However, as manufacturers reach certain growth milestones, they start requiring more specialized software to manage key aspects of their operations, including: 

• Inventory management.
• Sales.
• Customer support.
• Human resources — and more.

At the same time, leveraging QuickBooks data to drive other business functions — while feeding information back — helps keep your finances aligned with growth. This reduces the risk of: 

• Information gaps.
• Manual data entry errors.
• Inefficient bottlenecks.

That’s why it’s beneficial to explore how you can extend QuickBooks for other parts of your manufacturing business through add-ons and apps. Read on for more details.

Can you use QuickBooks for manufacturing?

While QuickBooks offers some inventory management tools like tracking raw materials, managing customer communications, and pricing inventory, it has limitations for manufacturers. It’s primarily designed to manage the financial side of your business.

However, QuickBooks isn’t an optimal solution on its own when it comes to more product-oriented tasks like: 

• Work-in-process (WIP) inventory tracking.
• Bills of materials.
• Production planning and scheduling.
• Managing complex operations.

QuickBooks Online’s manufacturing capabilities

QuickBooks Online provides a solid foundation for financial management, but its manufacturing-specific features are limited. While it offers basic inventory management capabilities like tracking raw materials and finished goods, growing businesses with complex processes may find QuickBooks Online insufficient.

For example, QuickBooks Online can track individual component items but can’t convert these into finished items automatically. This requires manual reconciliation of component stock reductions and finished product stock increases. Additionally, QuickBooks Online may experience performance issues when handling large volumes of data as operations scale.

QuickBooks Enterprise’s manufacturing capabilities

QuickBooks Enterprise offers more industry-specific features for manufacturers compared to QuickBooks Online. These include:

• Deeper inventory management.
• Bill of materials cost tracking.
• Job costing.
• Multi-location support.
• Custom price levels for different customers.

QuickBooks Enterprise also provides pre-loaded reporting templates for better production line visibility, such as:

• Inventory Valuation Summary Report.
• Inventory Stock Status by Item Report.
• Assembly Shortage by Item Report.

While QuickBooks Enterprise offers more manufacturing-specific capabilities than QuickBooks Online, it still has limitations and a steeper learning curve. Its core strength remains in accounting and financial management rather than optimizing manufacturing processes.

How to get more out of QuickBooks for manufacturers

To maximize the value of QuickBooks for manufacturing businesses, consider integrating compatible third-party apps that support wider business processes. Two key areas to focus on are to:

Use a QuickBooks MRP

A QuickBooks material requirements planning (MRP) suite lets you oversee your entire manufacturing process, from inventory management to production management and warehousing. Unlike QuickBooks alone, an MRP is purpose-built for manufacturing tasks and can account for specific challenges you’ll face as you scale.

Add a QuickBooks CRM

A customer relationship management (CRM) system houses information on current and potential customers, supporting front office teams in driving sales and growth. The right CRM will integrate with your QuickBooks account, connecting financial data to help make informed decisions on pricing, market targeting, and sales process optimization.

Top QuickBooks add-ons for manufacturing

Katana MRP

Image credit: Katana

Katana is a popular manufacturing and inventory management software that integrates seamlessly with QuickBooks. It offers features like:

• Real-time inventory management.
• Production planning and scheduling.
• Purchasing and supplier management.
• Integrations with e-commerce platforms.

Pricing

Katana MRP offers three subscription options: 

• Starter: $179 per month billed annually. 
• Standard: $359 per month billed annually. 
• Professional: $799 per month billed annually. 

Method CRM

Method is a highly customizable CRM that works perfectly with QuickBooks for manufacturing businesses. Key features include:

• A two-way instant QuickBooks sync.
• 100% customizable workflows and automation.
• Out-of-the-box customer portal.
• Advanced reporting and analytics tools.

Pricing

Method CRM offers three subscription plans:

• Contact Management: $25 per user per month.
• CRM Pro: $44 per user per month.
• CRM Enterprise: $74 per user per month.

Each plan offers varying functionalities and capabilities, depending on the stage your business is in and its unique needs. Method also offers a free trial with no credit card required.

Wrap-up: QuickBooks add-ons for manufacturing

For manufacturers requiring advanced functionalities that fall outside the scope of finance — such as production scheduling, detailed bills of materials, and comprehensive reporting — QuickBooks may not be enough.

To bridge these gaps, manufacturers can benefit significantly from integrating specialized add-ons like Katana MRP and Method CRM. Katana MRP enhances inventory tracking and production planning, while Method CRM facilitates customer relationship management and saves time with features like its two-way QuickBooks sync and customizable workflows. 

As you explore your options, it’s essential to evaluate the specific needs of your manufacturing operations and consider how these add-ons can enhance them. When you leverage the right tools, you can build a software system that both saves time and cuts costs.

Extend the limits of QuickBooks. Try Method for free.

The post QuickBooks add-ons for manufacturing: What to know appeared first on Method.

Overall, your goal is to maintain an optimal cycle inventory level. Doing so will help you avoid costly problems, like stockouts, dead stock, and out-of-date inventory.

What is cycle inventory?

Cycle inventory, also known as cycle stock, is the inventory needed to keep production running and customer orders filled. It usually includes raw materials used in manufacturing and finished goods ready for shipment. Basically, it’s the inventory needed to meet your minimum production requirements.

To calculate cycle stock, you need to factor in:

Manufacturing lead time demand

The amount of time it takes to get an item from the supplier or for raw materials to reach the production line.

Production quantity

The number of units manufactured in each production run.

Why is cycle inventory important?

Good cycle inventory practices protect you from stockouts, which is when inventory runs out and you’re unable to fulfill customer orders on time. 

Stockouts can lead to several problems, such as:

Lost sales

If you can’t deliver customers the products they want, they’ll look to your competitors, leading to lost revenue for your business.

Damaged reputation

Stockouts can damage your credibility and show that you can’t meet customer demand. Worse, customers might avoid buying from you even after your stock levels are back up.

Inefficient production

If your raw materials or subassemblies inventory levels are weak, you could suffer from production stoppages.

What influences cycle inventory levels?

Many factors that influence cycle inventory levels. Generally, these factors can be both external (like customer and supplier issues) and internal (production timelines, etc). 

The most likely factors you’ll come across are: 

Demand

The most important factor in forecasting cycle inventory is customer demand. If you’re seeing more demand, you need higher stock levels to meet customer orders without delay.

On the other hand, catching declining customer demand is also important. You don’t want to enter a sales cycle with excess stock, which costs you extra money to hold. 

Order costs

This is the cost of ordering your cycle inventory. Imagine you’re a bakery. If the prices of flour, sugar, and eggs go up, then the cost of your cakes (the ‘inventory’) will rise too. Likewise, the cost of fuel, electricity, and many other factors can feed into your order costs. 

Supplier lead time

This is the time it takes for your vendor to deliver the things you need for your product. Going back to the bakery example, if it takes a longer time for a farm to send you eggs or milk, then you’ll need to order further in advance. Otherwise, you might have a shortage of raw materials, which can lead to a stockout of cakes. 

Production Quantity

If you’re able to manufacture something at a higher rate in each production run, then you might not need to worry about holding a small inventory. Generally, you’d expect to refill your inventory levels quicker with faster production. 

Production Lead Time

If your production process takes more time, then you’d need to order raw materials further out in advance. So, you might want to keep higher levels of cycle stock of raw materials to prevent any production interruptions. 

Seasonal Changes

Seasonal changes in demand can impact cycle inventory levels. For example, a business selling winter coats would need higher stock levels in the months leading up to winter.

Holding Costs

These are the costs of storing raw materials or goods, such as leasing warehousing space, taking out insurance, paying salaries, and handling materials. 

Some businesses prefer keeping their holding costs low by keeping their cycle inventory levels low. Others might have to deal with those costs because their production processes take more time, or their suppliers have trouble delivering on time. 

Product Cost

The cost of your product can impact your cycle inventory in a few ways. For example, if raw material prices go up, you might opt to raise prices on your customers. But doing so can push some customers away and lower demand. So, in those situations, you might look at reducing the cycle inventory of your final product and lean on higher pricing to keep ROI up. 

Discounts

Discounts can impact your cycle inventory in multiple ways. Let’s say a supplier cuts the price of some raw materials, you might take advantage of the lower pricing and buy more materials. This can lead to larger amounts of inventory for those materials. 

On the other side, you might have excess stock of a certain product, so you could discount it as a way of clearing inventory. 

What is inventory cycle time?

The inventory cycle time is the number of days, weeks, or months it takes from receiving raw materials and shipping the final product. This phase is also known as “work in process” (WIP). 

