Optimize Warehouse for Efficiency

The overcrowded distribution center is as common today as it was 25 years ago. Sales increase and more space is required. Promotional campaigns are tried and fail.

I have visited many companies in the past 4 years ranging from Fortune 1000 to small mail order operations. The space problem is a universal one not related to size or financial status of the individual company. I have recommended one or more of the following options/solutions based on each individual situation, for freeing existing space in the current center rather than moving to a larger facility.

1. Throw out the junk - now!

Slow or non-moving products begin to cut into productive space. These need to be sold at discount, or donated to groups that will provide a tax deduction. There will be an accounting hit as value of inventory is reduced, but the loss can be justified by considering the real cost of storing and moving obsolete stock. Additionally, profit opportunities may have been postponed for lack of space, actually reducing return on investment.

2. Move excess and out-of-season product to other storage areas.

• Use available secured yard space on the premises, storing product in trailers or tents. This is especially useful when it will not be needed for several months. Be sure to stretch or shrink wrap to prevent damage from leakage when tents are used.
• Rent outside storage space in a sub-prime, low ceiling, unheated building for rarely used product or product that can be shipped independently from regular orders.
• Ideally all products stored remotely should be in bulk, several pallet deep, floor stacking to provide the best cube utilization.

2. Clean up your returned goods area.

As much as 30% of prime floor area may be devoted to storing and processing returned goods. Consider moving the entire returns operation to lower cost off-site space, or subcontract returns to an outside service provider or handicapped-staffed workshop. Using both options simultaneously will definitely provide real cost savings, as well as release much needed space for productive purposes.

3. Justify all large quantity purchases by balancing the savings achieved against the storage space required. For example, if a 1-free-with-12 purchase saves $1000 and requires holding the "free" pallet for an additional 2 months, the saving is $500 per pallet month. By contrast, savings of $40 per pallet month would not be a good choice. Planning to store this excess product off-site, with the cost subtracted from the savings, will immediately prove, or disprove, justification for the purchase.

In general, EVERY SPACE CONSUMING ACTIVITY THAT DOES NOT DIRECTLY INTERFACE WITH CURRENT PICKING OPERATIONS IS A CANDIDATE FOR RELOCATION OFF-SITE.

4. Reduce number of SKUs

• Walk through your warehouse and observe how many pallet or bin slots hold product with significant accumulations of dust. Dust means inactivity from poor inventory turns or too many items.
• Eliminate at least one old item for every two new items brought into inventory.
• Make every new item "fight" for its space. For instance, special items can be held in standard format until just before shipment, and then the final customization to order can be done. Holding one item versus 3 or 4 can reduce inventories significantly. Result? - savings in space, holding cost and obsolescence.

5. Bring product in one door and out the other.

Recently I visited a unique distribution operation set up to service one manufacturing center. Within this warehouse, as orders were received for components of a product that had already been ordered by a consumer, workers utilized Kanbans, pallets and carts to pick these components. They were taken to the shipping dock immediately, loaded into the truck, and taken to the factory, where workers assembled the final product {office furniture} quickly and efficiently. It was taken to their shipping dock, "married" with the remainder of the order, and shipped the same day. The manufacturer had no storage.

This "just-in-time" model can be applied to your distribution operation (amazingly, it was not done at the above location). Arrange with local vendors for smaller shipments of key, high volume, high cube items tied to your in-house orders scheduled for picking the next day. The night or early morning workers unload these shipments from the vendor trailers and stage them next to the shipping dock. As needed, items will be picked directly from the dock and loaded into the outbound carrier with minimal travel and handling expense. {This concept is known as "cross-docking" and will be covered in another article}.

6. Don't bring the product in at all.

Drop shipping from supplier directly to customer has been used for years to save space and handling in the warehouse. A variation on this can be very efficiently used when importing products from other countries for major customers. Entire container loads of pre-selected and pre-marked products can be drop shipped to such a customer, who in turn will unload the container. Since he did not receive stretch wrapped, palletized loads, you will probably share some of the savings with him. However, in addition to eliminating the storage space, you have saved all in-country shipping and double handling expense.

Another option involves subcontracting your entire distribution operation to a third party logistics provider, "distribution specialist", releasing your company to do what it does best, such as purchasing and marketing.