Juggling with warehouse costs

12 July 2013

Logistic managers do not have an easy job nowadays. As companies struggle to reach their desired sales figures, the pressure is on their logistic managers to keep the costs down. At the same time, productivity and performance need to improve.

eureka looks at some useful tools to help reduce costs in the warehouse.

Trends in warehousing
When looking at what matters today in the warehouse we see three trends. The first is achieving high degrees of efficiency to keep the costs as low as possible. Order picking times need to be short and storage methods must yield a low cost per item. Every effort is made to do things better, quicker, smarter.

Secondly, the tough economic outlook forces us to stay as flexible as possible. Customer loyalty seems to be on the decline. Companies try to rent real estate for shorter periods to make sure they are not trapped if storage requirements need to be rearranged. 3PLs in particular, who take care of the logistic operation for others, find it difficult to make the necessary investments as they can only achieve a return on investment (ROI) in the long term.

The final trend may seem to contradict the previous two, but has everything to do with changed buying behaviour. The impressive rise of online shopping has resulted in later cut-off times, and this increases the pressure on orderpicking operations. Companies need to deliver high levels of service to beat the competition.

Now that we know the challenges facing today’s logistic manager, we can take a closer look at ways in which he can save money. These can be divided into four categories.

Logistics facilities and fixed equipment
The costs associated with logistics facilities and fixed equipment largely depend on the decisions made when developing the facility, before moving in. It therefore pays to work with professionals at the design stage because a ‘cheap’ building can often turn out to be very expensive during daily operations, as things have not been thoroughly thought through. Investments in good insulation, flexible storage equipment and high quality flooring, for example, will result in less damage and lower maintenance costs in the long term. It is certainly possible to make adjustments later on, but making changes once the facility is in operation is not easy.

Labour costs
We learned in other issues of eureka that installing warehouse automation such as storage and order picking can reduce the number of staff needed to get the job done, especially where people no longer have to walk to the goods. Sorters, carrousels, shuttles and crane systems can all bring the desired goods to order preparation stations and reduce the amount of time to ship the goods to the customer.

Automation, however, requires serious investment, and there are other are less expensive ways of reducing labour costs. Work efficiency can be improved by using time saving tools like scanning devices or voice picking systems. It can also be worth making a periodic review of picking routes to ensure the shortest walking distances are used.

Stock keeping costs
Although it may seem contradictory to the goal of high service levels, it does pay to keep stock as low as possible. Studies show that in many cases stock can be reduced without compromising delivery performance. Companies often maintain higher than necessary stock levels as they fear running out of stock. However, high stock levels may incur more pallet movements, unnecessary handling actions and too many storage locations. By deploying ICT solutions like Warehouse Management Systems, companies are able to manage their stock levels in a more effective way.

Tools and non-fixed equipment
This area possibly provides the largest number of options to reduce operational costs, and requires a good knowledge of what is available on the market. This can be achieved by talking to other logistic professionals, reading the trade press or visiting logistic exhibitions.

A large proportion of these costs are associated with the materials handling fleet, and many companies outsource the management of the fleet, paying fixed sums each month in return for high uptime, great truck performance and perfect planned maintenance routines. Professional suppliers will thoroughly examine the existing warehouse operation not only to decide on the best fleet mix but also to advise on how to improve things. In many cases, their recommendations are not limited to the trucks, but may also contain advice on renewal of the warehouse flooring or the height of pallet racking.

We asked some Cat® lift trucks dealers around Europe how they help their customers to achieve cost reductions. Crepa (Netherlands) sees possibilities by enhancing operational safety using products like frame protections, audible alarms and pallet stops. Rob de Greef, Manager Parts at Crepa said: “Companies with serious safety policies make sure they perfectly coordinate and arrange their materials, tools and traffic. They work closely with their staff to reduce risk. But they also install safety devices to reduce both accidents and damage. We can even calculate a ROI when we know their current damage and repair costs. Unnecessary damage costs are seven times higher than usual truck repair costs, which is really excessive.”

In Spain, customers seek savings by reducing stock, truck size and capacity, and racking height in order to be able to work with more economical forklifts and stackers. Titus Von Plettenberg of Bergé explains: “We try to accommodate the customer in this trend, but we always do a full analysis of the warehouse to give him the best advice. Certainly, we need to look at general warehouse conditions, like ventilation, temperature, surface, visibility, servicing areas. Besides cost savings, we want to deliver the best possible productivity.”

Alan Walker from Impact (UK) adds; “In addition to our fleet services, we also advise clients how to keep their warehouse tidy and organized. Research shows this has a positive effect on productivity.”

Certainly, the possibilities for reducing costs are almost endless. But the best approach is to begin by looking at your priorities (efficiency, flexibility and/or service levels) and then to develop an implementation plan for the most suitable options. The economic situation may not improve for a while, so it pays to get things done.

Gian Schiava

  1. In warehousing, order picking times need to be short and storage methods must yield a low cost per item to keep costs down.
  2. The rise of online shopping has resulted in increased pressure on order picking operators.
  3. Automation can reduce staff numbers but requires significant investment. Image courtesy of Rocla Oy.

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