Cycle inventory formula

The most common way to calculate cycle inventory levels is using the Economic Order Quantity (EOQ) formula: EOQ = √[2(DK/H)]

Here’s what each value represents:

• D is the annual demand of the product in units.
• K is the fixed cost per order.
• H is the annual carrying cost per unit.

To keep it simple, imagine you’re a store that sells, on average, 1250 cakes a day. It costs you $100 every time someone places an order, and the cake has a carrying cost of $1 a day.

The EOQ here would be the square root of 2(1250 x 100)/1, which equals around 500. So, the optimal number of cakes your store should order each time from the oven (whether it’s your own oven or another supplier) is 500. That means you’d make two and a half cake orders of that size a day (2.5). 

Benefits of strong cycle inventory management

Getting cycle inventory management right is important as it ties into a lot of important growth indicators for your business, such as:

Avoiding stockouts

You want to ensure that you have enough of the right inventory on hand to fill customer orders without any delays or backorders. Stockouts can lead to a drop in cash flow. 

Avoiding overstocking

Good cycle inventory management also protects you from holding too much inventory, which can lead to higher holding costs. 

Raising customer satisfaction

When you have enough of the right products on hand, you’ll prevent delays in filling customer orders. This leads to happier and more loyal customers. 

Improving cash flow

Building on the previous point, having enough products on hand to fulfill orders also keeps your cash flow healthy, leading to more revenue. 

Determining safety stock

Good cycle inventory management also helps you calculate how much stock you need to keep in reserve in case of major interruptions, like a supplier closing. 

Keeping your business growth engine running

When you have your cycle inventory levels under control, you can give your sales, marketing, and other front office teams the confidence they need to push. They’ll know that getting new customers will drive quicker revenue because you can reliably fulfill orders. 

What causes cycle inventory problems? How do you solve them?

The tough thing about cycle inventory levels is that the factors affecting it are both within and beyond the production line. So, focusing on just one part of the equation – like inventory management – without looking at customer relationships and sales will give you an incomplete picture. 

Rapid changes in customer demand

Unexpected spikes and drops in customer demand can make it harder to forecast the right inventory cycle levels. 

One way to reduce this risk is by connecting your inventory tracking with your front office, like sales and customer service teams. You can get early visibility of customer demand trends. 

Lack of accurate forecasting

Building off the last point. When your forecasting is off, you’ll be at higher risk of getting your cycle inventory levels wrong. You might end up with either a stockout or overstock situation. 

This is where connecting your inventory management to sales and customer service in your forecasting software will help.  

Not accounting for supplier lead times

You’ll have an intuitive sense of supplier lead times when you’re working with a few vendors. But as your business grows, you might be tapping into many different suppliers, at which point you’ll need to automate the tracking process.

One way to do that is by using software that tracks the information in your purchase orders to them and their invoices to you. Over time, you can catch trends in lead time, especially during seasonal months (like winter) or in response to certain issues (like rising gas prices). 

Production issues

This can happen from both internal and external factors. Your production site may suffer from faulty equipment or an electricity shortage, for example. Other times, your suppliers might have shipped your raw materials too late. 

In such situations you’ll want to respond rapidly. CRM software helps you drive communications quicker. You can get a call for repairing or replacing equipment sooner, or if a supplier fails, find an alternate vendor faster. 

Summary: Cycle inventory tips

By this point, you likely sensed the importance of software. As your business operations grow, you’ll deal with more suppliers, more customer issues, and more bad surprises. 

When you reach that point, knowing what’s happening on the sales side is important, it directly ties back to your inventory. You need 360-degree visibility, more employees involved in tracking and communicating, and reports to show where costs are rising or falling. 

You can do this with a combination of manufacturing CRM software and inventory management software. But before you make a call on which ones to get, it’d be a good idea to explore all of your options. Check out the guides below for more information:

• Best manufacturing inventory management software: Top picks for 2024 and beyond
• QuickBooks Online inventory management: Everything you need to know
• What are manufacturing CRM systems and how could they help

Cycle inventory FAQs

Cycle stock vs. Safety stock

Cycle stock and safety stock are crucial components of inventory management:

• Cycle Stock: It is the inventory expected to be sold based on demand forecasts.
  
• Safety Stock: It is extra or buffer stock maintained to meet excess demand or guard against delays from suppliers or unforeseen problems.

Cycle inventory vs. Cycle count

Cycle inventory and cycle count are not the same:

• Cycle Inventory: Refers to the inventory needed to meet regular demand.
• Cycle Count: Is the practice of performing regular stocktakes to maintain accurate stock levels. It involves counting a sample of inventory regularly to project the total inventory.

The post Understanding cycle inventory and how to manage it appeared first on Method.

Think of WIP as the story explaining what’s happening between your raw materials at the starting point of your production process, and the finished goods at the end of it. 

WIP is the value of whatever’s sitting in the middle. It helps you understand the real financial health of your business, and it uncovers problems and opportunities in your processes.

What is work in process (WIP)?

Work in process basically refers to unfinished products, or goods that are still in the production line. 

Think of a lamp. When you start producing it, you have the raw or primary materials, such as plastics and metals. Then, at the end, you have a lamp, and that lamp has a price or value.

But what about that thing between the raw materials and the final product? 

Just because your lamp isn’t finished yet, it doesn’t mean it lacks value. Not only did the raw materials necessary cost money, but so did the labor, energy, and factory equipment. 

This unfinished lamp is, basically, an item under WIP, which is then listed on your balance sheet. 

It includes the cost of the materials, direct labor, and any overhead (like the cost of factory gear) expenses. Some might also refer to WIP as “goods in process.”

As you might guess from the example, WIP is often used by companies with standardized and repetitive production cycles. 

They focus on smaller products with higher production quantities, and typically treat WIP as short-term assets with quick completion and selling times. 

Why is WIP important?

When your raw inputs enter the manufacturing process, they actually gain value because of the labor and overhead costs (from factory equipment, for example) that goes into them. 

WIP is key for tracking that value, and when you do so, you build a WIP inventory.

WIP might seem like overkill for simpler products, but in today’s world, more manufacturers are actually dealing with complex workflows. 

A car manufacturer, for example, deals with both raw materials and manufactured goods (called sub-assemblies). 

With more manufacturers dealing with these complicated multi-layer production processes, WIP is key in explaining the story between just the raw materials and the final product. 

With those insights at hand, manufacturers can use WIP to:

Eliminate production bottlenecks

High WIP levels can be a sign of bottlenecks in your production process, leading to delays and slower output. You can use WIP information to start identifying where those bottlenecks are and, in turn, remove them to produce and deliver faster.

Lower costs and raise margins

Large WIP volumes could eat up resources and drive up storage costs. But as you start cutting bottlenecks in the process, you can start freeing yourself of those added costs. This could help you cut production expenses, reduce waste, and make better use of our resources.

Allocate resources better

WIP inventory information gives you an idea of how your raw materials, labor, and facilities are being used. 

You might find that there are bottlenecks because one part of the process wasn’t getting enough attention, while another part was getting too much. With your WIP information, you can shift things around and achieve better overall results. 

Improve quality assurance

Keeping an eye on WIP information also helps you catch quality problems. For example, there could be delays in one part of the process due to lower quality work earlier on. 

You can use the WIP inventory information to investigate, find, and solve those issues. Not only could this lead to better quality work, but even a higher production output.

Make customers happier

Dealing with high WIP levels could help you produce things faster at a higher quality and, in turn, deliver them to customers earlier. 

Provide better financial reporting

Finally, WIP information ties back to your bottom line. It gives you visibility into the total value of your output, not just in terms of raw materials and finished goods, but everything in between too. 

This can help with forecasting, seeing if you’re able to meet customer demand, predict problems like excess inventory, and other issues. 

How to Calculate WIP

There are three main parts in a WIP formula, which are:

• Beginning WIP inventory value: This is the WIP inventory at the end of your previous accounting cycle.
  
• Production cost: This is the cost of the labor (including wages, benefits, etc), materials (be it raw or sub-assemblies), and overhead (indirect costs, like the factory equipment, facility costs, maintenance, etc.) during the current accounting cycle.
  
• Cost of manufactured goods (COGM): This is the cost of the finished or completed goods. COGM is subtracted in the formula because it represents the goods leaving or transferring out of WIP inventory and into the finished goods inventory.

Work in Process formula

The formula to calculate the WIP is the following:

Ending WIP Inventory = (Beginning WIP Inventory Value + Production Cost) – COGM

How to interpret WIP

High WIP Levels

High WIP inventory values could indicate a high level of production activity or a backlog of orders yet to be fulfilled. It can be a positive revenue sign for the long-term.

However, at the same time, WIP also flags potential issues in your production process, such as bottlenecks or delays. If unresolved, these issues could lead to higher holding costs or possible cash flow problems down the line. 

