Post-Season Audits, Part 2: Reducing Costs in the DC

Jan 02, 2008 10:33 PM  By

With the peak volume of the holiday season over, you should have just about finished your post-season audit of your operation. As we discussed in the previous article, this will give you a good idea of how and where you can reduce and control expenses in your distribution center.

Now it’s time to implement some changes. Where should you start? Here’s a checklist of some steps to take.

• Bring your workforce down to the size required for your post-holiday business forecast. Nothing increases costs more than excess people on the payroll—and by attempting to manage hours with too large a staff, you’ll wind up sending employees home early multiple days per week, running the risk of losing key associates who can’t afford to work less than 40 hours.

This is also a great time to evaluate all employees and retain the workers who performed best. Frequently you’ll find gems in the seasonal staff who are better than some of your regular associates. So bite the bullet, make the difficult decisions, and reduce staff quickly.

• Perform inventory consolidation in your storage area, both to organize storage and create space for new product arrivals. Consolidating inventory now will save inbound labor dollars later, as well as ease and expedite the ability to locate product.

• Assure your key performance metrics are in place for pick, pack, ship, replenish, receive and put away. Be certain you are generating reporting on all the key indices which will help you manage expenses, including labor hours and dollars (regular and premium) measured against volumes received and shipped (units, lines, orders, boxes).

• Reconfigure your slotting and pick locations to reduce travel time to a minimum. Relocate items appropriately to slow moving or to fast moving picks to create efficiency. Remove seasonal items from the pick line so you are not walking by them each day.

• If you didn’t cross-train all regular associates to pack last year, begin now for next year and continue cross-training throughout the year. Be sure any new employees retained from the seasonal worker ranks are fully trained and performing to standard. Training for seasonal associates is often quick, so if you are retaining people, make sure they are properly trained to be successful.

• Develop a fulfillment to-do list from your post-season audit. Assign responsibilities and follow up to assure the tasks are being performed.

If you have never developed goals and objectives for your operation and your fulfillment staff, this is the perfect time to start. Goals and objectives or key performance indicators are the most objective method of evaluating individual performance. Successful accomplishment of goals and objectives adds to the profitability of the company.

• Create your fulfillment budget for the next fiscal year. Remember that an effective budget reflects improvement in performance and reduction of expense to enable the company to offer wage increases where appropriate.

• Review transportation contracts. When shipping volume is down, every penny of cost becomes critical. Knowledgeable review of both inbound and outbound transportation contracts and costs can typically yield savings up to 20%.

• Consult with your supply vendors for packaging, corrugated, styrofoam, etc. Are you able to return overstock for credit? Again, every penny saved during slow periods is important.

• Determine if this is the time for experienced help to assist you in reconfiguring the warehouse. There are many ways to improve layout within your current walls to expand capacity and improve efficiency.

Along those lines, are your systems generating the necessary results in the required time periods, or is your fulfillment center losing efficiency because your systems are unable to perform? This is a great time to develop a systems requirement document identifying your needs for growth and for performance.

• Conduct objective individual performance evaluations for your salaried staff. Objective and honest evaluations of individual performance are the building blocks of great teams.

And finally, the only good thing about slow volume is that it affords you the opportunity to evaluate past performance failures and to implement change for future performance successes.

Curt Barry (cbarry@fcbco.com) is president of F. Curtis Barry & Co., (www.fcbco.com) a multichannel operations and fulfillment consultancy based in Richmond, VA.

Conducting a Post Season Audit, Part I