21 mistakes adding cost and killing productivity in your warehouse - #7

#7. Storing products in family groups, product code or description order or Bob^* knows where

Before computerised systems warehouses were run entirely by manual paper based systems and human memory.  When there was a product to pick for and order there had to be some sort of system and logic to how stock was put-away so that individual items could be found.  Often stock was stored in family groups like in a supermarket where the same category of items are stored in the same area.  So long as the item you needed was there somewhere you would be able to find it if you looked hard enough.  

A variant of this is to store items alphabetically or numerically in code order.  This is a how  your local video store keeps its weekly video rentals (if you’re lucky), they will have family groups (drama, comedy, horror) and then put the videos in order by title.  If the warehouse and product range is very large and storing in logical product sequence becomes impossible then some variant of a stock locator card would be used to check product in and out of a numbered storage bay or location within the warehouse.

The problem with manual systems like this is that they continually break down due to the dynamic nature of modern business.  New products and product ranges come and go constantly.  A new product range takes off and needs a lot more space.  This means constant rearranging of stock to maintain order, which is very time consuming (i.e. expensive).  So what happens in practise is the rearranging either never happens or only when they system is very broken.  Stock will be put-away wherever it fits.  This is like the Drama section in your video store becoming full and the overflow going into the foreign language film section.  Maybe someone will stick on a post it note to tell you or you stumble upon this by accident or when you ask the staff they wave in the general direction and say “oh, that one’s in the foreign film section”.

The other problem with a manual logic based storage system are that too much time is lost searching for products even when everything is in order (which is almost never the case).  Once products are put where they fit instead of where they should be that search time can go up exponentially.  New hires have a long learning curve to become productive because the system becomes more based on memory and they have to ask an experienced colleague where things might be.  Bringing in a bunch of casual labour to help manage a peak in work or a stocktake can be an expensive and futile exercise.

Unfortunately too many businesses still run manual warehouse systems like this.  This is of course the fault of the modern business system. All the effort has been put into making the accounting and sales process efficient and little thought is given to the warehouse operations.  For example, SAP Business One does not even have an inventory location system (something I believe they are belatedly correcting).  Many business systems have basic location control of one location per product.  This is usually a text field added to the inventory file and not a separate location file allowing multiple items per location.  Whilst this is a major step up from nothing it does not give you the tools you need to run your warehouse efficiently.

The best solution to the problem is to invest in a Warehouse Management System (WMS) that will allow you to optimise the storage and physical product flows in your warehouse an eliminate the time lost in searching for products during picking or empty space during put-away.  These systems pay for themselves in around 3-6 months for medium and larger warehouses and 9-12 months for smaller warehouses with less than 10 staff.

If you are not ready to invest in a WMS then it may be possible to enhance your existing system with some new fields and revised reports to provide some basic functionality to improve what you have as an interim measure.  We have done this to great effect with SAP Business One but the same principles can be applied to most systems.  Bear in mind that if you go this route you are investing in a short term solution that you will throw away later and you should only do this if the WMS option is simply not viable for your business but you have to do something.  I strongly suggest that if you think you need to do something that you call us to discuss what your best options are.

* Bob is your longest serving warehouse operator.

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

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #6

6. Clutter and poor housekeeping

Warehouses are often treated as bottomless pits and dumping grounds by the rest of the organisation.  Archives, old promotional materials, old furniture and computers all kept just in case they are needed or because they seemed too valuable to throw away and no one knows how to sell them on eBay.   I know of one warehouse that had accumulated sixty pallets of archives from various admin departments.  

At $6 per pallet/week that is a storage cost of $18,720 per year.  If this had been in off site storage and the admin departments had been paying for storage they would have stored a lot less.  As usual the issue came to a head when the warehouse became full and the sixty pallets went down to fifteen with a little effort and consideration of what was really needed.  What old junk can you get rid of out of your warehouse?

Mess begets mess and demoralises everyone.   The way you keep your workspace says a lot about your business and staff attitude to work.  Good housekeeping is not just a matter of cleanliness and removing safety hazards; it sets the tone for the morale of your workforce.  Good housekeeping does not come without effort but will pay dividends in providing a safer, more pleasant and more productive workplace where work is taken seriously and pride and professionalism are evident.

If you think of your warehouse is a profit generating engine rather than a passive repository of stuff then you will not let this happen in the first place.  In accounting terms warehouses have traditionally been regarded as a cost centre rather than a profit centre.  This colours the attitude of the whole company towards warehouses as being a necessary evil.  If you have spare space in your warehouse then great! This is an opportunity to use that space to add value either by extending your product range or performing more value added activity to the products you already provide.

