Poorly managed warehouses can become prohibitively costly. Fortunately, there are some straightforward ways you can apply better supply chain management strategies to cut expenses and enjoy smoother warehouse operations. Then, your company can become more competitive and remain positioned for ongoing success.
Improper packaging can raise warehouse costs in numerous ways. For example, if goods arrive at a retailer damaged, that party may not accept the order. If that problem persists, the brand may end its relationship with the provider.
Ill-suited packaging could also mean goods are not protected from environmental elements or the stresses that can occur when products leave a warehouse and reach customers. Compressive stress on boxes can increase by a factor of 10 due to stiffer trailers and rough roads.
If your records show that packaging damage hurts your bottom line, look closely at the problem to find the primary causes. Is the material too flimsy for its purpose? Do boxes get jostled around too much in transit? Addressing the problem will likely require a multipronged approach, and it may demand significant time and money initially. However, once you work out the issues, the measurable amount of money saved should make the efforts worthwhile.
2. Implement Demand Forecasting
Warehouse costs can also get out of control if managers repeatedly fail to correctly anticipate how much inventory to have available. A surplus creates problems by making it difficult or impossible for supply chain partners to sell what they have, while shortages interfere with keeping customers happy.
Fortunately, demand forecasting tools remove the guesswork from maintaining the right inventory levels. They use sales data and other information to make trustworthy predictions. When managers know how much demand could fluctuate in the future, they can get ready for those changes now.
It’s also helpful that many of these tools work with products you already use for warehouse operations, such as inventory management software. Your current provider may even offer an add-on service that allows subscribing to a demand forecasting product.
After deciding to move forward with demand forecasting, choose some metrics that will help you determine when progress occurs. For example, you might assess the percentage of out-of-stock products in a warehouse for a given month without demand forecasting, then see how the tool helps that segment decline.
3. Look for Vendor Consolidation Opportunities
Many manufacturers unintentionally make the mistake of relying on too many vendors to get their needs met. They don’t realize they could save money by using fewer vendors with the same or more capabilities than the more extensive network of supply chain partners.
One advantage of consolidation is it facilitates taking advantage of economic order quantities (EOQ). Those could result in lower raw material costs when manufacturers request more items. That’s because many people buy amounts that are too small to qualify for available discounts.
Now could be an ideal time to become more familiar with vendors that have already proved themselves as dependable options. Confirm what additional services they could offer you, and learn whether you could cut costs by working with a comparatively smaller number of suppliers.
4. Create an Automation Strategy
Using automation in a facility could also reduce warehouse costs. That’s particularly true when decision-makers determine which responsibilities take the most time to perform and are most appropriate to automate.
A 2021 survey of middle-market manufacturers asked participants to name their priorities for this year. Automating manual tasks was the second most cited priority, with 34% of people mentioning it.
Many respondents also brought up changes to support social distancing, such as implementing barriers or redesigning floor layouts. Automation can assist with that, too, since it could minimize the number of people required in a part of a warehouse at one time.
Bear in mind that automation may come with a higher upfront cost than you’d like, considering that the goal is to save money. However, if you select the right products and give team members time to learn how to use them most effectively, it should cut costs over the long term.
5. Apply Lean Six Sigma Principles
Lean Six Sigma centers on pursuing continuous improvement through data-backed actions. That method could help you confirm what’s costing too much, then make decisive changes to remedy those aspects. One smart option is to examine workplace processes and see where inefficiencies exist.
Perhaps the current method of ordering new supplies relies on three people to do the job. That’s an example of warehouse operations that have room for improvement. A better system might be that only one person orders supplies, and the transactions are automatically approved when orders fall into certain parameters.
For example, maybe automatic approval occurs when orders are under a specific dollar amount. Alternatively, a person might trigger it if they attempt to purchase something that the system recognizes as nearly or out of stock in the system.
Lean Six Sigma also connects continuous improvement to enhanced customer value. After you improve previously inefficient supply chain processes, standardize the improved procedures so everyone can follow them. Additionally, help employees understand how their actions directly benefit customers.
6. Cut Warehouse Costs With Outsourcing
Sometimes, it becomes clear that a company lacks the equipment or expertise to excel in some supply chain tasks. Those responsibilities often become extremely costly because of the time or labor required to complete them to the desired standard.
Outsourcing could become a strategic way to minimize operational costs. It’s most appropriate when no amount of process improvement will get your team to the level of efficiency you want. It can also be an excellent solution if a company struggles with seasonal fluctuations.
Perhaps your business sees supply chain surges related to order fulfillment and returns during the holiday season or in the late summer when kids and college students get ready to return to classrooms and campuses. Outsourcing could prove exceptionally valuable during those periods.
When choosing a company to provide an outsourced service, you ideally want to see a history of dependable performance. Has the business worked with enterprises like yours before? Could a representative give you some case study examples of the kind of goals an outsourced service provider helped a company similar to yours achieve?
An Ongoing Journey to Reduce Warehouse Costs
Many supply chain managers do not become fully aware of the need to cut costs until they perpetually have difficulties staying within a budget. When applying these tips to your facility, you’ll find that some don’t provide immediate payoffs. In other cases, you’ll realize that some don’t apply to your company or current challenges. That’s OK.
You’re most likely to see the best results by committing to make changes, then measuring them to see the outcomes. Tracking things that way ensures you devote the most resources to the options that will help you make improvements right away and over time.
Emily Newton is the Editor-in-Chief of Revolutionized. She regularly covers trends in the industrial sector.