Improving Small and Medium-Sized Warehouse Operations

To determine if your warehouse operation is as efficient as it can be, start with a warehouse operations audit or warehouse assessment. This audit, or evaluation, takes into account quantitative and qualitative aspects of the warehouse operations, processes, and systems.

First, assess your center’s processes and costs then answer these questions:

  1. How can you spend less on labor in your warehouse to receive product and fill orders?
  2. How can you ship to the customer in the least amount of time and expense?
  3. How can you improve inventory control to eliminate warehouse back orders, or periods of temporarily not being able to find product, and shrinkage?
  4. How can you increase your existing space’s capacity to store product?

These are universal challenges regardless of warehouse size. However, they are foundational principles required to grow your business. Additionally, most small to medium sized centers are conventional warehouse operations with limited opportunities to apply automation.

learn how to assess and reduce your operational costs by 10-20%

Here are 12 ways to improve warehouse operations, reduce cost and improve customer service:

1. Reduce freight costs

For most businesses, freight costs now exceed the sum total of all other fulfillment expenses, including direct and indirect labor; facilities, material handling and utilities; packing material costs). Reducing and controlling freight costs, where possible, needs to be a continual objective for your business.

We recommend taking the following steps:

  • Use a qualified freight consultant to review how to reduce costs
  • Acquire new shipping system with access to shipping data and international documentation preparation.

2. Improve labor productivity

After freight costs, the cost of labor is more than 50% of the remaining costs in fulfillment centers that are largely manual operations.

With the steady increase in labor costs, here are objectives to pursue to reduce effort required:

  • Investigate how the detail processes can be improved: How do you reduce the number of times that you touch and move product which does not add value or move product along in the process? Every time you touch product, you add cost to the process.
  • Report and post employee and company productivity: Most people want to do a good job; to know where they stand; and be recognized for their performance. Develop a simple process that measures overall performance and posts results in the warehouse.
READ: Use Operational Assessment to Set, Report and Improve Productivity Goals

3. Adopt more uniform processes and organization

As businesses grow, they come to the point where they need to become more uniform in process and systems use. When you’re small, you know where every product is stored. To save space, products may be comingled with other products in the same bin. Everyone knows how things are done and where product is in a small business.

With growth in more products and orders, work in fulfillment needs to be completed uniformly. When a small group of people have the fulfillment, systems, and inventory location knowledge in their heads, we call that Tribal Knowledge.

As growth takes place and new people are hired, it is difficult to get them integrated into the company if there aren’t standard ways of doing work. These changes become essential to reducing errors, implementing better systems, and improving productivity.

4. Investigate Warehouse Management Systems (WMS)

Many smaller businesses use accounting based systems, such as Quickbooks and MAS, for order processing and inventory record keeping. While many modifications have been made to accommodate ecommerce and multichannel systems, their legacy is still accounting and manufacturing.

In recent years, cloud-based and Software as a Service (SaaS) subscription models made WMS technology and systems affordable for small to mid-sized companies. A WMS is built to manage inventory and labor in warehouse environments and should be the cornerstone for your growth.

READ: Warehouse Management System Benefits for Today's Operations

5. Implement four prerequisites to maximize WMS benefits

A warehouse management system alone doesn’t bring the high benefits of improved labor productivity and inventory tracking in the fulfillment center. Many small-to-medium ecommerce companies do not have in place four foundational prerequisites that help you achieve the high benefits, such as implementing barcode based process changes. All of the more advanced technologies, such as voice directed picking, require these prerequisites, too. 

6. Implement DC inventory location control

Accurate, on-line location control of inventory to the bin/slot location is essential to accurate inventory management. Implement a location numbering system to the warehouse, zone, aisle, bay, level, and position for the stock locations.

7. Optimize slotting with hot pick zones

The cost to pick orders is largely related to the distance workers must travel to pick all of the items on an order. Locate the fastest selling items towards the front of the storage area and closer to the packing area. As you grow your business, slotting inventory becomes even more important to reduce costs and fill orders quickly.

READ: How to Improve Your Ecommerce Warehouse Slotting

8. Keep up with housekeeping

Many times, we enter a warehouse and - within a short period of time - can tell what kind of operation we will see. A dirty, cluttered, and disorganized facility is invariably more costly to operate than one that pays attention to the overall condition of the facility. It often lacks discipline and processes.

9. Improve space utilization

As your product storage space requirements grow, here are four key ways to use space smartly:

  1. Use cube of space rather than square. Oftentimes, securing a facility on square footage means settling for a bigger footprint facility and lower ceiling heights. The higher cube buildings allow for pallet racks usage and require forklifts to move product from bulk to forward picking.
  2. Use a variety of storage media to store product, such as bulk (pallet) and shelving with variable bin sizes, to get the most capacity. Multiple storage media also accommodates a wide variety of product types and sizes.To effectively accommodate this variety, it is desirable to provide a variety of storage types and sizes. Using only one type of storage media with a wide variety of product sizes can be inefficient and have low cube utilization.
  3. Adopt a forward pick location concept. Store a week’s quantity of product to eliminate replenishing picking slots frequently.
  4. Liquidate slow moving and obsolete inventory to free up space and cash.
READ: How to Improve Space Utilization in Your Fulfillment Center

10.  Teach employees about your business to reduce expenses and improve profits

One of the advantages of a smaller business is the closer relationships with the employees.

Small businesses often treat employees as family and the employees seem to be much more devoted to helping the business owner and the business succeed.

It’s increasingly difficult as a business to nurture your culture forward as you grow.  Teach your managers formally on how to make the company more money and become more efficient. Then, encourage your managers to share this knowledge and encouragement with their team. In turn, share the profits and benefits with the company.

11. Utilize automation with ROI

Any reduction in travel time for highly repetitive and high frequency activities gains the most benefit One place to start is to install powered conveyor in the packing and shipping functions. The movement of boxes between functions can be expedited with horizontal conveyors that save overall time.

12. Consider Third-Party Logistics (3PL) rather than internal fulfillment

Sometimes, it makes the most sense for businesses to outsource fulfillment to a 3PL. Using 3PL isn’t for every company. However, many companies can lower their fulfillment cost per order and give owners and managers more time to concentrate on marketing, merchandising and branding. 

READ: How Companies Save Money Using 3PL


When improving small and medium-sized warehouse operations, the place to start is with the warehouse assessment. This assessment charts out current operations and how they should be changed. Then, implement the 12 tasks above to manage a growing business efficiently.

Learn how an operations assessment can help you reduce costs by 10-20% or more