The main costs associated to warehouses include handling, storage, administration, and operations.
Handling involves moving product within the warehouse and is largely comprised of labor and equipment costs. Labor costs can usually be reduced through a variety of methods. Using a Labor Management System to track productivity of workers and specific tasks will allow you to identify pain points within the warehouse flow. With this, you can focus on figuring out what’s occurring at those points in the flow and how to fix them
Warehouses play a very crucial role in the supply chain because they are one of the main components that drive the delivery of the right products to the right place at the right time. The core function of a warehouse is to store goods. While the concept of a warehouse is relatively simple, managing and operating a warehouse comes with a plethora of challenges. The goal is to attain as high of warehouse productivity as possible at the lowest possible cost. Here are a couple strategies and avenues worth noting to enhance your warehouse operations:
- Track, Communicate, and Manage Critical KPIs
It is very crucial to track and communicate your KPIs because they provide a reflection of how much progress has been made towards your business goals. The SCOR (Supply Chain Operations Reference) model provides a good benchmark of what performance metrics you should be tracking. Also, these KPIs need to be made accessible to everyone in the warehouse through BI reporting or easy-to-access dashboards. Here are a few important metrics to track:
- Inventory accuracy
Tracking your inventory is very important because inaccuracies in inventory can cause unnecessary backorders, loss in customer satisfaction, high total holding costs, and inefficient operations. There are a lot of solutions to help track and provide visibility to your inventory, an example being, integrating barcode technology into your Warehouse Management System.
- Receiving, Picking, and Packing Efficiency
The heart of warehouse operations is the inbound and outbound execution and it is the most complex and costly process in the warehouse. To measure efficiency and productivity of the execution, there are a couple KPIs to track such as cost per line item received and picked, receiving and picking cycle time, receiving and picking throughput, etc.
- Inventory Velocity/Turnover
Tracking this KPI will help measure how fast you are selling certain items. This is important to know because each item in inventory has a holding cost associated with it. Also, knowing this will help understand your fast-moving and slow-moving products to help strategize where you should store them within your warehouse.
- Order lead time
This is the measure of how much time it takes for customers to receive their orders which has a direct relationship with customer satisfaction levels. Tracking this metric will provide visibility to identify what is causing your lead time to be high and help direct you on what needs to be done to improve it.
- Inventory Holding Costs
The inventory holding costs is the unit cost of holding a SKU in the warehouse. It’s typically 20-30% of inventory value. It is comprised of components such as labor, storage space, tax, insurance, and equipment. Having visibility to your holding cost helps in demand forecasting, inventory planning and replenishment, as well as profit calculations.
- Rate of Return
Rate of return is the percentage of orders being returned that is typically categorized by reason for return. This helps pinpoint what strategies to use to resolve the issue. Also, this provides insight as to how much more work is needed for the operations to handle these returns.
- Better Operational Strategies
The barcode is one of the most common aspects of warehousing and distribution. It’s an easy way to transfer information that provides time savings to all parties involved. Although it allows information and goods to be tracked within the supply chain, it also provides key information to the consumer. Every scan updates the customer on where their purchase is and how long it will take to get to them. Barcodes have played a crucial role in advancing automation; however, new solutions are hitting the market that can enhance your operations.
Robotics is a leading solution in recent years. From Automated Storage and Retrieval Systems (ASRS) to Automated Guided Vehicles (AGV), robots help with a variety of operations in the warehouse. Here are some popular forms of robotics being used in the industry today:
- Automated Storage and Retrieval System
ASRS’ are used to store small inventory in a more compact space. Anytime an item is needed, the box or container it is stored in is brought out to the picker. Once the required quantity is picked, the remaining units are taken back into the system and stored. The units are stored optimally as ones that are needed more often are quicker to retrieve compared to less voluminous SKUs.
- Automated Guided Vehicles
AGVs are used to move inventory within a warehouse without requiring an employee to move all over the warehouse as well. There are different types, such as self-guided forklifts or smaller “Roomba-like” devices known as Autonomous Mobile Robots (AMRs) that transport picking stations to pickers throughout the warehouse. AGVs usually require logistical changes within a warehouse so that AGVs can move safely and efficiently. AGVs require a large initial investment and thus only make sense for extremely large and busy warehouses.
- Aerial Drones
Aerial drones are not yet hugely popular in warehousing but have some practical uses. Drones can be used to scan locations for inventory/cycle counts and even sync with WMS’. They are autonomous and place themselves at charging docks get ready for the next shift. Aerial drones, and robots in general, require maintenance through their lifetime, so there may be fees and costs associated with owning them that make them an even more difficult solution to justify.
Robotics provides many benefits to warehousing. The most important of which may be providing an adaptable work force. Warehouses go through peak and slow seasons, which require temp workers and a constant rotation of the workforce. Robotics also leads to lower error rates which provides cost savings. Lastly, robots lead to a safer work environment due to the decrease in error rates.
- Picking Strategies
Picking strategies allow warehouses to optimally pick products for the type and quantity of orders they process. Here are some examples of picking strategies:
- Discrete Order Picking
The most common type of picking is picking by order. A picker picks one order at a time. This picking method is ideal for smaller warehouses with smaller volume and places that use paper-based picking. It also allows for accurate order tracking.
- Zone Picking
Pickers are assigned zones in the warehouse that they are responsible to pick from. If an order contains items within multiple , that order will move to the different zones and be picked by multiple people. Zone picking may require more points of contacts for orders but makes sense for a warehouse that is shipping many single unit orders.
- Batch Picking
Batch Picking picks for a batch of orders at the same time. The inventory is picked then sorted into separate orders at a later point in the flow, this is usually done when it is ready to be packaged. Batch picking reduces travel time within a warehouse, which accounts for up to 50% of the picking time, as reported by Supply Chain 24/7. Additional methods such as picking carts could assist batch picking within a warehouse.
- Process Standardization
Process standardization lowers the propensity for user errors in the flow. Making sure employees follow the process that has been established allows for easier training, management, and error correction. It also allows organizations to know how much time it should take to complete certain tasks, and whether the warehouse is operating at optimal efficiency. Documenting these standards is equally as important, as warehouses have high turnover rates. Having the ability to train employees quickly decreases the costs associated with hiring new people.
- Improve Labor Productivity
- Continuous Improvement initiative
Increasing warehouse productivity requires knowing the pain points within the 4 walls. A Labor Management System (LMS) allows you to track the productivity at the employee level. It also allows you to break work down into different tasks and identify pain points in the system. Certain LMS’ allow you to integrate with WMS and link every move you make in the warehouse to a labor bucket and employee/work group.
The quality and availability of labor that a warehouse has access to has a major impact on the productivity. If a warehouse needs to constantly retrain employees due to a high turnover rate, they will be spending more resources and money in training and likely have higher error rates with new employees. Incentivizing workers to stay for an extended period may be worth it so this scenario can be avoided.
Enhancing warehouse operations involves a combination of utilizing supply chain technology effectively and setting up the warehouse and its employees for success. It begins with having enough data to work with and tracking key metrics throughout the warehouse. At which point, service providers like us can use this information to identify opportunities for improvement, whether it be on the inbound side or outbound side. We can suggest implementing better operational strategies through robotics or technology to create cost savings in the warehouse. These enhancements combined with standardized procedures can trim the inefficiencies that are common in warehouses today. Contact us at firstname.lastname@example.org to get started!
Contributors: Neel Patil & Warren Teddy Supply Chain Consultants at Bricz