How cost per touch can matter in inventory

For manufacturers, the ability to cut down on steps in the supply chain is essential, especially when it comes to logistics. The capacity of a company or a store to shorten the process a product gets into a customer’s hands is crucial, for it lowers the overall cost of production. Now, standard inventory management strategies can apply in this situation, particularly in the form of NAV inventory barcoding. However, sometimes it’s a good idea to encapsulate an entire philosophy around the idea of inventory management. The principle of cost per touch comes to mind, and businesses could do well to learn more about this concept.

Warehouses can benefit from understanding cost per touch
Warehouses can benefit from understanding cost per touch.

Reducing the number of hands

In terms of logistics and inventory management, one of the greats in manufacturing and retail that does this particularly well is IKEA. The furniture retailer conceived of the philosophy cost per touch and incorporated it into its warehousing philosophy, according to e-commerce firm Wiser. Basically, the principle centers around the idea of touch that companies are very familiar with: Namely, each hand that touches a product is a step in the supply chain process. Therefore, the more hands that touch a product before its purchase, the higher the cost.

With furniture stores, this is particularly true. When a customer orders, for example, a couch, the manufacturer must first ship it to a warehouse for distribution. Then the store loads it onto a truck and delivers it to the person’s home. Every part of the process increases the cost to both the manufacturer and the retailer. IKEA resolves this by reducing the cost per touch in different ways. One of them is to allow customers to assemble the furniture themselves when possible. Moreover, they can purchase and bring a product home the same day in their cars, thus reducing the need for delivery trucks. To help integrate the process better, IKEA stores tend to function as warehouses as well, allowing customers to access inventory as necessary.

An in-store logistics plan

There’s more to cost per touch than bringing customers into the inventory management equation. Logistics becomes a primary concern not just at the warehouse level, but also within the context of the store. Retail software firm ERPLY further analyzed IKEA’s inventory management systems and found in-store logistics play a major role in how products get moved around at stores and elsewhere. Stock replenishment occurs based on two factors: the minimum reorder amount and the maximum order number. This information gets relayed to logistics managers through point-of-sale data at each store, who can then determine key decisions such as where products go and what the manufacturer makes in the next production run.

Interestingly, IKEA uses a two-tier system of warehousing to ensure products remain stocked in an efficient manner. It’s based on flow. Low-flow warehouses stock items that get little turnover. These places run mostly manual operations since workers don’t need to move as much inventory around. On the other hand, high-flow warehouses stock products in heavy demand at stores within a given region. These require a greater level of automation through enterprise resource planning software.

In this process, there is a greater level of coordination required. It means heavy use of inventory management practices and software such as NAV inventory barcoding. With this in mind, however, IKEA’s cost per touch offers practical lessons on how to best handle inventory for customers. It shows that by focusing on reworking products to some degree, it’s possible to reduce the number of steps in the supply chain from production to customer receipt. In doing this, companies can benefit from the cost savings in the long term.

Customers interested in Microsoft Dynamics NAV inventory barcoding should read the white paper “Keeping the Physical World and the Virtual World in Sync” today.