Warehouse Cost Savings: 5 Key Areas of Focus and 13 Practical Objectives

warehouse cost savings

A Director of Operations, Warehouse Director or Manager, or even the Director of Supply Chain or Logistics, are always in the pursuit of continuous improvement as well as warehouse cost savings in both time and money. With the myriad of tasks and personell, a director or manager must oversee, how on earth are they to get everything done? Well, it starts with focusing on the areas and objectives that can meet your desired outcomes. Are you using the mantra “Work smarter NOT harder?” In today’s modern society, often, the stop gap in efficient productivity in your warehouse is typically one of two things: bad process & getting caught up in the weeds of tactics. This is solved through best practices, efficient and proven strategy, proper measurement of your tools and people, and the use of effective technology which doesn’t add bloat, but is an enablement tool to provide a tangible Return on Investment in the way of reduced time and costs. 

In today’s blog post we will go over five key areas those managing or directing company warehouses can focus on to achieve reaching your desired outcomes. After addressing these key areas, we will then give you 13 practical considerations to layer and weave into these five key areas, all in the hopes of increasing efficiency and realizing warehouse costs savings.

5 Key Areas to Focus on in the Pursuit of Warehouse Cost Savings

Labor

Labor costs are typically the largest expense in the warehouse, and in many operations, such as third-party logistics providers (3PLs), it can account for up to 50% of a warehouse’s total operating costs.

Many companies plan for and track workforce schedules and actuals through spreadsheets, a manual process prone to errors. This process does not generate an accurate, real-time view of tasks in the warehouse or allow management to identify inefficiencies. A big driver in the first part of warehouse cost savings is knowing your data so you can apply analysis and then create a strategic plan to improve. 

Integrating labor management with a company’s warehouse management system, can reduce these costs up to 30% by identifying areas of high performance as well as the comparable inefficiencies.

  • Invest in training/re-certification
  • Cross-train all employees
  • Focus on retention/implement retention plans
  • Use temporary/contract labor help where applicable
  • Use flextime
  • Revise your labor scheduling strategy
  • Observe starting and quitting times
  • Move your time clocks
  • Monitor individual productivity
  • Implement a pay-for-performance program
  • Reward employees who arrive early/stay later
  • Provide Safety/OSHA Training, at least quarterly
  • Implement Vendor Management System (VMI)
  • Start a suggestion box: Listen to your employee’s ideas.

Operations

  • Identify your best, trustworthy and productive employees
  • Use cross-functional teams to solve problems
  • Have teams compete to meet overall warehouse goals and objectives/KPIs: The old saying of, “You can’t improve what you don’t measure” is certainly true. An effective measurement and reporting process can improve performance and provide warehouse cost savings.
  • Implement a reward system for major victories
  • Reduce inventory with cross-docking or use Kanban pull systems
  • Target inventory accuracy: goal: 98-100% accuracy daily
  • Improve processes daily
  • Get rid of excess inventory: create a Material Review Board (MRB) to review: obsolete, excess, slow moving inventory monthly
  • The process returns more efficiently. Returns cost more than orders to process. Untimely processing of customer credits, refunds and exchanges can damage customer service. Our assessments look at the use of staff, people, space and systems to improve productivity.
  • Optimize space: Land cost is one of the largest contributors to costs in warehousing. Cost per pallet stored should be questioned to ensure space is optimized. The type of racking within your warehouse should utilize the height of your warehouse. Aisle space is also a consumer of space and having the right equipment to optimize this space can contribute to warehouse cost savings for the future.
  • Slot and Re-slot regularly based on demand/sales trends
  • Reconfigure rack configuration
  • Optimize staging areas to improve throughput to the customer
  • Replace checking with auditing
  • Minimize packaging
  • Keep supervisors on the warehouse floor
  • Focus on error reduction: goal: no errors
  • Make housekeeping a high priority
  • Control theft through improved security
  • Improve receiving process operations
  • Damage reduction: damage to goods/SKUs is expensive. Take good care of handling packages.
  • Improve SKU tracking: RFID, bar coding

Optimize Equipment Use

  • Standardize your batteries
  • Make equipment does double-duty
  • Manage equipment service vendors
  • Consider short-term rental
  • Evaluate leasing rather than buying
  • Use preventive maintenance (PM) to avoid equipment failure during a process

