Keynote Address to IBM/VAI Warehouse Management Expo 2006

by Dani Kaplan
January 2006
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The Domino Effect of Business Disruption

Many companies who have learned to live with the domino effect of business disruption view it as the “cost of doing business.”

  • Excess Inventory
  • High Labor Cost at the Warehouse
  • Incorrect Inventory Shipped
  • Incorrect Shipments to the Chain Stores resulting in severe “Charge-Backs”

Un-Automated Warehouse


  • Returned inventory, if replenished after shipping, will often become excess inventory.
  • Invoices with returned inventory often don’t get paid on a timely basis.
  • Excessive credits and adjustments for returned inventory results in additional work for the accounting department often leading to the loss of vendors’ early payment discount date.
  • Wrong shipments to the chain stores often result in severe “charge-backs.”


  • When inventory is received at the warehouse, it is manually verified against the purchase orders and then the computer records are manually updated.
  • When space is needed for newly received inventory, half-empty shelves are consolidated. If the computer records are not updated correctly, the consolidated inventory will collect dust until the next physical inventory takes place, resulting in excess inventory.
  • At picking time, when the inventory is not scanned or verified by the computer, the wrong item and quantity can be shipped.
  • At shipping time, one person verifies the picked inventory for accuracy and a second person packs the products. This results in double labor costs.
  • Accuracy level of the inventory cannot be determined until a physical inventory is taken in the warehouse.

Automated Warehouse

  • Received inventory is scanned and verified against the purchase orders in real-time mode, updating the computer.
  • When the half-empty shelves are consolidated, the inventory is scanned before being moved to new locations, updating the computer in real-time mode.
  • Locations can be scanned on a routine basis so that misplaced inventory is found without having to take a complete physical inventory.
  • Inventory to be picked is scanned in real-time mode eliminating the errors of picking the wrong item or quantity.
  • Inventory to be shipped is scanned and packed by one person rather than two people, resulting in saving labor costs.

Case Study; Un-Automated Warehouse

  • Distributor with un-automated warehouse got charged-back $40,000 by a major Chain Store.
  • Absolute inventory valued at $2 million dollar sits in the warehouse and will be sold on the web as “fire sale” inventory.
  • Excessive manual efforts occur company-wide resulting from the inefficient computer system.
  • Fixing the old system will result in the “law of diminishing returns” since it will cost as much to fix it as to buy a new system, and it will not perform as well as modern Supply Chain Software.

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Dani Kaplan, president of SMC Data System Inc., can be reached at (917) 647-2466. He works with corporate executives to improve purchasing, increase warehouse and distribution efficiencies and implement solutions that result in substantial savings and productivity improvements.

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