21 Mistakes adding cost and killing productivity in your warehouse #19: Failing to invest in equipment, systems and technology

Equipment, warehouse systems and technology can be expensive and is an optional expense in the sense that it is not required to operate your business.  For these reasons some businesses shy away from making capital purchases.  The same businesses that do this will also have no problem meeting a non-optional but high wages bill every week and pay overtime when required to meet customer demand.  In our experience, provided the correct equipment is bought for your requirements, the investment in warehouse technology, systems and materials handling equipment is always rapidly paid for in reduced labour costs, let alone increases in accuracy and quality, responsiveness and improved safety.

Once you have adjusted your attitude to technology from scary cost to business investment, you will never look back.  Look at every purchase as an investment in productivity and calculate the return and payback period.  If you lack the capital to invest then leasing or borrowing is usually a viable option if your business is strong.  The payback even for large investments will typically be less than one year, so if capital is tight, a loan or lease agreement can be structured to be cash flow positive to your business almost immediately.

Delaying an investment in productivity will usually only cost you money in lost cost reduction.  Although you don’t feel this the same way as a sudden jump in costs, the impact is the same.  Should you treat it as any less urgent?  It is for this reason that I think failing to invest in technology when the option is available to you is wasting money.
Let’s look at how you can do a basic return on investment calculation for an area of business need.  My number one technology investment recommendation for a warehouse is to implement a Warehouse Management System (WMS).

Let’s look at a return on investment calculation for the Rapid WMS that we will be making available soon for the small-medium business market.  For a modestly sized warehouse running a simple paper based ordering system and employing 12 people an investment of a little over $90k pays for itself in less than seven months and makes you $1.5M richer over ten years, that is an average interest rate of 170% p.a. (flat) over 10 years.  You can’t get that from a bank!

Item	Unit Cost	Units	Cost
Project cost			$            91,750
Current FTE (Labour cost)	$            55,000	12	$          660,000
Estimated Productivity Gain	25%
FTE reduction saving	$            55,000	3.00	$          165,000
Revised Labour Cost	$            55,000	9.00	$          495,000
Payback in Months			6.67
Net profit gain year	1		$        73,250
Net profit gain by year	2		$      238,250
Net profit gain by year	5		$      733,250
Net profit gain by year	10		$   1,558,250

Unfortunately not all investments in technology will have as high a payback as the first implementation of a WMS but you get the idea.  Find an area of need where labour can be saved and service quality increased, find a solution that you like, calculate the return,  implement it well and reap the rewards.

This is post is taken from an ebook that is now available as a bonus to members of the Warehouse Performance Initiative (WPI*).

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