Low WIP Levels

Low WIP levels tell you that few items are in an unfinished state at the end of each accounting cycle, which could be a sign of efficient production practices. On the other hand, it could also be a sign of under-used production capacity.

How to track WIP inventory

By this point, you’ll have a good idea of what goes into a WIP calculation, but how do you get the actual information? Well, for that task, you have two main options:

1. Manual techniques

For smaller companies, a spreadsheet with columns specifying details like item information, quantity, material and production costs, production stage, and target completion date is the starting point. It’s simple and low cost to set up.

2. Automated software

As your operations grow in scale and complexity, manually filling and tracking spreadsheets can become error-prone. When you reach this point, you should invest in software that will automate your inventory management and production management tasks.

How to use WIP to improve production and inventory

If you’re finding that you have higher than expected or acceptable WIP inventory levels, then the following tactics could help bring it under control.

Look for potential bottlenecks

Bottles are among the likeliest causes of high WIP inventories. Somewhere along your chain, there is something slowing your production output. These bottlenecks could be (among others) faulty equipment, inefficient processes, or lack of staff training.

Consider industry-standard manufacturing processes

To help solve for bottlenecks, you could look at implementing industry-standard manufacturing processes, like lean manufacturing/just-in-time manufacturing. 

Improve production scheduling

Using a manufacturing resource planning (MRP) suite can help you plan and schedule your production tasks in ways that minimize downtime, improve visibility, ensure on-time delivery, better manage resources, and align with order requirements. 

Pay attention to other parts of your business

While your inventory is the main reference point for understanding your WIP levels, it’s not the only piece of the puzzle.

For example, a high WIP level due to delays could impact customers who are expecting their orders to be fulfilled by a certain time. You might even be running into production delays due to faster than planned sales cycles. 

Next steps: invest in the right software

From the tips above, you can gather that many parts of your wider business (like sales and customer support) can impact WIP. So, as you grow, it’d be a good idea to track these other factors. But to track these other parts, you need different types of manufacturing software.

See our guides for more tips on perfecting your inventory management!

• How to keep track of inventory: A beginner’s guide
• Best manufacturing inventory management software
• What to look for in a manufacturing inventory management system

The post What is work in process (WIP) and how to use it appeared first on Method.

COGS, or the cost of goods sold, is more than just a financial metric — it’s a powerful tool that provides deep insights into your operational efficiency and profitability. 

By accurately tracking and analyzing the direct costs associated with producing goods, manufacturers can make informed decisions on: 

• Pricing.
• Production processes.
• Inventory management. 

In this guide, you’ll delve into manufacturing COGS to get a thorough understanding of why it’s important and how to calculate it for your own operations. 

Let’s get started. 

What is cost of goods sold?

COGS (cost of goods sold) represents the direct total costs incurred when producing goods. This includes the cost of materials used to create the product and the direct labor costs involved in production. 

COGS is a crucial metric for most businesses as it directly impacts profitability and is essential for financial reporting and tax purposes.

Why is the cost of goods sold in manufacturing important?

COGS is vital in manufacturing as it directly impacts your: 

• Profitability.
• Pricing. 
• Tax compliance. 
• Inventory management. 

By subtracting COGS from revenue, you can determine your gross profit, a key indicator of your business’ financial health. As a result, you can set the most competitive prices to ensure optimal profitability.

Also, COGS plays a crucial role in inventory management. By analyzing COGS in relation to your inventory levels, you can improve inventory turnover and efficiency to reduce your carrying costs and boost cash flow. 

Not to mention, accurate COGS calculations are essential for tax reporting and optimizing deductions.

Basic COGS formula

The basic formula for calculating COGS is:

COGS = Beginning inventory + Purchases – Ending inventory

This formula is most effective when inventory constitutes the majority of your COGS. For service-based businesses or those with high labor needs, calculating the cost may require you to include additional factors.

Drivers for cost of goods sold

Materials costing

Materials costing includes the cost of raw materials used in production. This encompasses:

1. Direct materials: Primary components used in the product.
2. Indirect materials: Supplies used in production but not directly part of the final product.

Operations costing

Operations costing involves two main categories:

• Direct labor: Wages of workers directly involved in production.
• Manufacturing overhead: Indirect costs such as factory rent, utilities, and depreciation of equipment.

Inventory valuation

Inventory valuation methods can significantly impact your COGS calculations. Common methods include:

• FIFO (First-In, First-Out): Assumes oldest inventory is sold first.
• LIFO (Last-In, First-Out): Assumes newest inventory is sold first.
• Average cost: Uses your average inventory cost across all items.

Note that your method of choice affects your reported COGS and, consequently, profit margins. 

What is COGM?

Cost of goods manufactured (COGM) represents the total cost of manufacturing products and transferring them into finished goods inventory. It includes: 

• Direct material cost.
• All labor expenses.
• Manufacturing overhead costs.

COGM vs. COGS

While related, COGM and COGS are distinct. COGM is used to calculate your ending work-in-process (WIP) inventory and is an input for determining COGS.

The biggest difference between them is that:

• COGM focuses on production costs for a specific period.
• COGS represents the cost of goods actually sold during that period.

Total manufacturing cost (TMC) and its differences

Like COGM, your total manufacturing cost (TMC) includes all costs associated with production. The key difference between TMC and COGM is that TMC doesn’t account for changes in work-in-process inventory.

How to calculate the cost of goods manufactured

The COGM calculation is typically used for a specific accounting period, such as a month or a year. Its basic formula is:

Beginning WIP (work-in-process) inventory + Total manufacturing costs – Ending WIP inventory

You can break this out a little further with this formula:

Beginning WIP inventory + Direct materials + Direct labor + Manufacturing overhead – Ending WIP Inventory

Your beginning inventory represents your total cost value of work-in-process (WIP) inventory at the start of the accounting period.

If you don’t have an ending inventory, it means all products started during the period were completed, and your ending WIP inventory would be zero. If you’re calculating COGM with an unknown ending inventory, you can estimate your historical percentage and apply that to your starting inventory.

Example calculation of cost of goods manufactured (COGM)

Let’s consider a furniture manufacturer with the following data:

• Beginning WIP inventory: $10,000
• Direct materials: $100,000
• Direct labor: $50,000
• Manufacturing overhead: $60,000
• Ending WIP inventory: $30,000

COGM = $10,000 + $100,000 + $50,000 + $60,000 – $30,000 

So, for this example, the manufacturer’s COGM would be $190,000.

Linking COGM to COGS

Once you’ve calculated your COGM, you can incorporate it into your finished goods inventory metric. Here’s the formula to calculate COGS using COGM:

COGS = Beginning finished goods inventory + COGM – Ending finished goods inventory

Your manufacturing COGS is much easier to calculate once you have your COGM, and it decreases the risk of oversight. Breaking down your COGS calculation into smaller parts is a smart way to ensure that your costs and inventory accounted are accurate.

How to avoid challenges in calculating cost of goods sold

Here are five ways to avoid challenges when calculating manufacturing COGS:

1. Maintain accurate inventory records through automatic and manual checks.
2. Consistently apply inventory valuation methods across all manufacturing processes.
3. Regularly reconcile inventory counts with financial records.
4. Use appropriate accounting software for tracking costs, like QuickBooks.
5. Stay informed about industry-specific accounting standards.

Key takeaways

Overall, a thorough understanding of cost of goods sold (COGS) and its calculation is essential for manufacturers to make informed pricing decisions and drive overall business success.

Remember that:

• The basic COGS formula is: Beginning inventory + Purchases – Ending inventory.
• COGM focuses on production costs, while COGS represents the cost of goods sold.
• Accurate inventory valuation and cost tracking are essential for correct COGS calculations.

Tracking COGS is only the first step. Once you know your costs, it’s time to understand how those costs of producing generate profits over time. 

See how Method gives you key insights into your manufacturing business in real time.

Manufacturing COGS FAQs

Does COGS include the cost of goods manufactured?

Yes, COGS includes the cost of goods manufactured for products that were sold during the chosen period.

How can I track my COGS?

To track COGS, you should implement an effective inventory management system that accurately records purchases, production costs, and inventory levels throughout the accounting period. 

Is COGS considered an expense?

Yes, COGS is considered an expense on your income statement. It’s subtracted from revenue to calculate gross profit.

The post Manufacturing COGS: Everything you need to know appeared first on Method.

Logistics automation is a game-changer in how we move goods around the globe. In this blog, you’ll explore the cutting-edge technologies that are reshaping logistics. 

You’ll learn: 

• What is automation in logistics?
• The importance of automating your logistics. 
• The pros and cons of automation in logistics processes. 
• Some barriers to implementing automation in logistics.

