The Unlucky 13 of Warehouse Inefficiencies
All signs point to an economic downturn unrivaled in recent memory. From banking to retail to automotive to construction, no industry seems to be able to escape the black hole in corporate and consumer spending. And if there's one thing this recession is teaching us, it's that creative investing is enough of a crapshoot to make playing the tables in Las Vegas seem like a sure thing. With experts predicting a prolonged recession that could last years, businesses more than ever before are seeking predictability and profitability with a back-to-basics approach of increased revenue and decreased expenses.
While I'm not one of Wall Street's "financial wizards" I do know an investment that is likely to generate much more upside than the stock market - investing in your warehouse. For distributors and manufacturers, the secret to weathering an anticipated prolonged downturn lies in combating inefficiencies. Right now, many businesses manage warehouses with 20th century methods where manual oversight is king and inefficiencies - and even disarray - rule. The image that constantly comes to mind here is the old antique store where even the owner doesn't know what they have. Utilizing these traditional methods of warehouse oversight mean thousands of dollars, if not more, in wasted resources every year - a tough pill to swallow in an industry where every dollar matters.
In order to avoid the financial pitfalls of a poorly managed and organized warehouse, it is essential that businesses combat inefficiencies immediately. Here's an "unlucky 13" list of inefficiencies that we typically run across when helping companies improve their warehouse operations in no particular order.
- Random Product Placement and Labeling Inefficiency - Often, companies have no rhyme or reason as to why a product is where it is in a warehouse - or conversely do not have any idea exactly where in a warehouse an item resides. Looking through one of these warehouses is like trying to rummage through a closet for that lucky bowling ball. In addition, there's no way to know how many of each item is in a bin. This leads to wasted time and money spent searching for a product. Once an item is finally found, pickers will often need to sift through a bin to ensure the right amount of a product is available since this isn't immediately clear through either labeling and/or documentation. Thank goodness someone's livelihood doesn't usually depend on how organized a closet is. But when it comes to a warehouse, a disorganized "closet" can mean business failure.
- Unclear Pick Path - Once a product is "discovered" in a warehouse, there's no set of rules in place to fulfill, package and ship an order. By having no logical path to follow when picking an order or multiple orders, the wheel is constantly being reinvented and items can easily be misplaced.
- Manual Order Checking - By having a manual order checking process in place, warehouse employees and sales staff constantly have to re-check an order. For example, a picker has to check against an order to find what item and how many they need to pick. Once an item arrives at the packing station, the order has to be re-checked to ensure the correct product has been picked, determine where it needs to be shipped, set up billing, etc...
- Sales Order Employees Checking Bin Stock - Without a process in place, employees that don't necessarily work in a warehouse often times re-check stock because they don't trust an Enterprise Resource Planning system (ERP) having an accurate inventory count. Before a sales order can be placed, employees often manually search a warehouse for a product to physically confirm it is there. If every email that was sent out by a company had to be proofread by that business' CEO, how would productivity be?
- Received Items Not Being Put Away As They're Received - Whether it's because employees aren't in place to receive goods and put them away or because there isn't a process in place, many received goods just sit in the receiving area of a warehouse for days if not weeks. I liken this to when people just throw their clothes on the ground at the end of the day instead of hanging them up - after a while it stacks up. Not only does this create a physical bottleneck at a warehouses entry point, a company is now in possession of goods not yet "available" for sale or if my example is taken to heart, one doesn't know what clothes are available because some may be at the bottom of a pile. If a sale can't be processed due to a lack of inventory, this hinders a transaction and could possibly lead to lost business to a competitor (and conversely, if new inventory is ordered while returned inventory sits unchecked on the loading dock, then there is added cost to boot). In any case, this can result in a bad customer experience where repeat business could be lost. How's that for dirty laundry?
- Manual Sorting Leaves Like Items In Same Bin - When received goods are manually sorted, like items can end up in the same bin through human error. For example, a red and maroon ball may get mixed up. These manual mistakes may create picking errors resulting in extra time spent sorting out the correct item for a sales order.
