Items
Dedicated Promotional Areas: Create flexible storage zones for seasonal or promotional items, allowing easy adjustments as demand increases.
Planogram Adjustments: Use planograms to optimize product placement during promotions, aligning storage with anticipated sales peaks.
18. Risk Management and Disaster Planning
Damaged Goods Zone: Set aside an area for damaged or defective products to be inspected and processed away from regular inventory.
Backup Systems: Ensure essential systems, like WMS and climate control, have backup power sources to avoid disruptions during power outages or system failures.
Read Also : Inventory Risk: Identifying and Minimizing Risks in Inventory Management
19. Sustainability Practices in Inventory Management
Reusable Packaging: Encourage the use of reusable packaging for frequently rotated items to reduce waste and packaging costs.
Energy-Efficient Layouts: Arrange storage zones to minimize equipment usage, helping reduce energy consumption and lower operational costs.
– Green Logistics: Aim to reduce your carbon footprint by optimizing transportation and reducing product handling within the warehouse.
20. Staff Training and Engagement
Regular Training: Provide consistent training on inventory management systems and safety procedures to ensure all staff are knowledgeable and up to date.
Employee Engagement: Encourage staff to share their insights on improving efficiency, as they have a direct understanding of daily warehouse operations.
Health and Safety: Regularly train staff on the proper handling of heavy items and navigating different storage zones safely.
By applying these strategies, FMCG distribution centers can achieve better space utilization, faster order fulfillment, and improved safety.