Let’s dive in!

What is logistics automation?

Automating your logistics process involves leveraging technology like specialized machinery and software to enhance the effectiveness of your logistics operations. These include a wide range of areas, such as:

• Procurement.
• Manufacturing.
• Inventory control.
• Distribution.
• Customer support.
• Returns management.

Process automation

Process automation in logistics refers to using technology solutions to automate routine tasks like data entry, billing, and documentation. 

Automating these repetitive tasks speeds up operations and reduces the chances of human error. As a result, you ensure more reliable and efficient logistics processes. Common examples of logistics process automation include:

• Automatic data entry: Automation tools that scan barcodes or RFID tags to refresh inventory records automatically.
• Computerized pick and pack systems: Systems that retrieve and package items for dispatch without any human help.
• Automated guided vehicles (AGVs): Autonomous vehicles that move products around a warehouse or distribution center based on a preconfigured path.

Demand planning and forecasting

You can also automate your demand planning and forecasting processes with software tools. These tools anticipate your customer demand based on trends and historical data, then adjust production plans accordingly on their own. This process includes:

• Predictive analytics: Your software uses past sales data and market analysis to project future demand.
• Sales and operations planning (S&OP): S&OP software synchronizes your sales projections with manufacturing timelines and stock levels and quantities. This ensures that production meets anticipated demand effectively.

Robotics and drones in logistics

The use of robotics and drones is transforming logistics operations, particularly in warehousing and delivery. Robots and conveyor belts are increasingly used for picking and packing, as they save time and reduce operational costs.

 Drones are also becoming more commonplace. They’re remote-controlled flying vehicles that are capable of carrying items over short distances. Drones offer innovative logistic solutions for delivering items to remote or hard-to-reach areas. This means you can expand your reach and ensure customer satisfaction no matter your barriers.

Here are a couple of ways drones in logistics help:

• Last-mile delivery: In urban areas, drones can deliver small packages directly to customers, optimizing delivery routes and enhancing customer experiences. 
• Inventory management: Drones help with inventory checks in large warehouses or outdoor storage spaces, which improves resource utilization and efficiency.
• Reduced theft and damages: Traditional methods of delivery have gaps that drones solve. Drones reduce the time that packages are left unattended to improve order security.

Warehouse management

Logistics automation also includes automated warehouse management systems (WMS). These systems are crucial in improving the warehouse operations of your logistics process. 

Your WMS actively manages and controls how you store and move your goods in a warehouse. It covers everything from receiving and storing to picking, packing, and shipping. Overall, warehouse automation boosts your logistical efficiency and accuracy.

The importance of automation in logistics

Automation in logistics and manufacturing is crucial for overcoming significant challenges:

Customer expectations: Customers expect quick and transparent updates about their orders. Without automation, it’s tough to keep them updated, leading to frustration.

Operational transparency: Without logistics automation, businesses struggle to offer real-time tracking and updates on inventory and deliveries, leaving them and their customers out of the loop in terms of the logistics process. 

Labor shortages: The reliance on manual labor not only deepens the impact of labor shortages. It also stops you from moving employees to roles where they can really make a difference.

Controlling operating costs: Relying on manual processes means higher costs and less efficiency. Automation can help save money by making operations smoother and avoiding labor costs and overtime pay.

Scalability: When your business gets bigger, your logistics can get messy without automation. It helps you manage more orders without the chances of errors or slowing down. 

Benefits of logistics automation

Here are some of the main benefits of logistics automation.

Replace manual data entry with real-time insights

Through automatic data entry and logistics processing, you can access real-time insights into:

• Inventory levels.
• Order status.
• Delivery schedules.

This way, you promote informed decision-making and supply chain efficiency to improve your bottom line.

Improve accuracy and efficiency

Manual processes are prone to errors, which lead to: 

• Incorrect orders.
• Inventory discrepancies.
• Dissatisfied customers. 

Logistics minimizes the risk of error in your supply chain processes. As a result, you experience higher accuracy in order fulfillment and inventory management. You also: 

• Simplify your operations.
• Reduce lead times.
• Increase overall efficiency.

Cons of logistics automation

Although logistics automation results in many positive impacts, it presents some challenges as well. Here are some things to keep in mind:

• High initial costs: Automation technology gets expensive. Your investment includes the cost of the technology as well as ongoing infrastructure changes and training for employees.
• Technical challenges: Integrating new automation systems is tricky. There may be compatibility issues, and setting up sophisticated systems like AI and robotics requires specialized knowledge.
• Dependence on technology: Over-reliance on automation in logistics operations is risky. If a system fails, it can disrupt your entire supply chain management process. So, make sure to have contingency plans in place.

Barriers to automation in logistics

In a similar vein, automation in logistics can produce significant hurdles as well. Examples include:

• Integration complexity: Seamlessly integrating advanced automation systems with current operations is tough. Compatibility issues may arise, and updating old systems to match the new ones takes a lot of time and expertise.
• Organizational resistance: People tend to resist change, and moving towards automation isn’t any different. Employees may fear job loss or the need to learn new skills.
• Keeping pace with technology: Technology moves fast, and what’s new today could be old news tomorrow. So, it’s hard to choose the most appropriate technologies with long-term value. It’s even harder to continuously update your systems in line with the latest advancements. But, these are necessary steps in finding the right solution.

Wrap-up: The value of automation in logistics

If you feel bogged down by your logistics process, consider automation through software or machinery. Automation in logistics is: 

• Reshaping supply chains.
• Speeding up operations.
• Promoting accuracy and efficiency. 

Despite initial costs and integration challenges, it’s crucial to boost your customer satisfaction rates and control expenses effectively. 

As technology evolves, the need for automation in logistics will only grow, which makes it vital to maintain a competitive edge.

Logistics automation frequently asked questions (FAQs)

Will logistics be automated?

Yes, more and more businesses are automating their logistics across several industries. This trend is driven by the need for efficiency, accuracy, and speed in the supply chain. 

Some of the most popular logistic automation technologies include:

• Robotics.
• Artificial Intelligence.
• Machine learning. 

This encompasses everything from warehousing and inventory management to transportation and delivery.

What is logistics automation as applied to transport management?

In transport management, logistics automation means using technology to improve the transportation of goods. It includes:

• Inventory planning. 
• Routing and scheduling.
• Packing and shipping. 
• Monitoring order status and location.

Transport management automation makes things more efficient, promotes cost savings, and improves reliability.

Automate your way to stress-free days with this comprehensive guide. 

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The post The value of logistics automation in 2024 and beyond appeared first on Method.

Explore this guide to learn: 

• What supply chain automation is. 
• The top disruptors of global supply chains.
• Why you should automate your supply chain management processes. 
• The types of supply chain automation. 

Let’s dive in! 

What is supply chain automation?

Supply chain automation uses advanced technology to simplify the supply chain. It automates tasks traditionally done by human workers through: 

• Digital systems. 
• Automated machinery. 
• Supply chain management software. 

An automated supply chain is crucial for businesses aiming to excel in the current market. Workflow automation: 

• Increases operational efficiency. 
• Reduces labor costs. 
• Enhances your adaptability. 
• Improves supply chain performance. 
• Minimizes human intervention and errors. 

Notable examples

Here are some examples of supply chain automation in action: 

• Shop floors: Manufacturers harness robotic process automation and artificial intelligence (AI) to assemble components and conduct quality checks. 
• Office administration: Software tools automate administrative tasks like billing and inventory management.
• Transportation and logistics: GPS technology facilitates real-time good tracking, while AI optimizes delivery routes. Autonomous vehicles and drones also offer further transport efficiencies. 
• Customer service: Chatbots and AI-driven platforms automate interactions and provide instant responses to customer inquiries. 

Top challenges and disruptors of supply chains

Staying ahead of the supply chain means understanding the obstacles that can throw you off course. Here are some challenges that supply chains must tackle: 

• Material scarcity: Skyrocketing material prices and widespread shortages threaten your supply chain. This impacts your costs across the board, from consumer goods to raw materials. 
• Increasing logistics costs: With rising fuel prices and a surge in shipping demand, transporting goods is getting pricier. This slows down your deliveries and pushes up global trade costs. 
• Unpredictable consumer demand: As customer demands shift, supply chains must be more flexible and responsive to avoid under- or overstocking. These preferences determine your inventory management and product development. 
• Global pandemics: The COVID-19 pandemic demonstrates how health crises disrupt global supply chains. As a result, you must ensure agile and resilient supply chain operations — and be ready for anything. 
• Climate change: Climate change and extreme weather events pose significant risks to supply chains. These environmental risks cause physical damage to infrastructure and indirect market disruptions. So, ensuring a sustainable, robust supply chain is vital.

