Is Your Warehouse an Ugly Baby?

Jun 11, 2008 4:10 AM  By

Gas is more than $4.50 a gallon, transportation costs are going through the roof, your employees are struggling to keep their homes and your customers are scrutinizing every line item on their invoices.

As a result, your supply chain is now more crucial than ever to your organization’s success. If you don’t have the ability to provide your customers with what they want, when they want it, and at a reasonable price, the livelihood of your organization is at risk.

Distributor Woseley recently announced plans to close 75 locations and said its profit was down by 23%. Other distributors are feeling the crunch, too, and will ultimately begin “right-sizing.” Will your organization be the next one to shut down operations?

No one wants to hear that they have an “ugly baby.” But if your warehouse is in shambles, then you need to be told so, because it’s probably the only way you’ll end up doing something about it.

Do you have returns that sit around for days without being processed? Are your workers spending too much time in the warehouse checking stock because your inventory is so inaccurate? Is your warehouse bursting at the seams, causing your pickers to spend twice as long searching for products to fill orders, and your receivers twice as long to find put-away locations?

If your warehouse is in shambles, you will have no choice but to admit, you have an ugly baby.

Being in the distribution business, your organization depends on two things: Your people and your inventory. Which do you think is more important to your organization’s success?

The value of your inventory can be as high as 20% of your top-line sales. That means a $100 million company will have approximately $20 million of inventory on hand. And it costs between 20% and 35% of its value to stock that product.

How accurate is your inventory — 70%, 90%, 95%? If you’re a $100 million company, 95% accuracy means your personnel lose $1 million of inventory every year. Is that acceptable?

The value of your people is calculated differently, but is just as crucial. Labor accounts for 65% of the cost associated with distribution. How much turnover do you experience in your warehouse? Do you have a training program for new hires? How do you motivate your employees?

According to recent job polls, roughly 75% of employees are searching for a new job, while 20% say they are disengaged. Disengagement is costing U.S. organizations over $300 billion annually. That’s because 66% of lost customers can be traced back to employee disengagement or indifference.

Is it understandable that employees feel the way they do? Sure it is. Consider that a person making $10 per hour in your warehouse can spend as much as $100 per week for gas. That means they can spend as much as one week’s salary per month to make it to their job – a job where they feel underappreciated!

This cycle is about to come to a screeching halt. If you aim to attract and retain good employees, you will need to do something about it. Remember that your employees are the ones who control your inventory and communicate with your customers.

That said, what will you do differently to service your customers — internal and external — during this economic downturn? Will you evaluate your slow and dead moving inventory to free up much needed warehouse space? Will you evaluate your stocking methodology to create a more efficient picking and put-away process? Or will you bury your head in the sand and hope it all blows over?

I hate to say it, but the latter is what most organizations are doing. In this economy, they do not have the capital to invest in improving their warehouse or supply chain operations. And when business was good, they did not have the resources or the time.

The truth is, now is the best time to do the things you have been too busy to do. Address those inventory inaccuracies and picking errors. Improve the turnover you have been experiencing year after year. Motivate your workers, who are driving long distances to make it to a job they hate. Give them new incentives. Get them re-engaged with the business.

Now is the time to address your inefficient warehouse and get your people and processes into shape. It won’t be easy, but it’s a prime opportunity to turn your ugly baby into a beautiful thing.

Rene Jones is the founder of Total Logistics Solutions Inc., a warehouse consulting organization headquartered in Burbank, CA.