Uncover the hidden cost of poor warehouse operations

Measuring efficiency to uncover the hidden cost of poor warehouse operations

 

Order picking is expensive. If you diligently compare the cost of various activities in your warehouse, you will undoubtedly find that your picking personnel cost you a lot more than just their salary and benefits.  There are enormous hidden costs associated with picking and shipping errors.  

 

Do you know how much this is costing your company?

 

The first question is-Do you know how to measure the cost?

 

1. What is the rate of picking errors?
2. What is the rate of shipping errors?
3. What is the rate of out-of-stock inventory?
4. What is the “bounce” rate associated with lost sales due to out-of-stock inventory?
5. What inventory levels are too high, because warehouse efficiency is too low?
6. How many inventory turns per year do you achieve?
7. Could your turns be higher, if you had more efficient warehouse operations?
8. Could you ship as much or more with less warehouse space?
9. How long does it take to train new warehouse employees?
10. Does your inventory usage information adequately inform your purchasing department?
11. What is the time from receipt of inventory until it is available for sale?
12. What is the time between order receipt and shipment?

If you ship by UPS, or Fed Ex, are you getting back-charged for dim / weight errors?

 

This is a general list. There will be unique performance metrics for every company, but this list gives you a starting place to determine the areas you should be looking at. If you aren’t measuring the warehouse inefficiency factors that impact your business, you cannot know how much your warehouse inefficiency is costing your company. These costs can be huge.  And they can never be recovered.

 

So, the first step is to consider what metrics really define the cost of inefficient warehouse operations to your company.

Even then, if you can’t gauge the impact on lost sales of inaccurate or slow shipping, you still don’t really know what your warehouse inefficiencies are costing your company.

 

After you have looked at the “inside” costs of warehouse inefficiency, the second step is to try to assess what the lost-sales impact of inefficient warehouse operations is to your company.

 

Once you’ve quantified the cost of warehouse inefficiency, at least in general terms, the next thing to consider is whether a technology upgrade (which involves both RF technology and software upgrades) would improve the situation.

 

Again, until you know (at least in general terms) the cost of your warehouse inefficiency, it will be difficult to cost-justify moving to new RF technology and new software.

 

You won’t improve what you don’t (or can’t) measure!

 

Avectous Integrated Software.

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Warehouse Automation – Is It Right For You?

Warehouse Automation – Is It Right For You?   How should we proceed?

Here are some questions to consider before deciding to automate your warehouse operations.

Does your warehouse function efficiently now?

If not, a system can offer some forced improvements, but it can’t fix a complex, inefficient warehouse operation.  Before you embark on the difficult, time-consuming and expensive implementation of a Warehouse Management System (WMS), spend some time looking at what makes your warehouse operations work well, and what causes breakdowns.  Creating these benchmarks helps you understand the potential benefits of warehouse automation. The particular questions will be unique to your business, but you can start with questions such as these: 

How do you schedule incoming shipments?  

What are your receiving processes?  

How frequently do trucks wait for access to your dock?  

How long after offloading is incoming inventory moved to the next location?  How long after receipt is incoming inventory available in the inventory records to be released to a customer order?  

How accurate is your inventory put away?  

How accurately is inventory picked?  

How many lines does each warehouse employee pick per shift? / per hour?  What is the total average elapsed time between receipt of a customer order and shipment? 

How accurately are items shipped? 

How accurately are you capturing shipping costs?  

How long does it take to train a new warehouse employee?  

Once you have identified the areas that are efficient and effective and distinguished those from the areas that are inefficient, you can begin to map out the automation of the “good” aspects and plan alternatives to the “bad” ones.  A thorough understanding of your strengths and opportunities will help you decide which WMS offers the best solutions for your company.

Be diligent about your system documentation and the creation of training manuals

A WMS is necessarily complex. Do you have a plan to create complete and comprehensive documentation?  This is a must.  Documentation should be used to create training programs that relate back to the documentation.  Too often, the documentation and training processes are created separately.  This almost never proves to be a good idea.  If the documentation is clear and well-articulated (e.g., it should be understandable by every employee charged with interface with any particular part of the WMS – your warehouse pickers should be able to read the documentation relating to picking protocol and understand it well enough to completely understand the picking processes).  Documentation isn’t just for the IT department.  It should be a clearly stated description of the features and processes that make up the WMS.  The training protocols should be stated very clearly, in English and the language used by the warehouse personnel, such that any employee can refer back to the documentation of the system (as it relates to their work responsibilities) and understand what they are supposed to do and how they are supposed to do it.  This discipline will be immeasurably helpful if your company seeks ISO process certification.  It will also ensure a smooth, effective and productive implementation of your WMS.

