How to Reduce Warehouse Costs in a Down Market

Order volumes have slowed down while excess warehouse capacity inches upward. How do you manage warehouse costs in your order fulfillment operations? FIDELITONE Regional Manager of Operations, Michael Barela explains, “The navigation of a downturn is a multi-variable equation. It requires vision, strategy, and precision to assure that we are making the most advantageous moves. Above all, it takes us as leaders assuring we are managing, communicating, and leading our vision through the storm.”

Here are tips for tackling the biggest cost factors—labor, shipping costs, inventory, and waste.

Reduce labor costs – a top expense

• Labor can account for as much as 70% of a warehouse operating budget. While staff reduction may be a quick way to reduce costs, it can also have an enduring negative impact on your business. Without that drastic step, several strategies can help you optimize staff utilization while reducing costs related to employee turnover:
• Review your shifts and work schedules. Fluctuations in warehouse activity may can make staffing requirements a moving target. You can align scheduling—days and hours—with anticipated volume and current sales projections.
• Cross-train employees. Consider training employees to handle a variety of functions in the warehouse, such as receiving, putaway, picking, packing, and cycle counting. Cross-training can “enable you to react quickly to changing goals and business conditions – because your team is trained and flexible, it can easily handle fluctuations in workflow. Cross-training can also help you deal with workflow bottlenecks,” explains Mind Tools. It also builds teamwork. Most importantly, it saves money.
• Focus on employee retention and incentivize performance. The cost of turnover is high and negatively impacts multiple areas of your business. On average, it costs $1500 to replace an hourly employee, says Work Human. And, “It can take one to two years for a new hire to reach the productivity of an existing employee,” they add. This is what makes the proactive strategy of employee retention so effective. Wages, culture, working conditions, support, and training all contribute to employee retention. Retaining the best talent results in efficiency due to high morale and superior performance.
• Use warehouse technology. How are you using technology in the warehouse to increase efficiencies? “Warehouse automation is one of the rapidly growing ways of achieving warehouse efficiency,” explains the blog, Expert Tips: Improve Warehouse Efficiency & KPIs. The optimal MHE, automation, and WMS can streamline operations and help reduce costs.

Reduce shipping costs

Shipping is another high expense area. Shipping costs for order fulfillment are both dynamic and complex. Some steps you can take to reduce shipping costs include:

• Examine service levels. Adjusting service levels can provide ample savings opportunities. If you offer free shipping, consider adjusting your shipping service levels to reduce the cost of shipping.
• Audit your shipping invoices for accuracy. Are you being billed correctly? Having visibility to shipping performance and regularly reviewing invoices can help you identify if you are being overcharged.
• Review shipping partner contracts and negotiate your rates. This is a great opportunity to reduce costs. Consider: What is your DIM factor? How does it compare to others in your space? Could a 3PL partner offer more competitive shipping rates? Are you using the appropriate shipping supplies and boxes for your customer orders? Shipping empty space in a box is expensive! Employ a cartonization model that systemically identifies the optimal box size for an order to reduce shipping costs. To get a handle on shipping costs, take a look at the Anatomy of a Parcel Rate.

Optimize your inventory to reduce costs

These steps can help:

• First, evaluate and adjust your inbound product receipts and purchase orders. With cost-per-square foot high, reducing carrying costs can make a big dent in warehouse costs. Right-sizing the flow of inbound product can help you sell through current inventory more quickly, which will reduce your on-hand inventory and labor required for receiving and putaway.
• Move to a just in time inventory model if possible. Less on-hand inventory will reduce your capacity costs and inventory carrying costs. Managing inventory on tighter margins requires accurate forecasting and effective order fulfillment technologies.
• Purge excess or stale inventory. Reducing your on-hand inventory will reduce your capacity expense.
• Use a slotting analysis: Review how you store product in the warehouse. Look for ways to reduce the time it takes to pick orders by locating inventory closer to the picker. This can reduce the time and labor cost for picking orders.
• Examine capacity and real estate costs. These are not only one of the highest expenses you have in a warehouse operation, they are also on the rise. Effectively managing space can have a significant impact on cost savings.

Reduce waste to reduce costs

Waste comes in many forms and is not always evident unless you look for it. Applying LEAN principles, you can identify activities and processes that do not add value. For example, you can:

• Eliminate waiting. Waiting for someone is a non-value added activity that can be reduced or eliminated.
• Eliminate extra steps in warehouse processes that burn up employee time and resources.
• Examine warehouse layout to ensure maximum efficiency.
• Consider leveraging the expertise of an industrial engineer to evaluate processes. They may be able to help pinpoint strategies for eliminating waste and optimizing efficiency.

In inflationary times, reducing warehouse costs is more mission-critical than ever. For expert insights into saving warehouse costs for your business, get in touch with a FIDELITONE expert.