Benefits of automation in your supply chain

Automating your supply chain offers numerous advantages for your efficiency and accuracy. Below are the top benefits of automated supply chain processes. 

Save time on manual and repetitive tasks

Automation simplifies workflows by managing your time-consuming, manual tasks. This speeds up operations and frees up your resources for value-added activities. 

Increase employee satisfaction

Automating mundane tasks reduces workloads and minimizes burnout, which leads to higher job satisfaction. With automation, your employees can dedicate more time to engaging and meaningful work. So, you get more from your team while you foster a more constructive and attractive work environment. 

Improve customer experience

Automation ensures faster and more reliable:

• Order processing. 
• Shipping times. 
• Inventory management. 

This results in timely deliveries and accurate order fulfillment, which improves your customer relationship management. 

Increase visibility in operations

With real-time data and predictive analytics, automation provides a clear view of the entire supply chain. This real-time visibility helps you: 

• Make informed decisions. 
• Predict potential supply chain disruptions. 
• Optimize operations for better efficiency. 

Maximize accuracy

Automated systems minimize human error by precisely executing tasks, from inventory management to order processing. This accuracy is crucial to maintain quality control and ensure operational excellence. 

Limitations of automation in supply chain

Embracing automation in your supply chain also comes with its set of hurdles: 

• High initial investment: Automation technology requires a big initial spend. Companies must invest in new hardware and software, which is not always possible for small business budgets. 
• Implementation complexity: Implementing automation means tackling complex systems and long implementation times. Navigating these complexities often requires external supply chain expertise, which adds to your overall cost. 
• Reduced flexibility: Automated systems focus on efficiency and consistency. A standardized automated workflow is powerful but lacks flexibility. As a result, adapting or customizing these processes may be more trouble than it’s worth. 
• Technology reliance: Automation exposes supply chains to the risk of technology failures, like system outages and software problems. The more you’ve automated, the more detrimental these issues become. To safeguard operations, you need robust backup plans and security measures. 
• Employment concerns: Automation leads to concerns about job displacement. While automation frees up employee time, it also means some roles can become redundant. Make sure to reassess your team structure and address any internal concerns.

Types of supply chain automation

Now that you know the limitations and benefits of automation, it’s time to explore the range of technologies available for your supply chain. 

Data connectivity

Data connectivity refers to the seamless integration and exchange of data across your supply chain. It ensures that information flows freely between your systems and devices.

Data connectivity is possible with: 

• Cloud computing. 
• Electronic data interchange (EDI).
• Application programming interfaces (APIs). 

As a result, you improve your:

• Demand forecasting. 
• Visibility into inventory levels. 
• Decision-making. 

Through data connectivity, supply chain leaders empower real-time insights and efficiency across their networks. 

Warehouse automation

Warehouse automation uses robots and automated systems to handle goods more efficiently. It incorporates technologies such as: 

• Smart conveyors. 
• Robotic picking systems. 
• Automated storage and retrieval systems (ASRS). 
• Warehouse management systems (WMS). 

Warehouse automation helps you: 

• Lower labor costs. 
• Speed up processing times. 
• Reduce errors and worker injuries. 

Internet of things (IoT)

The internet of things (IoT) connects physical objects to the internet for real-time tracking and data collection. Examples of IoT devices include: 

• GPS trackers. 
• Temperature monitors.
• Smart sensors.
• Security cameras.  

Supply chain managers use IoT devices to: 

• Reduce paperwork. 
• Manage inventory levels. 
• Monitor environmental conditions. 
• Track vehicle locations. 

Overall, leveraging the internet of things effectively provides supply chain visibility and empowers proactive business management. 

Transport automation

Transport automation simplifies logistics with advanced tracking tools and self-driving vehicles. 

These autonomous vehicles reduce delivery times and operational costs, especially in last-mile delivery. Note that full-scale commercial use for automated guided vehicles (AGVs) is still in development. 

Also, real-time GPS and radio frequency identification (RFID) data enhance the efficiency of your transportation management. 

In a nutshell, integrating transport automation technology boosts your supply chain’s: 

• Efficiency. 
• Reliability. 
• Scalability.

Wrap-up: What is supply chain automation?

Supply chain automation harnesses digital technologies to simplify and refine your operations. As a result, you optimize your workflows and align your supply chain with future industry standards. 

While you may encounter hurdles like high upfront costs, automation offers substantial long-term benefits. 

If you’re a QuickBooks or Xero user, consider automating your workflows with an integration like Method.

To get time back in your workday and optimize your logistics process, look no further than supply chain automation. 

Automation in supply chain FAQs

Is the supply chain being automated?

Yes, supply chains are being automated by many businesses to simplify operations and improve efficiency. 

Why is automation needed in the supply chain?

Automation is needed to address common supply chain challenges, such as: 

• Manual errors.
• Operational inefficiencies.
• Complex logistics processes. 
• A demand for real-time, advanced analytics.

What are the benefits of automation in the supply chain?

Benefits of automation in the supply chain include: 

• Improved customer experience.
• Efficient supply chain functions.
• Increased employee satisfaction.
• More time for value-added activities.
• Reduced costs, including labor and operational expenses. 

Uncover how to perfect your manufacturing automation in six steps!

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Whether you’re just starting out with your warehouse or are looking to refine your operations, improving supply chain efficiency is a journey worth going on.

So, here’s how to boost your warehouse efficiency and make your business more productive.

11 tips to optimize your warehouse

Here are the 11 best tips and tricks to take your warehouse to the next level. For each of the following strategies, the key is to: 

1. Start small.
2. Measure your progress.
3. Continuously look for ways to optimize each process. 

1. Audit warehouse performance, identify gaps, and work on solutions

To audit your warehouse, start with a checklist that covers every aspect of your operations, from receiving and storage to picking, packing, and shipping.

It’s smart to appoint a warehouse manager to implement new operational efficiency strategies.

You can also use automation technology like warehouse management systems (WMS) to track performance metrics in real time. Then, identify gaps by comparing your performance against industry benchmarks and your own historical data.

Prioritize implementing solutions for your most impactful warehouse processes. These processes affect your efficiency the most, so tackle them systematically — whether it’s through:

• Process changes.
• Technology upgrades.
• Workforce training.

2. Optimize your warehouse layout

An optimized warehouse space speeds up operations and reduces the risk of accidents. Consider the flow of goods through your warehouse floor and arrange your layout to minimize travel time between receiving, storage, and shipping.

Also, use vertical space effectively with appropriate shelving and racking systems to maximize storage density.

Implement zoning based on product velocity to keep high-turnover, fast-moving items closer to the packing and shipping areas. Regularly review and adjust your layout to reflect changes in:

• Inventory levels.
• Product range.
• Order profiles.

This reduces search times and speeds up your fulfillment and delivery processes.

3. Start automating manual processes

Automation speeds up operations and reduces human error. Identify repetitive, time-consuming tasks that would benefit from automation, such as: 

• Data entry.
• Cycle counting.
• Materials handling. 

Then, invest in automated technologies like: 

• Barcode scanners.
• RFID systems.
• Conveyor belts.
• Robotic process automation (RPA) for paperwork and order processing.
• Robotic picking systems.

4. Label your products

Use clear, standardized labeling for all products and storage locations. The best practice is to implement barcode or RFID tagging to facilitate easy scanning and tracking. Ensure labels are durable, readable, and placed consistently so that workers or automated systems can scan them easily.

As a result, you:

• Simplify inventory management.
• Speed up picking and packing processes.
• Reduce the risk of errors.

5. Prioritize safety measures and compliance

Compliance with regulatory requirements is crucial to maintain a safe working environment and avoid costly penalties. Conduct regular safety audits and risk assessments to identify potential hazards. Also, make sure you implement strict safety protocols, such as

• Proper signage.
• Floor markings for traffic management.
• Emergency procedures.
• Equipment inspections and maintenance.

Finally, provide proper training on safety practices, including the correct use of machinery and personal protective equipment (PPE). 

6. Enhance employee productivity with training

Develop an ongoing employee training program that includes onboarding for new hires and regular training sessions for existing warehouse staff. Focus on developing team skills in areas such as: 

• Safe equipment operation.
• Efficient picking methods.
• Technology use.

You can also offer cross-training opportunities to increase workforce flexibility. Additionally, you should recognize and reward high performance to motivate your team. As a result, you’ll lower turnover and increase productivity levels.

7. Organize your workstations

Design workstations to minimize clutter and speed up the flow of materials. Use ergonomic principles when you set up work areas to reduce worker fatigue and increase overall comfort.

