When to Spend to Reduce Warehouse Costs

Oct 12, 2011 8:05 PM  By

Orders for material handling equipment – an indicator of economic growth – are up 17% this year as of August, according to the U.S. Commerce.

That’s a good sign, says Bill Kuipers, president of operations consultancy Spaide, Kuipers & Co. “While maybe not robust, the economy had stabilized to the point where most business owners were confident enough to begin to slowly catch up on some badly needed improvements.”

What’s more, Kuipers says some of his clients realized that they need to do more with less, and that often means investment in some basic material handling equipment that reduces handling and improves efficiency.

The increase in material handling equipment buying is likely due to a freeze on capital expenditures being lifted, says Rene Jones, founder of Total Logistics Solutions, a warehouse consulting firm. Distribution centers are also finding that they need to spend money to save money.

“Many organizations over the past few years have not spent money and have tried to continue using old equipment,” he says. “They are now learning that outdated equipment is costing them more than it is saving them.”

Outmoded equipment cost more to operate because of monthly costs for maintenance and repairs, Jones says. For example, one of Jones’ clients uses equipment that is 15 to 20 years old, “and they spend an unusually high amount of maintenance and repairs,” he says.

After analyzing the client’s costs, Jones found that leasing new equipment had a cheaper monthly rate than maintaining the existing old equipment, so it purchased new equipment.

On the surface, it looks like the company must be doing well, because it bought new forklifts and a few new trucks, Jones says. “In reality it was cheaper saving an already struggling company more cash.”

The same thing can happen with warehouse staffing. Another client of Jones’ company had high operating costs because of overtime. “They had downsized so much that there were not enough hours in the day to get the work done in eight hours,” he notes. So it had a lot of overtime hours.

“Our analysis showed that hiring additional people would reduce overtime and cost the company less: Fewer employees out sick, less stress, fewer missed deliveries, increased service levels,” Jones says.

Operational inefficiencies tend to be exposed on the low end of the economic pendulum swing, Jones says. “They should have been addressed when the company was making money hand over fist.”