How to Control Warehouse Storage Costs

Mar 11, 2016Jason MinghiniWhat is in this article?:

• How to Control Warehouse Storage Costs
• Invest in Creativity before Capital

Less touch and less travel in the warehouse can lead to more savings.

Want to save money on your warehouse storage? Then stop obsessing about storage fees and, instead, focus on your handling costs. Before you investigate the details, step back and start with an analytical big picture.

Usually, companies call in a warehousing expert for two reasons. Either they know they have a problem with high overhead and want recommendations for reducing it, or they want to improve good operations to become even more competitive in the marketplace.

In each case, it's not the storage—it's the handling that is driving up your costs and keeping you from meeting or exceeding goals.

Start by separating your fixed costs and your flexible costs. Most fixed costs—such as facility leases, insurance and owned equipment—are locked in for a set period of time. Unless a contract is up for negotiation or renewal, put the fixed costs aside.

Begin your analysis with a baseline that identifies the flexible costs, outlines goals, and lists the measurements that matter most to you and your customers. These areas can be combined to create key performance indicators (KPI) that will monitor a balanced assortment of metrics to improve operations and reduce costs.

A balanced KPI scorecard should look at:

• financial and non-financial measures;
• short- and long-term measures;
• performance drivers (leading indicators) and outcome measures (lagging indicators);
• and should include monitoring of productivity, cost,quality, service, delivery and morale.

No single KPI is more important than the rest. Focusing only on quality, for example, may meet the quality expectations of the end user and end customer—but what happens to your cost? Each measurement should balance so no one metric drives another in the wrong direction.

Make sure everyone in the organization can easily monitor the metrics and see how they are being met. This can be accomplished by using a lean concept called visual management. When everyone can see when standards are not being met, then questions can be asked and corrective actions can be taken. They should be visible to everyone from top management to hourly associates.

The Three Deadly Sins of Warehousing

The next step is to drill down, looking for waste in the three most troublesome areas of warehouse operations—travel distance, touches and paper.

Do workers have to travel great distances to pick orders, or have you optimized the flow of the warehouse? With today's mega warehouses, it is even more important that distribution centers are properly zoned and slotted to ensure that travel distance and touches are reduced as much as possible. As the size of the warehouse increases, the effect of this kind of waste increases almost exponentially.

To minimize or reduce the impact, DCs should use "virtual" warehouses by replicating zones repeatedly across the footprint—in essence, creating mini-warehouses under one roof. The quantity of virtual zones is dependent upon a number of factors such as profile mix, warehouse design, warehouse management system (WMS) limitations, and storage type (floor stacked or racked).

Are you touching pallets multiple times, or have you optimized for minimum touches? Since labor is such a large percentage of the overall operational cost, constantly be looking for ways to increase both the efficiency and utilization of people and equipment.

To reduce the number of touches and travel distance, the operation should employ task interleaving to the fullest extent possible. This is where WMS is used to assign tasks to workers to maximize the output of both the person and equipment on each trip. It reduces the amount of "empty" forklifts traveling within the warehouse, and also increases the overall utilization rate of the material handling equipment.

These days, with more and more automation and technology being used in the warehouse, you have probably already improved efficiency and gotten rid of much of the paper records you used in the past. Are there any lingering paper processes you can eliminate? For example, are you still using paper for pick lists or delivery orders? Explore ways to provide this information electronically, either on a visual display or a hand-held device.

As you examine travel, touches and paper processes, look for ways to standardize them throughout your operation. Repeatable processes allow you to create work standards and maximize labor planning. There is an old industry saying: "You cannot measure what is not standardized."

Once you have standardized, repeatable processes in place—as well as baseline measurements for all your processes—you need to continuously evaluate and improve them to be competitive in the marketplace.

Invest in Creativity before Capital

At this point, you have created baseline goals and metrics. Plus, you have identified the three most likely areas of operational waste. Now, before you order $2 million in new forklifts and virtual reality "smart glasses," open your mind to a wide variety of solutions.

In the warehousing industry, creativity is often centered on lean principles, a continuous improvement methodology. According to "The ABCs of DCs," a recent University of Tennessee whitepaper (sponsored by Kenco), "Huge paybacks are being seen with lean implementations in one warehouse operation after another. It is safe to say that if a warehouse operation is not implementing lean, it is falling behind its competition."

The next step combines the power and benefits of both lean and Six Sigma. Lean's primary focus is the identification and elimination of waste in the value stream, while Six Sigma's primary focus is the identification and reduction in process variability. You set out to simplify the process with lean, perfect it with Six Sigma, and provide innovation with Design for Six Sigma (DFSS).

One of lean's most dynamic continuous improvement methodologies is kaizen, which means change for the good. Kaizen actively involves the people who perform the work each and every day and pushes them to become integral parts of the continuous improvement.

Setting aside time to bring together employees from all levels of your operations to brainstorm and problem solve could be one of the most valuable tools in your search for cost savings and efficiencies.

Don't forget to take a walk around your own warehouse to witness the current state of the operation. Many times, leaders use opinions and feelings to make important decisions. Worse, they make many decisions sitting behind a desk looking at a computer screen or a long spreadsheet.

Managers should always listen to people within their organization, but then go see for themselves. Not only does this clarify the situation, but it also gives them an opportunity to interact with the process and people. This type of interaction is invaluable to an organization.

Customize for Your Company

All the ideas mentioned here are guidelines based on best practices, but make sure you use practices that are best for your operation.

For instance, it was noted in the University of Tennessee's white paper that manual and paper-based warehouse picking systems are among the least accurate and least productive. Yet, according to the study, "a paper-based system may make perfect sense for many small operations, and there are thousands of very small warehouse operations employing 10 people or fewer."

One size does not fit all when it comes to establishing the measurements, goals and practices that will reduce waste, save money and please your unique set of customers.