Ensure tools and supplies are within easy reach and clearly labeled. Consider implementing the “5S” methodology to keep workstations organized and efficient:

• Sort: Remove unnecessary items and keep only what’s needed at the workstation.
• Set in order: Arrange tools and materials in an organized manner for easy access.
• Shine: Clean the workspace regularly to maintain a tidy environment.
• Standardize: Implement consistent practices and procedures across all workstations.
• Sustain: Continuously apply these practices to ensure long-term organization and efficiency.

8. Implement inventory best practices

Managing inventory effectively is the best way to keep an efficient warehouse. One strategy is to adopt a just-in-time (JIT) inventory approach to minimize carrying costs and reduce the risk of obsolescence.

You could also use a WMS to maintain accurate, real-time inventory records and set up automatic reordering based on predefined minimum stock levels.

With or without software, you need to review your inventory turnover rates regularly and adjust your ordering patterns to match demand.

9. Cross-dock to improve warehouse efficiency

Cross-docking eliminates the need for storage as it lets you directly transfer goods from incoming to outgoing trucks.

Implement a cross-docking strategy for products with high turnover or those that are pre-sorted and ready for immediate delivery.

This requires tight coordination with suppliers and customers and precise timing to ensure smooth operations and transitions. But, done correctly, cross-docking takes your warehouse efficiency above and beyond.

10. Implement Lean Six Sigma warehouse operations

Adopt Lean Six Sigma methodologies to identify and eliminate waste in your warehouse processes. Use tools like value stream mapping to visualize workflows and identify bottlenecks or unnecessary steps in your logistics process.

Kaizen (continuous improvement) initiatives such as Lean Six Sigma make it easy to identify and solve efficiency problems. To minimize variability and waste in your warehouse, focus on: 

• Reducing defects.
• Improving quality.
• Optimizing processes.

11. Create a method for efficient order picking

Design your picking process to minimize travel time and errors. Depending on your order profiles and product range, consider different strategies such as: 

• Zone picking.
• Wave picking.
• Batch picking.

Use technology like pick-to-light or voice-directed picking to guide your warehouse workers. Regularly analyze your picking efficiency and adapt your methods as needed to achieve improved accuracy and speed.

How can tracking technology improve your warehouse efficiency?

Tracking technology provides real-time visibility into your warehouse operations. Common examples include:

• RFID tags.
• Barcode scanners.
• WMS.

Below are the specific benefits of designated tracking solutions.

Speed up your order processing and shipping process

Automated data capture through tracking technology reduces manual data entry and errors. This speeds up order processing and delivery times to improve warehouse efficiency.

Strengthen communication across teams

Tracking technology centralizes information access for all team members. It ensures efficient task completion and prevents bottlenecks by keeping everyone informed about orders, stock levels, and schedules.

Forecast ahead

A tracking system lets you forecast demand and warehouse performance more accurately by analyzing: 

• Sales trends.
• Transaction history.
• Customer preferences. 

Ultimately, this helps you maintain optimal stock levels and prepare for the future.

Effectively manage stock

Managing your inventory in real time with inventory management systems minimizes the risk of stockouts and excess inventory. As a result, you optimize storage costs and space usage.

How to monitor warehouse efficiency

Regular audits and consistent key performance indicators (KPIs) are essential to identify improvement areas and track warehouse performance.

Conduct regular audits

A detailed warehouse audit offers insights into warehouse operations. This lets you identify inefficiencies and develop strategies for continuous improvement.

Monitor your KPIs

KPIs provide a clear performance picture and a set of goals for you and your team. They help you: 

• Spot trends.
• Make informed decisions.
• Set targets for warehouse operations.

The impact of poor warehouse efficiency

Poor warehouse efficiency has far-reaching consequences, including: 

• Delayed shipments.
• Increased operational costs.
• Unhappy customers.

Inefficiency leads to wasted resources — whether it’s the time you spend searching for products or the unnecessary cost of storing excess inventory.

Ultimately, failing to address your warehouse inefficiencies damages your brand’s reputation and your bottom line.

Recap: How to run an efficient warehouse

Optimizing your layout and your storage space helps you run more efficient processes and improve warehouse operations.

To achieve effective stock management, consider your needs and the best ways to: 

• Simplify processes.
• Ensure warehouse safety.
• Leverage technology.

Also, make sure you track your progress by regularly evaluating performance through audits and KPIs.

By adopting these strategies, you’ll create a warehouse that meets today’s demands and is prepared for tomorrow’s challenges.

How to improve warehouse efficiency FAQs

What is warehouse management?

Warehouse management is the process of handling all aspects of a warehouse’s operations, from receiving to inventory management to shipping.

What is an efficient warehouse?

An efficient warehouse is one that maximizes productivity and minimizes waste. An efficient warehouse involves careful consideration of how you use time, resources, and space.

Why is warehouse efficiency important?

Warehouse efficiency is crucial to: 

• Meet customer demands.
• Reduce costs.
• Gain a competitive edge. 
• Increase customer satisfaction rates.

Keep learning about warehouse operations and inventory control to boost your operations. Read more.

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The post How to run an efficient warehouse: Top tips for 2024 and beyond appeared first on Method.

You’ll dive into how blending old-school methods with the latest automation technology:

• Cranks up your warehouse’s operational efficiency.
• Cuts down on costs.
• Keeps your team safe and sound.

To reach peak warehouse efficiency, you’ll learn:

• The critical role of warehouse operations.
• The tangible benefits of refining warehouse processes.
• Practical tips for optimizing your warehouse, including automation.

Let’s get started!

What are warehouse operations?

Warehouse operations involve the different tasks you do in a warehouse to ensure the safe storage and transfer of your goods. The main processes in warehouse management include:

• Receiving goods.
• Item storage.
• Inventory management.
• Packing and shipping.

How to operate a warehouse

You can perform warehouse tasks manually or with the help of machines. For example, using a paper list to pick items for orders is a manual way of doing things. On the other hand, using a handheld GPS device to guide a worker to the right location is an example of automation.

These days, warehouses use both manual and automated methods to get work done. But, there’s a growing trend towards automation to increase fulfillment speed and efficiency. 

The pivotal role of warehouse operations

Warehouse operations serve as the backbone of the supply chain. They play a pivotal role in ensuring the smooth and efficient flow of goods from suppliers to customers. This critical function directly impacts a company’s ability to:

• Meet customer demands.
• Manage inventory levels.
• Control operational costs.

Why focus on improving warehouse operations?

Cost control

Efficient warehouse management is key to controlling operational expenses. You save significantly when you simplify:

• Inventory management.
• Order processing.
• Shipping.

This is because you’re able to cut down on waste and improve resource allocation. So, you:

• Spend less on labor.
• Reduce the costs of storing inventory.
• Minimize losses from damaged goods. 

Protect employees and stay safety compliant

Improving warehouse functioning also means putting the safety and health of your employees first. You reduce the risk of accidents and injuries through:

• Solid safety measures.
• Thorough training.
• Proper equipment. 

You also create a positive workplace atmosphere, which boosts employee morale and productivity.

Maximize the space you have

Optimizing warehouse effectiveness includes making smart use of available warehouse space. Through careful planning of your layout and the right storage solutions, it’s possible to increase your storage capacity and simplify operations. 

More space means more inventory and a better flow of goods. As a result, you speed up processing times and boost order fulfillment rates.

Error-proof your asset inspection process

Error-proofing your asset inspection process is crucial for inventory accuracy. By setting up inspection routines and using technology to track and monitor inventory, you can reduce mistakes in stock counts. This ensures fewer discrepancies and more accurate order fulfillment. 

Overall, you save on the costs associated with fixing errors and keep your supply chain running smoothly.

Your growth and bottom line

At the end of the day, improving warehouse management has a direct impact on your growth and financial health. Efficient operations mean you can:

• Quickly adapt to market changes.
• Scale up or down as needed.
• Keep customers happy. 

By cutting costs and boosting productivity, you increase your competitive edge and profitability. As a result, you pave the way for sustainable growth.

How to optimize warehouse operations

1. Train employees

Empower your team with the knowledge and skills they need to perform well. Regular training sessions on the latest warehouse management practices and technologies ensure that employees are efficient, productive, and capable of maintaining high standards. 

2. Regularly review your warehouse efficiency by implementing KPIs

Keep a close eye on your warehouse’s performance by setting and tracking key performance indicators (KPIs). You can identify areas for improvement by regularly reviewing metrics like: 

• Order accuracy.
• Inventory turnover.
• The time it takes to ship products.

By understanding your warehouse’s strengths and weaknesses, you’ll make informed decisions to enhance efficiency.

3. Organize your inventory and warehouse setup

A well-organized warehouse is an efficient one. Optimize your warehouse layout to ensure that your frequently used items are easily accessible and that the flow from receiving to shipping is direct. 

