Four Critical Areas to Evaluate in a Warehouse Assessment

There are four key areas that should be evaluated during a warehouse assessment. They make up the most critical aspects of any fulfillment operation. They are:

  1. Labor
  2. Facilities
  3. Workflow and procedures
  4. Systems

Labor is incontestably the most expensive area on your profit and loss statement relating to fulfillment, so it’s important to get the most for your payroll dollar. Labor, in turn, consists of four areas, the first two of which can be easily quantified; the others are more difficult to quantify but should not be ignored.

Productivity. Simply a measure of the number of work units processed in a given amount of time, either by employee or by department. Work units can be orders, shipments, lines, etc. as appropriate for each fulfillment function.

Cost of labor. Can be divided into “Direct” labor—the part of your labor force directly involved in physically moving merchandise, accounting for a full 50 percent of overall fulfillment costs—and Indirect labor—clerical workers, managers, supervisors, administrative staff, security, etc.—-accounting for about 17 percent of overall fulfillment costs. Both have to be evaluated in the assessment process. The relationship of labor cost and labor productivity is critical to understanding where to place your emphasis.

Turnover and training: The effect of your turnover rate is difficult to quantify, but rest assured, it is real. The turnover rate itself can be derived from a simple calculation, and should not be overlooked. If your work force changes frequently, productivity is likely to suffer, as group after group of new employees work through the learning curve to reach full competence. In addition, the cost of hiring—screening, drug testing, training, etc.—is escalating. By contrast, a stable work force that knows the system and processes can continually work toward new efficiencies. Ask yourself what you can do to reduce the turnover rate. How efficient is your training process? Are training procedures documented? Are there enough training materials and manuals on hand? All these factors will make a difference in the effectiveness of your training efforts. 

Local labor market: Your local labor pool will also affect productivity and costs in a way that is likewise hard to measure but nevertheless real. A low unemployment rate may mean that in order to hire the quality of worker who can achieve the productivity levels you desire, you will have to pay higher wages (thereby increasing labor costs, already a hefty chunk of the cost column). A higher unemployment rate may have the opposite effect. The local economy is largely beyond your control, yet it can have a profound influence on your operations—all the more reason to get a handle on those factors that you control. 

DOWNLOAD: Key Principles to Assessing Your Warehouse Operations

Facilities should be examined to determine whether you have enough space and whether you are using the space you have efficiently and cost effectively. Components include: 

The cube: Focus cube utilization on Storage, Picking and Packing, areas which together typically account for 70 to 80 percent of warehouse space. Are you using the whole “cube” (square footage and height) effectively? An assessment gives you the ability to maximize the use of existing facilities before spending money and effort to add resources, so that any future justifications for expenditures will be valid and generate an accurate Return on Investment. 

Costs: Typically, occupancy costs (lease or depreciation costs of building and equipment, utilities, maintenance, taxes and insurance) amount to 18 to 22 percent of the total fulfillment dollar. Beyond that, there are many ways, such as calculating the occupancy cost per order or call, to map your facility’s costs and compare the results to other companies. 

Seasonality: Your warehouse will operate differently in peak and off-peak seasons; take both into consideration. In fact, the frenetic activity of peak season is a good time for assessment; you’ll see whether your space is sufficient and whether your systems hold up. Whenever you perform your assessment, keep peak-season needs in mind. 

Housekeeping/Maintenance: Cost of occupancy goes up as housekeeping standards go down. Congestion, inadequate lighting, floors in poor condition and lack of proper maintenance will slow work and put your work force at risk of costly accidents that drain profits. Dirty conditions can affect products, resulting in costly returns, and also adversely affect the operation of bar coding equipment, automated conveyances, and mechanical sorting devices. Besides, the attitude, productivity, morale and retention of your work force will be higher in a tidy workplace. 

Workflow and Procedures are often the easiest areas in which to make improvements. Your goal is to minimize the number of times a product is handled, and the number of steps your crew has to take to move the product through the facility. Providing the potential to match future needs is critical. 

Flow charts: Develop one detailing how product moves from receiving and returns through replenishment, and a second detailing how orders move from pick ticket generation to shipment. As you trace the movement of goods through the facility, take note of how its layout helps, or hinders, workflow. Consider if departmental workflows contradict each other; whether you are using conveyors where you should, employing the right material handling equipment, and have the best storage methods for your product. Work paths should minimize travel time and merchandise movement. Departments should be situated logically in relation to one another to minimize travel between them. 

Slotting systems: Your slotting program will determine how efficiently your staff can pick. The goal should be to ensure product is available when the picker reaches the pick slot while managing the number of replenishments needed. Proper slotting is a key to effective replenishment. The ideal slotting system gives you flexibility. You should re-profile your primary pick slots as part of a dynamic, ongoing process. 

Packaging materials: Failure to keep enough materials on hand, right at the work station, for the warehouse crew to do their jobs (e.g., shipping cartons, dunnage, gift wrap, taping, picking tote boxes, etc.) will mean productivity suffers while workers lose valuable time gathering materials or waiting for them to be delivered. 

Quality control: Identifying errors early saves money; cost of an undetected error is typically $25 to $50. Don’t rely just on returns from customers to gauge your accuracy or quality performance. Make sure you are measuring and reporting internal quality checks and taking action as needed. The assessment should review both incoming and outgoing quality. Vendor compliance manuals should be reviewed as well. 

READ: 38 Fulfillment Cost Reduction and Productivity Improvement Ideas

Systems should provide the functionality and flexibility you need, supporting efforts to maximize space and labor efficiency. In most warehouse operations, the three key areas of concern are slotting, replenishment, and location control. Basic warehouse management system (WMS) functionality should include: 

Inventory management is the most important WMS function. It should track product by SKU, quantity, location and transactions against the location, and ensure inventory accuracy. 

Bar coding will not only significantly improve the accuracy of inventory transactions; but also will help you track productivity in four-walls inventory tracking (receiving, stock put away, pick, pack and ship) and productivity by individual, activity and/or department. It can dramatically reduce paperwork. 

Replenishment: Your WMS should control bulk-to-forward movement of goods, through minimum and maximum inventory triggers. It should also monitor demand quantity in waves of pick tickets, to make sure sufficient quantities are in the forward pick location. Look for opportunities to cross-dock back orders. 

Pick ticket selection: The WMS should enable you to print and sort pick tickets in a variety of ways, depending on order priorities and resource availability. 

Pack verification: You should be able to scan items to check accuracy before shipping. 

Tracking: Your WMS should track orders throughout the fulfillment process and integrate order status to your customer service department. 

Returns: Your WMS should minimize steps for processing returns to keep costs low. 

It is critical that all systems communicate with each other as needed and use common data as much as possible to maximize operations efficiency and productivity.

These four areas and the details within are where all warehouse assessments should begin and focus on. When evaluating these areas take note and talk with your employees that are affected and work daily in these areas to get a true sense of the issues and potential solutions. Listen to your employees and ask for their recommendations, you just might be surprised with the solutions that they come up with to improve the issue.