- Manual Replenishment - Often times, a warehouse picker has a set schedule to check bins for inventory. With this manual method in place, bins can often be left without any stock.
- Workflow Process Not Analyzed - Without having proper insight into a warehouse's processes, people manning material handling equipment may be out of sequence with the workflow. For example, if employees generally backed up in one portion of a warehouse, that may have a domino affect causing employees to stand around waiting for a conveyor or carousel.
- Dedicated Zone Pickers In Low Demand Areas - Often times, businesses don't do their homework to determine which products are in demand and which aren't. Furthermore, even if they do know their high-demand products, they don't account for them geographically within a warehouse. Often times, this leads to pickers idling in their assigned warehouse zones with little or no activity, while in other zones pickers may be overloaded.
- Space Constraints In Staging/Shipping Area - Once picked orders get brought to the "front" of the warehouse or the staging area, they can get mixed up with each other, especially if space is limited. If picked orders aren't labeled or accounted for properly during the picking process, this results in a reconsolidation of orders or essentially starting from scratch.
- Little Distinction Between Returns And Inbound Items Received - Without a receiving process in place, returns and inbound items received may get mixed up and therefore processed in a similar fashion. If this is the case, sales employees may have to hunt down a product back on a shelf to confirm it was returned.
- Manually Matching Paperwork From Goods Received To P.O. - By having employees manually enter information for goods received, there may be discrepancies with a P.O. When this happens, employees must cross-reference information - wasting valuable time and delaying when an item can be picked. It's great with a "star" employee that "never" makes mistakes, but one can't rely on that being the case all the time.
- No Clear Putaway Process - Without a clear putaway process, stock can often be staged in a warehouse's aisles for putaway but never actually make it to the picking bin. This clogs aisles and hinders all subsequent processes essential for warehouse management including picking, cycle count planning, replenishment, etc... Kind of like stacking pots up in the sink. It will slow all work up in the kitchen and eventually the pots have to be removed or nothing can be cooked.
Identifying some if not all of these inefficiencies through visibility into a warehouse's operations will lead to an almost immediate return on investment. Besides reducing expenses, customer experience also often benefits, which in turn leads to greater revenues and improved repeat business. During these times where every customer counts, that's a point that can't be overlooked.
In fact, industry analyst group Aberdeen Research noted in an October 2008 report on warehouse automation that today's Best-in-Class executives are taking the economic downturn as an opportunity to continue to attack inefficiencies inside the distribution center and identify areas to improve performance - all in an effort to create agility and flexibility and drive value to the bottom-line. The report also notes that expanding the use of existing technology infrastructure and investigating new opportunities to leverage additional technology to reduce fulfillment costs has allowed "Best-in-Class" companies to reduce labor costs by over 3% while decreasing order turn-around time by 1%.
Improvements to warehouse inefficiencies can be achieved in different ways. Three of the most proven methods are to internally review a warehouse's operations, consult an efficiency expert, and purchase software that takes the burden off manual processes and automates them.
As warehouse automators, we always seem to hear the retrospective wisdom; "Gee we should have deployed a warehouse management system in our company a long time ago. If only we would have known," they say. Perhaps it's like a college research paper with a deadline. The hardest part about it, for most, is getting started. But once begun, the warehouse management discipline begins to take on a life of its own.
Just like the American auto industry that seems to be choking on fumes after decades of bloated labor costs, warehouses may suffer the same fate through their inefficiencies. The current economic environment is magnifying this predicament, creating an environment where sink or swim could be a matter of efficiency.
About the Author
Eric Allais is the President and CEO of PathGuide Technologies, a leading provider of warehouse management solutions for wholesale and industrial distributors across North America. For more information visit www.pathguide.com.
 Aberdeen Research, October 2008 (http://www.aberdeen.com/summary/report/benchmark/5351-RA-warehouse-automation-order.asp)