Similarly, keep your inventory organized to reduce the time you spend locating items. This speeds up the order fulfillment process and improves your bottom line.

4. Start automating your workflows

Automation is one of the best ways to simplify your warehousing. From inventory management systems to automated packing processes, technology can: 

• Reduce manual labor.
• Minimize errors.
• Increase the speed of operations. 

Overall, automation boosts efficiency and lets your team focus on more strategic tasks that require human insight.

How does warehouse operation automation work?

Lead-to-cash automation for QuickBooks and Xero users

If you’re a manufacturer using QuickBooks or Xero, lead-to-cash automation offers a comprehensive solution for end-to-end back office automation. Method provides a seamless connection with your accounting platforms to give you an all-in-one solution that covers every aspect of the sales process, from initial lead capture to service and final payment.

This integration simplifies your operations by automating tasks like: 

• Order processing.
• Inventory management.
• Invoicing.
• Payment collection. 

With Method, you gain a holistic view of your financials and customer interactions. As a result, you: 

• Enhance efficiency.
• Reduce manual entry errors.
• Improve customer satisfaction. 

Benefits of improving warehouse operations

Improving warehouse management simplifies your supply chain and brings advantages that greatly impact your business’ efficiency and customer satisfaction.

Reduce errors in inventory management

By enhancing warehouse management, you reduce errors in inventory management. Accurate inventory tracking and management prevent overstocking and inventory shortages, so your resources are allocated optimally. With better forecasting, planning, and fulfillment processes, you save costs and reduce waste.

Maximize picking accuracy

Improving warehouse functions also contributes to picking accuracy. Implementing systems like barcode scanning and real-time inventory updates reduces picking errors, so your customers receive the correct items every time. This efficiency minimizes returns and exchanges while you simplify your order fulfillment process.

Ship orders faster

Another key benefit of optimizing warehouse management is the ability to ship orders faster. Warehouse practices like optimized layout designs and automated picking systems speed up the order fulfillment process. 

And with faster shipping times, you improve customer satisfaction and gain a competitive edge.

Improve customer satisfaction

Efficient warehouse management ensures that: 

• Products are in stock.
• Orders are accurate.
• Shipments arrive on time. 

This reliability builds trust with your customers, which leads to repeat business, positive reviews, and a strong brand reputation. 

In the long run, satisfied customers are the cornerstone of a successful business, which makes optimizing your warehouse management a critical strategy for growth.

What warehouse processes and workflows can be automated?

Here’s a look at key warehouse operations that benefit from automation:

Receiving goods

You can automate the process of checking, documenting, and sorting inventory as it arrives. Automated systems can: 

• Scan barcodes.
• Verify shipments against purchase orders.
• Update inventory levels in real time. 

As a result, you guarantee inventory accuracy from the outset. 

Warehouse storage

Automated storage systems can also assign locations for goods based on size, weight, and frequency of access. As a result, you improve the way you use space and reduce retrieval times. 

Robotics and automated guided vehicles (AGVs) can also transport goods to their designated locations, which reduces manual work.

Picking, packing, and shipping

Automation technologies can accelerate your picking, packing, and shipping processes. These systems include:

• Robotic pickers.
• Automated sorting systems.
• Conveyor belts.

When you leverage this technology, you reduce the time it takes to:

• Gather items for an order.
• Package them securely.
• Prepare them for shipment.

Ordering and reordering goods

Automated inventory management systems play a vital role in maintaining optimal stock levels. They can predict when stock will run low and automatically initiate reorder processes. 

Method’s repeat purchase feature simplifies warehouse management. With this update, your customers can easily request reorders directly from their customer portals with just one click, which simplifies the process of ordering and reordering goods. 

This automation reduces potential errors and enhances customer satisfaction. Additionally, it offers valuable insights into purchasing behaviors to improve inventory management. 

Wrap-up: How to optimize warehouse operations

Optimizing warehouse management is vital to:

• Enhance supply chain efficiency.
• Reduce costs.
• Improve customer satisfaction. 

Namely, you can greatly simplify your processes with strategies like:

• Training. 
• KPI implementation.
• Inventory organization.
• Automation. 

Automation, in particular, offers huge benefits like accuracy and speed across all your warehouse functions.

Method’s powerful combination with your QuickBooks or Xero software ensures that you can focus on growth and innovation knowing your back office operations are taken care of. 

Improving warehouse operations FAQs

What are the key work activities in warehouse operations?

The key activities in warehousing include:

• Receiving goods.
• Storing items efficiently.
• Managing inventory accurately.
• Picking and packing orders.
• Shipping them out. 

These activities ensure that your warehouse operates smoothly and you fulfill orders promptly. 

What is warehouse management?

Warehouse management involves overseeing a warehouse’s operations on a day-to-day basis. This includes things like:

• Managing inventory levels.
• Optimizing storage space.
• Ensuring efficient order processing.
• Maintaining a safe and productive work environment. 

What is a warehouse management system?

A warehouse management system (WMS) is a software solution that supports and optimizes warehouse functionality and distribution center management. 

It facilitates entire warehouse management processes from inventory entry to order fulfillment by offering tools for: 

• Inventory management.
• Picking processes.
• Auditing.
• Reporting.

See how Method improves warehouse operations.

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The post How to optimize warehouse operations in 2024 and beyond appeared first on Method.

What is 3PL automation?

3PL automation (third-party logistics) is a method to simplify your logistical processes through technology. It’s about leaving the bulk of your operation up to software programs or other technology. Third-party logistics automation involves outsourcing your operations to a supply chain solutions provider.

The technological tools they use handle several tasks at once, from storing goods to shipping them out and scheduling their deliveries.

For small business owners, this means: 

• Less hassle.
• Improved consistency.
• More time to focus on value-added activities.

The essential role of 3PL end-to-end automation

3PL end-to-end automation covers every step of your logistics workflow — from the moment goods arrive at a warehouse to when they reach your customer’s doorstep.

Automation software handles all the data that’s produced through your operations and analyzes it in real time to set up each process effectively.

This approach ensures smooth, error-free processes that keep your supply chain running.

How does 3PL warehouse automation work?

Technology is the foundation of 3PL warehouse automation. To effectively implement an automation solution, you first need to make sure that you consistently capture data from your warehouse operations.

A warehouse automation system analyzes the data to give you valuable insights into your operations, such as:

• The mistake rate on your fulfillment processes.
• The percentage of warehouse space utilization.
• Your operating costs.
• The percentage of inventory accuracy.
• Warehouse storage capacity.
• How often you meet scheduled delivery times.

When picking an automation solution, you must ensure it integrates with your current systems, or get an all-in-one system that tracks and analyzes all your processes.

Automation technology uses that data to run your operations for you. When implemented well and integrated with the proper tools, warehouse automation technology can:

• Automatically reorder items when stock is low.
• Forecast and prepare for seasonal spikes in demand.
• Handle shipment tracking.
• Manage distribution processes, such as routing and scheduling.
• Reduce manual tasks.
• Integrate with a picking solution to increase the accuracy of fulfillment processes.
• Track storage locations and simplify the putaway process.

These automated systems ultimately increase your profits as they reduce the negative effects of inefficiency and manual errors.

Where warehouse management systems come in

Warehouse management systems (WMS) are advanced technologies that automate warehouse processes. They track every item in your warehouse and ensure you fulfill your orders accurately and promptly. WMS is not always a part of 3PL, but it makes logistical automation even more powerful.

Pros of 3PL automation

Let’s dive into the benefits of 3PL warehouse automation and how it can give your business a competitive edge.

Save warehouse space

Automating your logistical processes helps you use your warehouse space more efficiently use your warehouse space more efficiently. Automated storage and retrieval systems mean you can store more in less space. As a result, you save on costs and foster internal organization and efficiency. 

Strengthen your supply chain

Automation makes your supply chain more resilient. It can adapt to changes and challenges, which keeps your business moving forward no matter what.

Increase order fulfillment speed and reliability

Automation tools speed up every process involved in fulfillment, including: 

• Receipt of goods.
• Item storage.
• Picking and packing.
• Order scheduling and shipping — and more.

Faster, more reliable order fulfillment results in higher customer satisfaction and fewer losses.

Cons of 3PL automation

The initial setup of automated 3PL can be expensive, and it comes with ongoing costs that might be tough on your budget. For most automated systems, there’s also a steep learning curve for you and your team. But for many small businesses, the long-term benefits outweigh these hurdles. Nonetheless, common cons of this kind of automation include:

• Onboarding and training.
• Overreliance on software.
• Maintenance and repair.

Establishing efficient processes in a small or medium-sized operation guarantees that you follow best practices as your operation grows out of your complete control.

