Operations & Fulfillment: How to Make Your Warehouse More Profitable

According to a 2012 Intermec survey, warehouse and distribution centers lose nearly 3,000 hours a year due to workforce inefficiencies. Even more disturbing, the survey showed that 30 percent of warehouse managers had not reviewed their warehouse processes in the past year.

The good news is that strategy and planning can transform your warehouse into a driver of increased efficiency and bottom-line business gains. By thoroughly evaluating the amount of space, labor and automation your warehouse operation requires, you can create daily, weekly, monthly and even yearly plans capable of improving the efficiency and profitability of your operation.

Plan, Plan, Plan
The first step toward achieving a more efficient warehouse is to formulate a plan that acknowledges available resources and other variables. Start by reviewing sales forecasts and estimate the number, size and type of orders your warehouse will receive for a given time period. By developing a factor of the amount of inventory required to support sales, you can begin to plan the inventory levels and warehouse space you need to seamlessly deliver on your customer promise.

Managers should also consider the labor and equipment resources it will take to meet demand. For example, a warehouse that receives daily orders for hundreds of thousands of items will require different packing and receiving stations than one that packages and ships a thousand orders per day. Using order volume as the basis, it's possible to create a mathematical equation that will tell you how much equipment you need to make your labor resources as productive as possible.

Cost Categories
In general, retailers and logistics providers face three major warehouse cost categories:

• Labor: There are two types of labor costs: direct and indirect. Direct labor costs refer to the people that carry out warehouse activities, such as handling materials and packing orders. Indirect labor costs refer to the people affected by warehouse work, such as customer service, accounting and sales.
• Facilities and equipment: These costs are related to physical aspects of the warehouse, including warehouse leasing and storage costs, insurance, taxes, stocking fees, energy costs and utilities fees, equipment leasing, and general office expenses.
• Automation: Some providers may choose to implement an automated warehouse management system that streamlines several processes and operations. This may include extensive conveyors, automated storage, retrieval systems or other material-handling solutions.

For most retailers, the strategic management of these three cost categories will deliver the largest gains in efficiency and profitability. As you develop and implement warehouse improvements, constantly evaluate how these buckets can be better utilized in your operation.

Tips to Make Your Warehouse More Profitable
After you've identified the primary sources of inefficiency in your warehouse, you can begin to implement strategies that target these obstacles, using these tips to help make your warehouse more profitable:

1. Match workload to labor. Don't let your labor resources manage the workload; people generally work to the size of the pile. If you give employees eight hours to complete a small workload, they'll take eight hours to finish the work. Carefully evaluate your employees’ capabilities and plan their workload accordingly. Ensuring your warehouse is properly staffed and outfitted with the necessary equipment can eliminate costly overtime.

2. Choose location wisely. Before you decide to build a warehouse in a specific location, you need a thorough understanding of the labor resources available in the surrounding area. For example, if Europe is a primary shipping destination, your warehouse should be situated near a port on the East Coast in an area with a large enough labor pool to adequately staff your facility.

3. Treat space like gold. Wasted space limits the efficiency and processing capability of the entire warehouse. Products should move efficiently throughout the warehouse and be stored as densely as possible. By stacking items on organized, high-reaching shelves, you can improve the use of space while ensuring that inventory is still easily accessible by forklift or human. This maximizes the productivity of the warehouse and increases the profitability of your operation.

4. Remove slow-moving inventory. Since space is so precious and holding costs can rack up quickly, warehouses should get rid of slow-moving or nonmoving inventory. Inventory that sits for extended periods of time isn't only expensive to house, but it also has a higher chance of becoming obsolete. By removing slow-moving items, you can free up valuable space for faster-moving inventory and minimize the storage costs of sluggish SKUs. This reduces the need to liquidate stock and improves your bottom line.

5. Automate manual tasks. Consider repetitive manual processes that can be automated. To determine whether a process should be automated, compare the units per hour that can be completed by a person vs. a machine. By choosing to automate certain operations, your warehouse will be able to fulfill orders more efficiently, allowing you to turn over inventory more quickly and increase your margins.

6. Implement flexible automation. Ensure that any automation processes implemented into the warehouse are adaptable to change, and avoid locking into a process that can't be updated. If your business grows rapidly, you may manage more daily units than your original system can handle. To protect your investment, target solutions that increase productivity without the loss of flexibility, including the possibility of equipment that can be easily stored when not in use.

Maria Haggerty is the president and founder of Dotcom Distribution, a third-party fulfillment and logistics provider. Maria can be reached at mariah@dotcomdistribution.com.