Do you have a software provider that can provide the unique system your company needs?

There is no “off the shelf” WMS solution. Interactive and cooperative system design will ensure a well-tailored solution and enthusiastic employee buy-in.

Your company is unique.  Your processes evolved over years of trials and errors.  Your people understand how to do their jobs.  You know there is significant room for improvement, but you don’t want to “throw the baby out with the bathwater.”  Your WMS provider should be enthusiastic about working with your employees to understand your business processes and incorporate unique features of your operations into their WMS solution.  This ensures that your employees will feel vested in both the design and implementation of your new WMS and will be more receptive to the changes inherent in embracing the new system.  Employees will be far more accepting of a system when they feel they made a contribution to the design.  Their input will invariably make the system better and more effective for your unique business.

More automation is not necessarily better

How much automation do you need?  There is a cost / benefit tradeoff when considering automation.  Automated picking and conveyorization can be seductive, but may not be right for every business.  Indeed, beyond the simplistic evaluation of “cost of man hours” versus “cost of automation,” there may be flexibility benefits associated from leaving a significant element of human handling in your system.  For example, a recent implementation at a wood products company resulted in the retention of a significant human element in the picking process.  The variance in color and grain in the raw material (wood) was such that automation was inappropriate when selecting which pieces of wood could be picked for particular uses.  That implementation illustrated the reality that people are just better at some things than machines.  It also illustrated the fact that a qualified WMS solution provider will understand the practical implications of bringing technological solutions to a dynamic business.

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Warehouse Performance – UNLEASH Productivity

Warehouse Performance – How good are you?  How good can you be?

 

 

What are the key metrics to establish the performance effectiveness of your warehouse operations?  We believe they include:

 

 

Productivity – How many lines per worker are picked in an 8-hour shift?

 

Density – How effectively and efficiently do you use your warehouse space? 

 

Inventory Accuracy – How accurate and timely are your inventory records?

 

Picking Accuracy – How accurately are items picked?

 

Shipping Accuracy – How accurately are items shipped?

 

Availability Speed – How quickly after arrival are inventory items available to be picked?

 

Order Cycle Time – How quickly after order receipt are items shipped?

 

Training – How quickly can you train new employees?  Hours, or days?

 

Safety – What is your safety record?

 

 

Before implementing a new Warehouse Management Software solution (WMS) a serious effort should be made to measure these parameters.    Measurements can be taken with the following data:

 

Productivity – Divide the number of lines picked per day by the number of warehouse personnel, divided by the number of hours.  The objective is to get a number of lines picked per hour.  If possible, measure the lines picked per worker in addition to global averages.

 

Density – Divide the number of SKU’s by the cubic capacity of the warehouse.  Establish the cost per cubic foot of warehouse space and calculate the cost per SKU.  If possible, establish the length of time each SKU is “on the shelf” and compute the cost over time of holding that inventory.

 

Inventory Accuracy – Calculate the percentage of inventory items that are misplaced or mislabeled.  If possible, calculate the personnel cost associated with correcting these inaccuracies. 

 

Picking Accuracy - Calculate the percentage of inventory items that are picked incorrectly.  If possible, calculate the personnel cost associated with correcting these inaccuracies. 

Shipping Accuracy - Calculate the percentage of inventory items that are shipped incorrectly.  If possible, calculate the personnel, shipping and lost sales cost associated with correcting these inaccuracies.

 

Availability Speed – Determine how long it takes from when a delivery of inventory arrives until it is entered into your inventory system and is available to be picked on the warehouse floor.  If possible, determine the “safety stock,” or additional inventory that is held to offset any delay.

 

Order Cycle Time – Accurately calculate the average time from receipt of an order from a customer until that order is shipped.

 

Training – Compute the time required to train a new warehouse employee to be independent and fully functional in your warehouse.  Add to that cost the time and expense of the trainer and the number of hours of labor time that are consumed by having new employees hired too early and the wasting of unnecessary trainer’s time.

 

Safety – Examine your safety records and look for patterns of areas or personnel with frequent or severe injuries.  Are there jobs or locations that could be reconfigured to reduce accidents and injuries?

 

By diligently assessing these factors it will become clear where your savings can be found.  This will help you to choose the correct WMS for your application and prudently calculate a return on investment.  We believe it will also accelerate your search for the best WMS, because you will realize how significant the cost savings will be.