What are 3PL warehouse automation solutions?

There’s a wide range of 3PL warehouse automation solutions, from robotic picking systems to advanced WMS. These technologies work together to automate your logistical processes.

Some solutions even handle demand planning and inventory management tasks specifically to significantly cut down your admin work. For example:

• Warehouse Management System.
• Automated guided vehicles (AGVs).
• Shipment tracking software.
• Robotic picking and packing devices.

Logistics and distribution solutions to consider for automated 3PL

When looking into automated 3PL, consider solutions that fit your specific needs. From drones for inventory checks to automated forklifts that put parcels away, many options are out there for you to explore.

For many, the most important component of this strategy is WMS, as it lets you stay organized and integrate with other solutions. An automated warehouse gives you real-time visibility into your processes and simplifies your daily operations.

Key highlights: The power of 3PL automation

3PL end-to-end automation can transform your supply chain. It offers efficiency, reliability, and the agility to adapt to market changes.

3PL warehouse automation is a strategic move for small business owners looking to boost their supply chain’s efficiency and reliability. By embracing automated 3PL, you set your business up for success.

Automated 3PL FAQs

What are some successful 3PL strategies?

Successful 3PL strategies focus on: 

• Business partnership.
• Technology integration.
• Continuous improvement. 

The best strategy involves finding a 3PL provider that understands your business and can grow with you.

What are the most important things to consider when evaluating a partner for 3PL automation?

When evaluating a 3PL solutions provider, consider their: 

• Technology.
• Experience.
• Ability to scale. 

You want to implement scalable solutions with a partner who can meet your current and future needs.

Why third-party logistics?

Third-party logistics lets you delegate your logistics processes to the experts. This means you can focus on your core business activities while you enjoy the benefits of an automated warehouse — like faster shipping and better inventory management.

Keep learning about logistics automation and boost your operational efficiency. See more.

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In this guide, you’ll tackle: 

• What 3PL is. 
• The 3PL logistics process. 
• The pros and cons of 3PL warehouse providers. 
• When to work with a 3PL provider. 

Let’s jump in! 

What is third-party logistics (3PL)?

Third-party logistics (3PL) refers to outsourcing logistics to external providers. Companies use 3PL providers to simplify their: 

• Warehousing. 
• Distribution. 
• Transportation. 
• Packing. 
• Returns. 

For example, let’s say you’re an e-commerce business that partners with a 3PL. During peak seasons, your third-party logistics provider: 

• Ensures storage space for increased production. 
• Coordinates faster distribution to meet seasonal demands. 
• Handles increased orders and returns efficiently. 

This partnership lets you focus on growing your business without logistical headaches. Better yet, it saves you time and money. 

The third-party logistics process

Now that you know what 3PL is, what does the process look like from start to finish? 

3PL warehouses and receiving

First, your goods arrive at the warehouse from your supplier or manufacturing site. Here, the third-party logistics provider: 

• Unloads the goods. 
• Inspects them for quality and accuracy. 
• Documents inventory for tracking. 

This ensures that you correctly account for your products and that they are in good condition before storage or distribution. 

Inventory management

Next, your third-party provider uses an organized system to maintain optimal inventory levels. This includes: 

• Ordering items from manufacturers. 
• Storing items in the warehouse. 
• Deciding when to move goods to the point of sale.  

This ensures you meet customer demand without overstocks or shortages. 

Order fulfillment

When an order is placed, the warehouse team: 

• Retrieves the products from the fulfillment center. 
• Packs them accordingly. 
• Prepares them for shipment. 

Freight shipping

Your third-party logistics provider then ships the packed orders directly to your customers. 

3PL providers leverage their extensive network to find the best shipping method for cost-effective and timely delivery. This involves choosing between: 

• Full truckload (FTL): Occurs when your goods fill an entire truck. It’s ideal for large shipments that need to get to their destination quickly. 
• Less than truckload (LTL): Suited for smaller shipments that don’t require a full truck. It’s a cost-effective solution for smaller or less urgent deliveries.  

Reverse logistics

The reverse logistics process occurs after a product is delivered. This step is vital for: 

• Processing product returns.
• Managing exchanges or repairs. 
• Recycling unsellable goods. 

A circular 3PL approach reduces waste and optimizes your inventory management. 

Power your 3PL process with integrated technology

Throughout the entire process, 3PL providers harness tools like: 

• Warehouse management systems (WMS) for efficient inventory control. 
• Transportation management systems (TMS) to refine your shipping process.  
• Real-time data analytics for actionable insights and better forecasting. 

By integrating these technologies into the 3PL process, you unlock: 

• Real-time inventory management. 
• Enhanced operational efficiency. 
• Greater visibility and control. 

3PL vs. 4PL: What’s the difference?

The main difference between 3PL and 4PL is the scope of their services. 

3PL providers offer specific services, such as warehousing and inventory management. They bridge the gap between manufacturing and distribution, while you maintain overall control.

Conversely, 4PL providers oversee end-to-end supply chain management. They are the sole point of contact for all logistics needs. This saves you time but gives you less visibility and control over your supply chain. 

Fourth-party logistics providers:

• Select and manage 3PL services.
• Handle physical logistics.
• Craft logistics strategies.
• Provide analytical insights.

Simply put, 3PL providers focus on specific logistics services, while 4PL providers manage your entire supply chain.

How does a 3PL warehouse work?

A 3PL warehouse simplifies your supply chain operations as it: 

• Receives goods. 
• Manages inventory. 
• Fulfills orders. 
• Ships products. 
• Handles returns. 

Beyond core competencies, 3PL warehouses offer value-added services like custom packaging. These services enhance your product’s value to the end customer. 

Types of 3PL warehouses

Before settling on a warehouse partner, it’s important to know the different 3PL warehouse types:

• Standard warehousing: Handles essential tasks like picking, packing, and dispatching. 
• Temperature-controlled warehousing: Keeps products at the right temperature for storage and transport.
• Hazardous material warehousing: Safely handles and transports dangerous goods. 
• Automated warehousing: Uses advanced technology to handle high-volume businesses and logistics operations.
• Distribution centers: Receives products from manufacturers and distributes them to stores or customers. 

Evaluate the features and services of each warehouse to find the best fit for your product requirements and goals.

What is 3PL warehouse management system?

Now that you know about 3PL warehouses, what is 3PL warehouse management system? 

A 3PL warehouse management system (WMS) is a tool that simplifies day-to-day operations, from receiving to shipping. 

For you, this means enhanced supply chain visibility. With real-time data and analytics, you can track: 

• Inventory levels. 
• Order status. 
• Warehouse operations. 

Plus, 3PL WMS offers seamless integrations with: 

• CRM tools. 
• TMS software. 
• E-commerce platforms. 

Advantages of 3PL warehouse providers

Outsourcing your logistics to 3PL providers lets you: 

• Scale with your business goals. 
• Leverage professional expertise for smooth workflows. 
• Save on warehouse space and shipping costs. 
• Boost customer satisfaction with efficient fulfillment and shipping.
• Use innovative technology for improved inventory and order handling.

Disadvantages of 3PL warehouse providers

While 3PL providers enhance efficiency, they also present risks. These include: 

• Human-caused errors and inefficiencies. 
• Extra costs and billing complexities. 
• Compromised quality standards.
• A loss of control over your warehousing and distribution.

It’s important to weigh these drawbacks against the benefits before you partner with a warehouse provider.

Should you work with a 3PL provider?

Choosing to partner with a 3PL service provider hinges on your specific business goals and needs. 

Drawing from our experience, you should consider partnering with a 3PL if: 

• Your current logistics can’t keep up with demand. 
• You want to focus on core business activities.  
• You’re seeking a cost-effective logistics solution. 
• You need specialized logistics expertise. 

Recap: Warehouse 3PL

Using a 3PL provider boosts efficiency and keeps your customers happy, but it’s not without its limitations.

Partnering with a 3PL means finding the right balance between its advantages and potential risks, based on your business’ unique needs. 

If you want to focus on what you do best and leave the logistics to the experts, partnering with a 3PL is your best bet. 

Warehouse 3PL FAQs

Are 3rd-party logistics the same as order fulfillment?

No, 3rd-party logistics (3PL) encompasses a broad range of services that include order fulfillment. For example, 3PL also provides: 

• Warehousing. 
• Transportation. 
• Inventory management. 

What is dropshipping?

Dropshipping is the term for when a seller ships products from a third party to the customer upon sale. 

How does 3PL pricing work?

3PL pricing varies based on the services you use. Total costs include: 

• Transaction-based fees. 
• Fixed monthly rates. 
• Variable and upfront costs. 
• Value-added services. 

Explore the top three manufacturing processes you need to automate. 

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