8 Considerations on how to reduce warehouse costs
Many manufacturing companies have adopted the idea of lean manufacturing. The goal is to improve efficiency in the warehouses you operate while reducing costs and waste and improving workplace safety and productivity. Implementing this strategy into your business will help with reducing warehouse costs. Below are eight considerations for reducing costs without sacrificing quality.
1) Space and Storage Optimization
The cost of storage space is a huge part of overall business expenses. Leasing space for one year can cost anywhere from $4 to $7 per square foot on average. Therefore, being able to store things in smaller spaces can help reduce this cost significantly. However, it is crucial to do this effectively and efficiently. Should you prefer to expand your space instead of optimize, you can find more information about steel building kits.
When optimizing storage, there are many things to consider. Some of these include:
- Dimensions/physical structure. This consists of the dimensions of the space itself and the dimensions of work and storage equipment (e.g., forklift, racking, etc.).
- Warehouse workflow. The workflow can help dictate how workers will fit into the space.
- Placement and distribution. The goal of a workplace organization is to make processes easier and more effective. A better understanding of dimensions and workflow can help with a plan to organize equipment and workers to optimize navigation, storage, and efficiency. Optimization of aisles is a great way to do this, as it makes navigation between areas easier and allows for quicker location and distribution of products.
- Storage. How things are stored is also important. Racking is one of the best ways to optimize storage space. It allows for things in the warehouse to be safely stacked on top of each other, which leaves more space to store other items. However, it is essential to consider safety when racking inventory.
Another strategy that can help with storage and space optimization is the 5S methodology developed by Toyota Corp. It outlines five principles – Sort, Set in Order, Shine, Standardize, and Sustain or Self-Discipline. These describe ways to improve workflow, optimize efficiency, and reduce or eliminate waste.
2) Cross-docking
Cross-docking can also result in reducing warehouse costs. This process, in which products are transported directly from the supplier to the customer, removes the middle man, thus reducing unnecessary time and money spent on shipping, delivery, handling, storage, and labor.
3) Inventory Protection
Inventory loss caused by theft, misplacement, or damage caused by machinery or workers can result in costs that can amount to thousands of dollars annually.
Theft is more common than some might think and can occur within or outside your organization. Some ways to reduce theft include:
- Keeping detailed inventory records
- Ensuring stock levels match with a sales record
- Controlling access points
- Keeping the facility locked and secure (e.g., with a key system)
- Installing a security system
- Take note of stock in the wrong place or difficult to access.
- Monitor for rumors about theft
- Keeping track of employee schedules and attendance (taking note of discrepancies or anomalies)
The primary way to reduce or eliminate misplacement of inventory is to ensure the warehouse and workflow are organized. Ensuring employees are properly trained is a crucial part of this. Both are also important in reducing damage to inventory. Proper packaging and storage and routine equipment maintenance can also help minimize unintentional damage.
4) Technology Usage
Using technology-driven process can improve efficiency, expand the facility’s capabilities, optimize certain aspects of work, make work easier, help with organization, reduce labor costs (by doing tasks previously done by workers). Additionally, deployment of a technology system – like a robotics implementation – may facilitate the completion of multiple tasks within the facility, further helping to improve efficiency. Although technology solutions can be a great cost reduction tool, it is essential to factor in worker safety and additional costs for keeping it well-maintained and up to date.
5) Employee protection/retention
Although technology can help improve procedures in a warehouse, employees are integral to the efficiency and success of the company. Therefore, it is crucial to protect and and retain employees. This minimizes costs involved with hiring and training new employees when there is staff attrition. Be sure to:
- Offer benefits and incentives
- Offer competitive wages
- Ensure proper and effective training, onboarding, and orientation
- Create a positive culture focusing and respect, trust, recognition, and feedback
- Provide opportunities for growth
- Create a safe work environment
6) Reduce energy costs
Energy costs can be substaintial in warehouses, especially in those that store food or other perishable items. Some ways to reduce energy costs include:
- Install an automatic lighting system
- Improve building insulation
- Install windows that allow for natural lighting
- Minimize water usage (e.g., low flush toilets)
- Switch to LED lightbulbs
- Section off warehouse areas that require different temperature storage
7) Slotting
Slotting is a process used in warehouses to optimize space and improve picking efficiency. This is done by analyzing and understanding the inventory and using this data to organize and categorize it effectively.
This allows companies to boost productivity, maximize warehouse and employee efficiency, improve workflow, and more. It can also reduce picking costs and errors by ensuring the products are in the right place at the right time and that the needed quantities are available. Since order picking can account for up to 50 percent of the warehouse operational expenses, adding a slotting system can help significantly to reduce these costs. It also helps minimize handling costs and lead times and allows for better inventory control and demand planning.
8) Benchmarking
Benchmarking involves comparing the performance, procedures, cost, and efficiency to other businesses in the same field. This can be applied within and outside of the company.
If looking externally, this can involve analyzing the processes of competitors and translating their ideas to your workplace. Benchmarks can also be set up internally. One way to do this would be to apply successful practices from one department to another. This can also be done with employees to improve individual standards as well.
Read more articles on our warehouse best practices blog.