Manufacturers, retailers, distributors — any company that operates a warehouse and processes products or raw materials — share in the overriding goal of reducing inventory carrying costs. How big a problem is it? Consider: In 2002, inventory carrying costs in the U.S. were a staggering $298 billion, according to the Cass/ProLogis State of Logistics Report. Of that total, U.S. companies spent $23 billion on interest; $197 billion on taxes, obsolescence, depreciation and insurance; and $78 billion on warehousing.
How do you chip away at those inventory carrying costs, then? One way is to do a better job managing the day-to-day operations of your warehousing facilities. With the help of experts and practitioners in this area, Logistics Today has identified 14 key recommendations for making your warehouse work better.
A methodical application of these best practices can make a significant difference in your warehouse’s productivity. As Brian Howver, VP business development for NFI National Distribution Centers, observes, “If you set yourself the goal of reducing your share of that $298 billion in inventory carrying costs, you can attack the cost components of the order cycle process that relate to handling the product.”
1. Define and document all warehouse work processes. “The idea behind creating these documents is to create a systematic way to manage the process of handling product in the distribution center,” says Ron Hounsell, vice president of software solutions at Tom Zosel Associates, a logistics consulting company. “We start with mutually-agreed upon ways of doing the work. If you’re going to train new people, forecast work content, cross train workers and so on, you must have something that clearly documents how to do the work.”
Well-documented procedures are essential. All employees participate actively in creating standardized procedures, reports Howver. Their ideas are collected regionally, reviewed and — if appropriate — incorporated into the written procedures. NFI then holds employee meetings to go over the changed procedures, to make sure everyone understands them.
2. Develop valid engineered work standards and use them to forecast work requirements. Once processes are documented and systematized, a company can measure how employees perform them to develop engineered work standards. “Engineered standards create the opportunity to predict work content,” Hounsell explains: “If I know I have a fixed delivery route Thursday morning that covers the same 30 clients each week, I can forecast how much time it will take to process the outbound material, based on what work methods we use.”
3. Manage with individual accountability for work productivity and quality. With the first two steps in place, you can now track and manage what each person does in the warehouse, i.e., when they start a task, how much time it takes them to complete it, how their performance compares to the engineered standard, and so on.
“If we want to look at quality, we can log on to the labor management system and track errors down to the individual level,” Hounsell says. “We can figure out what happened and look for patterns.”
Such a system allows management to hold workers accountable for performing up to the agreed-upon labor standard. “The point is not that we’re looking for Olympic-level performance,” Hounsell emphasizes. “We just set performance standards that an individual can sustain throughout an entire shift.”
4. Make a daily plan built around hours needed to do the work. When you know how much work you have, you can plan manpower requirements for each function each day. “Most companies do not do this kind of planning,” says Tillman Estes, senior director of product management for Manhattan Associates Inc., a provider of supply chain execution solutions. “The new labor management systems can do this easily. You can do real-time work balancing. If there’s a bottleneck during the course of the day, you can use the system to figure out the best way to handle it.”
5. Set daily goals — not just plans — for supervisors, managers and hourly associates. Boredom can be a real problem in the warehouse. People do the same repetitive tasks day after day. Managers can combat this boredom by continually challenging people to improve their performance.
“If you set daily goals for improvement and challenge people to come up with a better way of doing something, you encourage innovation,” Hounsell suggests. “Often, it’s the small changes adding up that make a big difference.”
6. Communicate plans, goals, status and progress early and often. To sustain an environment of continuous improvement in the warehouse, management needs to tell people how they are performing early and often.
“We agree on standards and tell everyone this is the minimum acceptable level of performance,” Hounsell explains. “We encourage employees to be more productive, but if they’re making their marks, we can’t complain. The more information employees have about how they are doing, the more involved they become in making a difference in the warehouse.”
7. Account for all instances where goals are either not met or exceeded. “If we establish a goal that says we need 120 hours to accomplish the workload, but yesterday’s performance came in at 125 hours, we need to know why we didn’t meet our goal,” Hounsell says. “Did we not plan well enough? We made a promise to our peers that we would do this work, so we need to talk about why it did not happen. Conversely, if we finish the work in 115 hours, then we need to formally recognize this success in some way.”