Some tips for good warehouse housekeeping:

1. Invest in a motorised sweeper to clean up dust and debris and use it daily
2. Housekeeping is everyone’s responsibility, let your procedures and policies reflect this attitude.  Your office cleaner should not be cleaning your warehouse (other than toilets and office waste bins).
3. Develop some attention getting policies to help your company understand the costs and value of warehouse space
• Have a sunset clause on old equipment and furniture etc.  After six months it belongs to the warehouse who may do with it as they will.  Discard it, sell it, take it home whatever.  Use the proceeds to buy a BBQ for weekly staff functions.
• Have an internal auction for anything with any real value.
• Charge internal departments for storage
4. Cost your unused space and highlight it at senior management meetings as an opportunity to get a better return on the company's investment.

This is post is taken from a report that will soon be available as a sign up bonus to members of the Warehouse Performance Initiative (WPI*).  Keep an eye on the home page or send an email to admin@logisticshelp.com.au if you would like to be join the WPI and get a copy of the report as soon as it is available.

In the meantime you can subscribe to this blog by email and get all of our valuable insights delivered to direct your inbox.

*WPI is our global initiative to raise world productivity by helping small to medium businesses develop amazingly brilliant warehouses, (coming soon!).

21 mistakes adding cost and killing productivity in your warehouse #5

5. Hanging on to old, slow moving or non-selling stock

Hanging on to old stock thinking that it is valuable is classic hoarding behaviour.  Usually this stock is the result of poor planning processes, overenthusiastic bulk purchasing or a new stock line that never took off in the market.  Somewhere, someone is too embarrassed to admit a mistake, or the stock represents a large amount of money on the books that senior management cannot bring themselves to write off.  It is always better to quit the stock, take the hit and move on as delay is only adding insult to injury as storage cost make the loss ever larger the longer it is left.

Slow moving and obsolete stock is usually identifiable long before it becomes totally unsaleable.  The major issue is that most businesses are at a loss as to what to do with it so they don’t watch for it.  Pretty soon it shows up on the annual stocktake (again!, “hey, wasn’t that there last year”).

• Even with the best forecasting and S&OP process you will still have some slow moving stock that you are unable to sell.  There are two things you can do:
• Decide what you are going to do with stock that you are unable to sell.
• Throw it out? Sell it on eBay or other discount or over-stock sales channel?  Donate it to a relief program?  It doesn’t matter what you decide so long as you decide and develop the over-stock exit channels as a normal business process.
• Find it early and move it out.
• Most business systems will have an inventory FIFO (First in First Out) date that reflects the date the stock was received.  There should also be at least an aged inventory report of some sort that you can use to review stock that is older than say, six months which may be at risk move on.

Keep an eye on our website for the forthcoming "SLOBS Calculator".  This is a spreadsheet that will do the work of identifying your slow moving and obsolete inventory for you.  It will also help you to calculate how much it is costing you in storage costs, opportunity costs and depreciated value so you can wake up your accountant and finally move it on.  Subscribe to the blog or send me an email and I will keep you posted.  

Just like the "Expiry Risk Calculator" it will be free for a while to those who want to try it out and give me some feedback, but after that it will cost you $99. "Ninety nine bucks for a spreadsheet!" I hear you cry.  Yes, it should be much more than that given how many thousands of dollars it will save you, but I am trying to keep it real.  If you don't understand the value of a good spreadsheet just ask your accountant how many hours they spent developing theirs, - trust me its cheap.

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

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #4

4. Carrying too much stock or too little stock

The money you have tied up in stock is usually one of the most significant ongoing investments you have in your business.  Just like any investment, the return will depend a lot on your skill in investing in the right stock at the right time.  Fortunately there are ways of doing this much more reliably for your business stock than there are for your stock market investments!

Too much stock will cost you money not only to buy, but to store.  Your warehouse is an engine that burns cash whether it is standing still or earning you money.  Lease costs, outgoings, electricity, pallet hire, capital costs and depreciation add up to a significant cost per pallet of storage.  This can be anywhere from $4-$8 per pallet per week depending on your circumstance.  

This is one of the most under estimated expense impacts in business.  Slow moving or non-moving susinestock not only depreciates in market value over time but it accumulates storage costs that eat away profit margins and also have an opportunity cost of not warehousing and selling productive stock.  

Often the realization of this does not come to light until the warehouse is full and newly delivered stock must go into hastily arranged offsite storage.  This will get the finance manager’s attention when a large and unexpected invoice lands on his desk!

Too little stock will cost you money in lost sales.  Perhaps the most basic business rule if you rely on product distribution for your bread and butter is to have stock available when the customer wants to buy.  Unless you are tracking this lost demand you may be blissfully unaware that it is even happening.  

Stock-outs will drive your customers to your competition in search of what they need.  It is literally like handing them cash out of your pocket.  You let your customer down and your competitor saves them.  The loss of reputation and customer loyalty may never be recovered.

There are three things you need to do to fix this problem.

