Supply chain performance is built on efficient, responsive, and safe warehouse operations. That is why optimal warehouse configurations are both essential and unique. Each warehouse is different and must be optimized individually. Cost controls, layout design, automation, and labor utilization are necessary factors to maximize warehouse efficiency. Analyzing one input in a vacuum will not represent the complete picture, so a detailed data review is required to optimize the entire facility.
Here are five things to consider when optimizing warehouse operations to drive value to your supply chain.
1. Key Performance Indicators
KPIs are the lifeblood of a successful operation and should be your benchmark for measuring the performance of each operation. Focusing on the following key metrics can help point you in the right direction to identify bottlenecks in processes that are critical in a specific warehouse.
- Dock to Stock (DTS) - Having product available in inventory quickly to sell to customers can't be overlooked. A low value in DTS can be an indicator of dock efficiency, yard performance, and inventory utilization.
- On-Time Shipping (OTS) - Are orders shipping by the required deadlines? OTS impacts customer experience and drives loyalty. It can also have a direct effect on the bottom line with penalties assessed by customers. OTS can be impacted by other KPIs in this list, so it can be used many times as the initial sign of an issue within the operation.
- Inventory Accuracy - There are many ways to measure this, from net unit accuracy, absolute unit, accuracy by inventory value, location accuracy, and many others. Critical information can be taken from all the above to indicate where processes are not being followed or need to be revisited and altered.
- Cost Per Unit Shipped - This is a critical category that can quickly provide a high-level indicator to where there may be a problem. Once identified, further analysis will be needed to identify the specific issue or issues that are driving up costs.
- Order Accuracy - A dip in quality can be a sign that a change in process is needed.
- Productivity by Activity - It is critical to monitor the ebbs and flows within a warehouse, since this will reveal trends in data over time. This KPI should also be used as a method of giving feedback to the floor staff, so a broader group can be looking for changes that may cause suboptimal performance.
Review all the critical technology tools in use at a facility, especially the warehouse management system (WMS). An effective WMS should allow you to set up order batching, zone picking, consolidation, put away, cross-docking, interleaving, workflow management, and many other guardrails to maintain efficiency in the overall warehouse configuration. Seek all opportunities to reduce cost without sacrificing safety or quality when designing every WMS process. Investing in a WMS that allows flexibility to improve processes over time without significant additional funding will be vital to ongoing success.
3. Product Location
Are your fast-moving SKUs located to limit movement and travel in your warehouse? Are they also far enough apart to prevent bottlenecks within the outbound product flow? Heat maps of pick activity can be a great indicator of busy zones and those that can be optimized for reduced cost. Slotting of SKUs should be done in a cadence that is representative of the life cycle(s) of your inventory.
Is your labor flexible to meet the demands of your orders? Upon review, it might be apparent that you don't need one of your shifts. Utilization of labor in warehousing isn't necessarily a Monday through Friday, 8 AM to 4 PM job. Shuffling labor resources to meet the demands of order volumes can help prioritize and increase efficiency. Using part-time labor on consistently heavy days or changing schedules to have overlapping shifts can make short work of daily volatility.
Managers might be inclined to jump into an automated solution to improve warehouse operations, but move cautiously to ensure the investment covers the needs of specific operations. Keep in mind that automation is a powerful accelerator, both of effective and ineffective processes. Automating a process that isn't optimized can quickly eat away at profits. Automation can also require a long time to realize ROI expectations, which need to be considered in the plan to avoid additional short-term costs.
In its 2021 State of Logistics Report, A.T. Kearney supports an active exploration of warehouse automation, but with some cautions. "Warehouse flows, " the report says, "are becoming more complicated, especially with e-commerce returns. Thus, as labor conditions remain tight, many warehouses are increasingly looking at automation. Indeed, the emergence of robotics as a service (RaaS) provides financial flexibility that should boost adoption of automation across a wider variety of companies. With shifting demand and inventory mix, and increasing need for visibility, the future of warehousing presents fascinating strategic challenges."
Once these critical variables are analyzed and understood, the complex - yet essential - process of warehouse optimization is possible. There is no "silver bullet" to ensure an efficient movement of products through one or more warehouses. Only by optimizing the layout, labor use, and the costs unique to each facility can a supply chain function properly. Take these steps to meet the ultimate goals of any business - safe operations and customer satisfaction.