Technology

  • Consider a new, advanced Warehouse Management System (WMS). If you are not using a WMS, most likely it is much harder to realize warehouse cost savings. 
  • Use Electronic Data Interface (EDI) to communicate with your customers/suppliers
  • Implement voice-directed picking and light picking systems
  • Reduce dwell time

Facilities Management

  • Convert to high-efficiency lighting
  • Investigate efficient fans
  • Buy energy in bulk
  • Reduce storm water runoff and fees
  • Turn off the outdoor sprinklers
  • Warm up with dock blankets

13 Other Practical Considerations in the Pursuit of Warehouse Cost Savings

  1. Communicate effectively and often; clearly communicating to workers your organizational goals, key performance indicators, (KPIs), and the processes to achieve them is one key to effective warehousing operations. When managers fail to create an environment of open and clear communication, employee productivity suffers, resulting in high turnover and wasted resources.
  2. Standardize your processes by reducing potential variation in areas such as unloading, accounts payable, shift scheduling, and facilities management. Standardization saves time and money and reduces errors. Remember: There is always a better way to do anything.
  3. Measure what matters for continuous improvement in your processes. If an outcome is not important to customers and shareholders, don’t waste time measuring it. One 3PL-managed distribution center for a major U.S. manufacturer adopted a work measurement program to gauge and report warehouse performance at the employee level. The facility increased productivity by 10 percent and reduced labor costs by 11.3 percent.
  4. Determine what drives processes to ensure the proper causal connection between outcomes and enablers. Key performance indicators reflect the past; standardization and error proofing are the answer to productivity now.
  5. Use the five step approach to understanding the “why” of your operations, not just the “how.” This approach: Define, Measure, Analyze, Improve, and Control reduces costly process variations. The backbone of Lean Six Sigma methodology, DMAIC ensures sustained, defect-free performance and highly competitive costs.
  6. Involve, align and empower your associates. Listen to the Voice of the Employee (VoE): The people who do the work every day are process experts who know how to reduce or eliminate waste. Aligning your managers and staff to a company culture committed to inquiry, responsibility, partnership, and customer satisfaction can significantly impact warehouse productivity.
  7. Educate your leadership to ask the right questions, gather necessary information, make decisions, and take appropriate corrective action. This is vital to improving processes, products, and services. Leadership should visit the shop floor often, and work together with their people to improve processes and solve problems.
  8. Create a strong training program that incorporates cross-training. Break a job down and present the operation to new associates. Allow them to test their performance before releasing them to the process. Try having your employees “shadow” tenured employees to gain valuable hands-on experience.
  9. Incorporate the use of work output analysis to achieve a steady fulfillment flow with standardized work instructions. By specifying the maximum cycle time allowed to produce a product to meet demand.
  10. Look at variation to increase productivity. This is the heart of Lean Six Sigma: reducing variation to make a process more stable and predictable. Find a significant measure that reflects your process, then reduce the variability of that process as much as possible.
  11. Have occasional team meetings to review these goals and objectives. Let your employees speak freely. Successful organizations take team building seriously. Take your organization to a new level and improve productivity.
  12. There is nothing wrong with setting up internal competitive warehouse teams. Get everyone involved in warehouse cost savings. Award the team that has the best idea: improved process or problem-solving. Meet monthly or quarterly to review these ideas, and award the winning team.
  13. Finding the right level of automation and systems; ROI analysis could put automation into your planning for cost improvement. The wrong material handling equipment can be creating hidden lost time and inefficient product flow, impacting cost and customer service

Warehouse costs are a large percentage of overall logistics costs. Warehouse cost savings, like transportation costs savings, goes straight to the bottom line. We know there is a lot to focus on for better supply chain and logistics management and I hope this list empowers you to pursue the aggressive goals yourself and the organization have laid out. 

Chuck Intrieri
Mr. Chuck Intrieri is a highly experienced and credentialed Supply Chain Management professional and is a recognized thought leader and innovator, primarily in the areas of Supply Chain Optimization, LEAN initiatives, Operations, Manufacturing, Third Party Logistics (3PL) International Purchasing/Importing, Inventory Management and Logistics, Strategic Sourcing, and Procurement Operations.
Chuck Intrieri
Chuck Intrieri

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