How to Reduce Warehouse Costs

Sep 01, 2010 9:30 PM  By

Merchants always want to improve their warehouse operations and reduce costs, especially when the economy is down. Typically, you can make the most effective changes in labor management; other key areas are slotting and radio frequency technology. Here are a few ideas.

LABOR MEASUREMENT AND MANAGEMENT

After outbound shipping costs, labor represents the largest single operating cost factor, so it deserves significant and constant attention. How well you manage labor affects not only your costs and profitability, but also your customer service.

A critical aspect of labor management is making sure your employees know what is expected of them and how well they are meeting those expectations. Most employees focus on what they perceive to be important. It’s management’s job to make sure that perception is in line with corporate goals and objectives.

How do you ensure that your operations staff is in sync with your objectives? Start by establishing your current levels of cost and performance relating to your key performance indicators.

You must then establish your goals or employee expectations relating to these indicators. These steps set your expectations and also indicate what is important to management.

After establishing your expectations, you have to measure actual performance and report results back to employees. This satisfies the universal desire to know how well we are doing.

What’s more, this relatively simple measurement and reporting process can result in a productivity boost in many warehouses. Without making any other changes, you could see productivity increases of 10% to 15%.

When establishing labor expectations, make sure you initially focus on those areas where you can gain the most benefit. That’s typically the larger areas, such as picking and packing.

Establish standards with physical units of work and labor man-hours expended. This removes any issues relating to using productivity metrics that involve percentages or dollars.

Both of these can be affected by factors not truly relating to productivity performance. Using estimates, historical data, benchmarks and engineered standards can help establish performance standards.

Before you start, make sure you have the correct processes in place and that they’re being followed. You do not want to establish expectations based on a sub-optimized process.

SLOTTING

Slotting, or determining where each item should be located, is one of the most overlooked aspects of running a warehouse. If your distribution center is trying to control or reduce costs and meet customer expectations, proper product placement is essential.

An effective slotting program will help ensure that you have the right product in the right location when you need it. Slotting should enable you to optimize material handling and storage capacity utilization. That means you’ll have enough room in the pick slot to meet picking demand and to minimize worker picking and travel time.

The potential benefits of slotting are many. They range from reducing labor and material handling costs, product damages and injuries to faster order turnaround time and better control and utilization of assets.

To get started with a product location program, you need to gather some basic information. The following list covers much of the data required to effectively slot products.

  • Number of active SKUs
  • Shipping unit cube
  • Average and peak unit sales per week by SKU
  • Cube movement per week by SKU (average and peak)
    • Not inventory on hand
  • Unit weight — level selection and sequence in pick line
  • Special handling or storage requirements (if any) by SKU
    • Products that need more security; perishables; hanging garments; oversize items
  • Order profiles
    • Lines and units per order; single-line orders
  • Distribution of multiline orders — number of orders by order type (lines per order)
  • Picking methods used
  • Ship-alone SKUs — stored in a separate zone
  • Any kitting requirements
  • Any assembly requirements
  • Any value-added services

To assign properly sized locations, most warehouses need a variety of location types with different cubic storage capacities. You can also use multiple facings within one type of storage media to accommodate some variations in requirements.

There is rarely a clear distinction between slot size allocations, since many items are slightly out of the range of capacity available in one type of storage location. Examples of typical types of storage capacities are as follows:

  • Pallet rack
  • Flow rack
  • Wide-span shelving
  • Miscellaneous special type item locations
  • Floor
  • Drive in or drive through
  • Bin-storage shelving

After you’ve created locations, you’ll need a numbering schema. The most typical consists of the following in some form or other, along with the number of characters typically assigned to each. Most are alphanumeric in format.

  • Zone — XX
  • Level — X
  • Bay — XX
  • Facing — X
  • Aisle — XX

You then need some type of logical and systematic process to complete the slotting process. Most start with a general location step followed by detailed, specific, discrete location assignments.

The first step is to determine the general area of the warehouse that would make the most advantageous location for the item. Consider both item and cubic velocity data.

After selecting the general area, you need to figure out the specific slot size and location for the SKUs. This is based on cubic velocity, and the desired number of storage days for the items. Many warehouses generally slot by category or family.

One of our clients, a major university, had to consolidate its warehouse functions into a smaller central location. After inventory levels were reduced as much as possible, the new layout required a detailed slotting process to use the space and operate efficiently.

The client’s first step was to categorize its product lines into families of product. Specific items within each family had different characteristics and required different size slots to keep the family together.

Using the criterion of storing seven days of average movement in the primary pick slot, the client calculated the number of each size pick slot. The entire family of product was then located in a prime position based on its overall usage and importance. Specific items went in in proper size slots based on cubic velocity and weight.

As a result of this exercise, the company consolidated multiple warehouses into less space and now operates more efficiently.

BARCODE APPLICATIONS

While barcodes have been in use for many years in shipping and manifesting systems, many warehouses still don’t fully use this technology. That’s a shame, because barcodes help you reduce costs and increase control of your operation.

Among other functions, barcodes let you track the what, who and when for all warehouse activities within the four walls. As a result, potential savings can occur in the following areas:

  • A decrease in clerical costs due to reduced need for manual data-entry functions
  • Fewer errors thanks to improved inventory tracking and positive verification of activities
  • Increases in overall inventory accuracy
  • Ability to track employee performance that can increase productivity
  • Improved scheduling of warehouse activities

You can use barcodes in warehouse paperwork (purchase orders, pick tickets, etc.); for individual employee identification to track who did what; on individual products; and on cartons or pallets to identify the contents and track activities. Each warehouse location can have a unique barcode that facilitates inventory moves.

Many of the warehouses we work with have applied barcode technology to areas such as receiving, putaway, replenishment, picking, packing, shipping/manifesting, returns, cycle counts, value-add functions and labor tracking.

We recently toured a furniture warehouse that had installed a warehouse management software package within the past few years. As a result of being able to use barcode applications, the company reduced the warehouse staffing level by 50%.

We should note that this is not a typical result for most warehouses. But there’s no question that moving from a very manual operation to one that uses barcode technology can yield significant benefits.

Curt Barry (cbarry@fcbco.com) is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consulting firm.