8. Build a strong reward system and be sure hourly workers understand how to work the system. Rewards take different forms — paid time-off, a free weekend at a hotel, or something as simple as a hat or a t-shirt. If at all possible give everyone a shot at the brass ring. Help them understand how they can benefit from the incentive system.
9. Make sure all management spends time on the floor working with associates daily. Get to know associates face to face. Establish relationships. Solicit feedback on problems from people on the floor.
“One of the best-run operations I’ve seen is a hardware aftermarket
10. Share ideas among facilities. Surprisingly, many companies don’t do this, and as a result have inconsistent performance across facilities.
“We share best practices to figure out what’s working at one place and decide whether we can implement it across other facilities,” says Kevin Wright, VP of operations for NFI National Distribution Centers. “We invite our customers to participate in these meetings. We bring in lunch and for 30 minutes sit with our people and ask them how to make the building more efficient. We take their ideas, measure results and then publish them for all our facilities. Our employees really feel they’re making a difference.”
11. Use product slotting tools to optimize space utilization. One of the biggest costs a warehouse incurs is travel, i.e., how far associates travel in the course of performing their jobs. A poorly organized product layout can force employees to travel 10 times as much as they should.
Product slotting software tools — usually part of a larger warehouse management system — operate under the premise that at any moment there’s a best place to put a product based on what is happening with it (customer ordering patterns, seasonality, product lifecycle, sales trends, etc.). “A company should review inventory on a regular basis and identify those candidates that are most out of position — then look at what it will cost to move them, and whether that cost outweighs the benefit,” says Manhattan Associates’ Estes. “The idea is to re-slot in a cost-effective, nondisruptive manner.”
12. Eliminate dock staging. “Staging in this high-tech computer age is unnecessary and a waste of time and space,” says Kenneth Ackerman, president of the K.B. Ackerman Co., a consulting firm specializing in logistics and warehousing. “Take your inbound goods out of the truck and run them straight to the stack. Do the same thing running your outbound. Staging is a way to check what’s in the order. These days, you get an advanced shipping notice (ASN) that the supplier certifies is accurate. If it’s not right, you go after the vendor. On outbound, scanning or other technology manages accuracy.
“You don’t need to manually check the orders,” Ackerman adds. “We say this over and over again to clients. They admit that staging is just kind of a habit.”
13. Integrate warehousing and transportation management activities. Integrating warehouse operations with inbound and outbound transportation activities offers one of the greatest potential savings for a company. To operate efficiently, the warehouse needs to know down to the SKU (stockkeeping unit) level what’s in an inbound trailer so it can schedule for optimum unloading.
When the warehouse operator doesn’t know what is on the inbound vehicle, the receiving and checking processes become slower and less accurate, Ackerman says. “With today’s technology, there’s no excuse for these problems. Carriers can send you an ASN to tell you what’s coming and when it will arrive. You can use that information to plan your work.”
14. Get the right WMS. Finally, while some of the above recommendations can be done manually, they are immeasurably easier to perform using a state-ofthe-art warehouse management system (WMS). And not just any WMS — one that is “business-appropriate” for your company. That’s what Patrick Johnson, logistics manager for Land O’ Lakes Inc., a national food and agricultural cooperative, advises. Land O’ Lakes operates more than 200 processing, manufacturing, warehousing and distribution facilities across the U.S.
"If you don’t have a WMS that’s applicable to your business, you make work very difficult for your people,” Johnson says. “For example, if you do a lot of case picking and your WMS is not friendly to that, you have all sorts of problems. Your WMS needs to be flexible enough to handle full pallets, partial pallets or any other kind of shipment configuration. If it can’t, you may develop problems with your inventory accuracy.”
On a larger scale, Johnson believes that data accuracy and timeliness combined are the most important factors determining warehouse productivity. “Poor inventory accuracy creates a whole set of problems that ripple throughout the DC operations,” he says. “If you enter the wrong information for an order, you may not have the inventory to ship or you may ship the wrong product. This inaccuracy forces more cycle counting, which increases costs. It also has the potential to harm customer satisfaction.
“At the end of the day,” Johnson concludes, “the fewer mistakes you have, the better off your inventory is.” LT