 

Once you have quantified the benefits of implementing a sophisticated WMS, we encourage you to consider the implementation experience of the WMS provider.  The best software in the world will not achieve the optimal savings unless it is implemented by an experienced and sophisticated supplier.  Avectous Integrated Software offers over 20 years of experience implementing sophisticated software solutions for our customers.

Avectous.

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Take Control!

Thanks for reading, don't forget to follow us on Twitter, Facebook, and LinkedIn for more company updates and look out for our next weeks blog!

TEL. (714) 656-2898 | info@avectous.com 

http://avectous.com

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Amazon - It doesn’t have to be the enemy

Amazon is the 800-pound gorilla.  The Buddha said “life is difficult.”  Once we accept the reality of the situation, our efforts ought to be directed at optimizing our success, rather than complaining about any challenges that are presented.

One way to drive sales and visitors to your products is to consider Amazon as a comparison shopping site that can expose your products to lots of potential customers.  The cost of gaining such wide exposure on Amazon is reasonably inexpensive – somewhere around $40 per month.  Your products will be grouped with similar products, and if you can distinguish yours as superior, you can persuade many new customers that you have the product they need.  Of course, if the sale is effected through Amazon, your order may be bundled with other orders, for you to ship your individual products directly to the customer.

Amazon is a very large, complex company and not particularly communication-friendly.  If you have an issue, you may not be very satisfied with their customer service.  This makes it sensible to use a good Channel Management software package to help you load items correctly and simply, especially if you are using your own Amazon store.

Another decision is how to price your product, given that Amazon will determine the shipping price.  Can you squeeze a little increase into your price, to make up for the fact that you won’t likely make any money on shipping?  Remember, you are on the world’s largest comparison shopping site, so you have to be very careful not to be priced higher than your competitors.  Again, using your own Amazon store and taking advantage of a sophisticated Channel Management software will enable you to present your items so that they appear unique and you are not forced to compete with other sellers willing to cut profit to the bone.  It’s hard to understand how some sellers offer prices that must be under cost, but time and time again, you see it happen.  If your items are unique and profitable, Amazon is the place for you.  If you have nothing but “me too” items, Amazon will be a race to the bottom.  $40 per month doesn’t sound like much, but if you’re spending $40 a month to increase the pace at which you lose money, it might not be a very good investment.

Amazon’s pay-per-click ads are another option that can send customers to your store.

Roughly, the cost can be up to $0.50 per click for apparel, up to $1.25 per click for electronics, sports equipment up to $1 per click and toys up to $0.25 per click.  Check with Amazon to see if better rates are available.  The pay-per-click fee can be expensive, but if you can confidently anticipate a high “close” rate, it might be worthwhile.

Avectous Integrated Software

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Thanks for reading, don't forget to follow us on Twitter, Facebook, and LinkedIn for more company updates and look out for our next weeks blog!

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Repricing Do’s and Don’t’s

Can your repricing system go “both ways?”  Your system should automatically increase prices when your competitors are selling for higher prices than you.  Many repricing options trigger price reductions when competitors have lower prices, but fail to increase your prices when you have the luxury of doing so.  This is an important feature that allows you to be more profitable, while still driving sales increases.

Does your repricing system require that you reprice on all marketplaces simultaneously? An excellent repricing system will allow you the flexibility of repricing according to marketplace competition.

Does your repricing system allow you to set a baseline price on a particular marketplace and broadcast that price to specified marketplaces?  For example, if you set a price on Amazon, does your system allow you to automatically set that as your price on eBay and New Egg?  This will allow you to reduce administrative effort in changing prices and allow you to present a consistent, professional profile to your customers.

Does your system allow you to set prices based on a required margin?  For example, can you set prices as “never below our cost plus 10%?  While any pricing strategy can be overruled by authorized personnel, this feature will ensure that your automated repricing system will never have you selling at a loss.

There are many other aspects of a repricing system that will be critical to allowing you to capture sales without “giving away the store.”  An excellent systems provider will help you navigate that path.

Avectous Integrated Software.

Take Control!

Thanks for reading, don't forget to follow us on Twitter, Facebook, and LinkedIn for more company updates and look out for our next weeks blog!

TEL. (714) 656-2898 | info@avectous.com 

http://avectous.com

https://www.facebook.com/pages/Avectous-Integrated-Software/639813786077803

https://twitter.com/avectous

https://www.linkedin.com/company/avectous-integrated-software