How Investing in Automation Can Cut Your Costs

In today’s competitive business reality, companies must lower their operating costs and increase productivity just to survive. Yet many companies are reluctant to upgrade their warehouse computer systems, remembering past experiences and not wanting to incur new expenses. What they fail to realize is that having aging software will result in higher operating costs companywide and excess inventory in the warehouse–meaning a decrease in profits.

For example, at my first meeting with the company president of a midsize distributor, he informed me that he does not trust software houses due to his previous bad experiences and that the only reason he’d agreed to see me was that I came highly recommended by his business consultant. In discussing the business issues resulting from his outdated software, he cited three major problems:

1. Wrong credit issued. Rather then invoicing $1 million to a major chain store, the computer had issued a credit instead. The accounting department did not catch the mistake in time, and it took nine months to get the credited funds back and the invoice paid.

2. Inventory issues.
Having an unautomated warehouse resulted in poor inventory control, incorrect shipments, and large number of returns. When new inventory was received, shelves were consolidated and the computer records were not properly updated. This resulted in inventory being misplaced and new inventory being bought. the company ended with $2 million in excess inventory that could not be sold.

3. Chargebacks. The day I met the president he was hit with $45,000 in chargebacks from a major department store due to incorrect shipments and EDI errors.

Fortunately, all of these problems can be resolved or even eliminated. But improvement requires investing in automating your warehouse:

* Newly received inventory will be scanned and your computer files updated in real-time mode, resulting in data being instantly available company-wide.

* Consolidating shelves will be easier and more efficient as your real-time computer files will reflect both the consolidated and new inventory location and quantity.

* You will be able to find misplaced inventory and prevent it from collecting dust.

* Fewer shipping mistakes and returns will be made, as picked inventory will be scanned for accuracy. At the staging area before being packed it will be scanned again to confirm that the correct products and quantities are being shipped to the right customer.

* Labor costs will be dramatically reduced. Because automating your warehouse will create a more efficient and effective inventory environment, you can quickly reduce the size of your inventory management department or transfer staffers to areas of the company where they are much more needed.

Dan Kaplan is president of New York-based SMC Data Systems, a provider of supply chain management solutions.

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