The hidden cost of warehousing. By Steve Adams
On the face of it, warehousing products should be a relatively simple process. The product is received, stored, then picked and shipped – with an occasional inventory to make sure everything is in order.
However, the consequences of an inefficient and ineffective warehouse can be disastrous. Products that are built to exacting specifications in your pristine manufacturing operation that then disappear in a warehouse ‘black hole’ are never going to get the opportunity to impress your potential customers. The bottom line is, if you can’t find the product, you can’t ship it; or if it takes longer in labour costs to find it than the customer paid for it, then your chance of building a long-term profitable business are very slim. Your business is the sum of all its parts and unfortunately the lowest common denominator usually thrives.
If it’s done well though, warehousing can make your business thrive and give you a competitive advantage in your industry.
An efficient warehouse
The key question is: what makes one warehouse more efficient than any other? There are many answers, but some of the most immediately identifiable are: people, process, storage and material handling equipment and systems.
Nowadays, many companies have a Warehouse Management System (WMS) to help them manage all the people and processes within a warehouse facility. While a WMS can help control the movement and storage of materials, and process associated transactions – such as receiving, picking and shipping; even when used well, there are still many hidden costs that can have a major impact on your bottom line, customer satisfaction and overall business success.
Three hidden costs that can be addressed with proper use of a WMS are time, inventory and organisation.
After labour costs, travel time is the second most expensive variable. It is virtually invisible and extremely expensive if allowed to go unchecked. Just as a manager would not want to see employees wandering around with nothing to do, so equipment should not be crossing the floor unloaded. It also should not be travelling to the far corners of the warehouse to pick products when the same product is available within eyesight. Three solutions available with WMS can resolve this issue.
Slotting is the placement of products within a warehouse facility to maximise the use of a warehouse’s available cube space. This is achieved by improved storage and picking efficiency, and reductions in warehouse handling cost; through optimising product location and balancing workload. This strategy takes a number of factors into consideration, such as; location, dimensions, and weight to profile and sequence items down the pick path. Proper slotting leads to reduced picker travel, more stable loads, fewer accidents, and less product breakage.
Interleaving is a practice that uses WMS to assign tasks to workers in ways that make use of each trip that they, and the equipment they use, make during their work shifts. This practice can typically eliminate 25-30 per cent of the machine travel associated with pallet moves.
Picking strategies are one of the easiest and more cost-effective ways to maximise productivity and improve order accuracy. Picking is also an operation that has a direct connection to customer satisfaction, as quickly and accurately processing orders is essential to the bottom line.
Batch picking involves picking more than one order at a time. Using the WMS to help batch orders together in different ways, allows the workers to optimise their tasks and increase pick density. The benefit from this is a reduction in the number of times a picker has to travel through any aisle.
Zone picking divides the warehouse into multiple zones and assigns workers to pick only within one zone, thereby reducing travel time. Orders are either picked and passed from zone to zone for fulfillment, or consolidated at one point before shipping.
Order picking is often the most preferred method of picking, but may not be the most effective. An order picker picks one order at a time, following a route up and down each aisle until the entire order is picked. This method may work well in an operation with a low number of orders, and a high number of picks per order; however, using this method in a warehouse with a large number of smaller orders would lead to excessive travel time.
Inventory management is a balancing act. You can’t have too much, as this could lead to shelves filled with expired or obsolete products, or result in holding an excessive and expensive inventory. It also might necessitate having a larger facility than is really needed. But then again, you also don’t want too little. This can result in product shortages, unfulfilled orders, and unhappy customers. You need just the right amount of stock. You can increase profitability 20-50 per cent through careful inventory management.
Tracking inventory is essential. Products should be tracked and recorded during initial receipt, as bad practices at this stage will only have a worse impact later on in the process. Whether it is through the use of bar codes or radio frequency identification (RFID), a detailed transaction history of inventory flowing in and out of the warehouse can improve visibility and reduce errors. Real-time data in WMS means the system and the warehouse are never out of sync, ensuring better checks and balances with audits and cycle counts.
Shelf life and stock rotation can also have a major hidden cost implication. Not every company has to worry about this, but for when they do – SKU accuracy by location is not enough. Warehouses need to know where each lot is stored, and when and if, the product is set to expire. Most Warehouse Management Systems offer various controls to help determine the shipping of these products, such as LIFO, FEFO and FIFO. Without these controls, products will expire without ever being picked. The costs associated with this can be outstanding. There is the obvious cost of the manufacturing of these obsolete products but also the expensive warehouse space that has been used to house them. Costly labour to receive and put away the product can also be incurred with no financial gain.
The final area of hidden costs is the organisation of the warehouse itself. Cost savings in travel time and inventory control can be lost if the warehouse is an incomprehensible maze. The first step is to determine how the facility will operate and develop a master strategy.
Decide how space is used and think in three dimensions: rather than expanding the footprint, perhaps there can be better use of vertical space? Examine potential traffic patterns and storage locations. Consider how items will be picked, how they will be put away, and how the stock will be replenished. Group products into families based on the results of this analysis, and configure the WMS to support this plan, building in exception protocols. Last of all, plan to work – and work the plan. Without regular upkeep, a well organised warehouse can quickly become disorganised and difficult to navigate.
Surviving or thriving?
Remember, warehouses should never be rocket science. Having a strong WMS will help reduce costs, increase inventory accuracy and storage capacity, and improve customer satisfaction. This will at least allow you to survive against your competitors. Using a strong WMS effectively to manage all processes will help you drive out these additional hidden costs, giving you a tangible advantage.
The current economy is very challenging and the difference between surviving and thriving, means knowing about every part of your business and operations in close detail. Many of the most successful companies aren’t successful because they make better and more innovative products. What stands out about them is the ability to just bring other companies’ products to the market in the most cost-effective and efficient manner. They understand that an extra ten seconds on every pick can cost millions when repeated many thousand times a day. If they haven’t resolved all of their hidden costs, they at least know where most of them are and have a plan to fix them.
Steve Adams is Director, Catalyst at Aptean. Aptean is a leading global provider of mission critical enterprise software solutions. It builds, acquires, and integrates industry-focused solutions to support the evolving operational needs of customers, enabling them to increase operational efficiencies and improve customer satisfaction and loyalty.