1. Use the correct purchasing calculations for re-ordering stock
• This is just mathematics and the functionality should be built into your business system, but it still needs to be set up with correct data.  If your system has the ability to do this and you are not using it then you should get some help to set it up ASAP.
2. Improve your forecasting system

• The re-order calculations are useless without a forecast to estimate how much of each product you will sell in the future.  Forecasting is usually done on a monthly basis.  A forecast can be as simple as a multi-month moving average, or as sophisticated as a best fit iterative forecasting system which uses historical data to assess seasonality and growth trends and then applies the best fit mathematical formula to each individual product.
• Forecasting can be done on a spreadsheet at low cost or a sophisticated forecasting system costing from around ten thousand to millions of dollars depending on the size of your business and the system you choose.  SAP APO anyone?

1. Introduce a sales and operations planning (S&OP) process into your business

• Once you have the first two in place then you need to go beyond the maths and historical demand and gather market intelligence from your sales team and your customers as to what unusual events are planned or likely in the future that will impact on your calculated forecast.
• Get your sales team and your purchasing people together and talk through what is likely to happen and agree on a number for each product or group of products.  This is S&OP.
• Your KPI for this process is forecast accuracy.  The better your accuracy then the stock you will need to hold, the higher your service level will be and the less overstocks you will have.

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

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #3

3. Products not set up correctly in the business system

Your staff may have all the information they need and an efficient process flow but if the stock they receive has no purchase order in the system or new items have arrived that have not been set up in the business system, then they will not be able to receive the stock and it will sit on your dock taking up valuable space and getting in the way of normal business.

The fix to this is easy, and simply requires some basic business disciplines.  Sometimes administration staff have no awareness of the downstream impacts on the warehouse of their actions.  Engaging the administration staff with the warehouse staff by tours and live examples of the problems will go a long way to enhancing understanding and prompting corrective action.  

New procedures may be required to ensure that new products are signed off by the warehouse manager before they can be ordered.  If stock arrives with no purchase order then get the warehouse to send it back to the supplier.  This will usually create the sort of drama that ensures compliance by both the supplier and the purchasing staff in future.

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

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #2

2. Inadequate paperwork

Nothing stops a process dead in the water faster than not having the correct paperwork or not having enough information on the paperwork to process the inbound or outbound order.  Any interruption to the normal process flow creates exception processing which is typically two or three times the time and cost of a standardised and optimised process flow.  These interruptions can become so normalised that your staff don’t even notice them any more.  

The classic symptom of this is when you walk into your warehouse and see two or more of your staff standing still with a piece of paper in their hands staring at your stock trying to figure out what to do next.  I once walked into the warehouse of a large online business and saw twenty or more receiving staff standing around looking bewildered!  Needless to say, product was not getting booked in and put-away, which means that stock could not be picked and customers were also being disappointed.

This has potentially worse impacts on the outbound side where inadequate information during order processing can have a direct impact on the customer.  Any processes relying of experience and storeperson memory put you at risk of error and slow down your processes.

The antidote is to conduct a process review of all of your warehouse processes and flow chart all the current business flows.  There are lots of great software tools available to do this but some A3 paper, pencil and an eraser will also do the job just fine.  These flowcharts must include physical and information flows.  

When you do this the exceptions will come to light.  Re-engineering the process flows is about removing exceptions by changing the processes and systems to consolidate exceptions into the main process flow.  Once your exceptions are limited to only 1% or 2% of your transactions that you cannot get around then you will have a more efficient process flow.

Re-engineering a process can involve changing physical flows to reduce the waste of motion.  Introducing new materials handling equipment.  Modifying your business system to change existing reports or create new ones so that the warehouse operators have all the information they need to process a transaction.

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

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #1

Too many deliveries kills productivity &
adds cost to your warehouse operation

#1. Too many inbound          deliveries

We are all for more frequent deliveries of inventory as this is one of the key strategies to reduce overall inventory levels and free up capital for more productive investments.  However it is possible to take this too far.  Each receipt costs money in labour, dock and equipment utilisation, and depending on your put-away strategies , too frequent deliveries of the same item can fragment storage of the same item to many locations in your warehouse wasting lots of space.  

Frequent deliveries can result from poor inventory planning leading to chronic stock-outs, back-orders and frequent re-ordering.  Buy to order strategies may appear to be efficient but can actually add cost by churning the receiving process.  Buy to order is great when you apply it to the slow selling long tail of your product range, it is not such a good idea for more frequently sold items.

One of the measures of churn is called stock turns.  You can calculate your stock turns very simply by taking your total sales and dividing by your average inventory on hand.  So for example if you have sales of $10M per year and an average inventory holding of $1M then your stock turns are 10.  Another way to think of this, is in terms of how many days or weeks of inventory you are holding.  In this example 52 weeks in a year / 10 turns equals and average inventory holding of 5.2 weeks.  

Whether your number is good or not can really only be determined by comparison against others in your industry, as each industry will have its own set of constraints that will impact the stock turns.  If your stock turns are in the 20-30 range then you are doing pretty well, anything over 30 is excellent, but if it’s over 50 then you are most likely churning!  You should measure your stock turns as a fundamental business KPI, generally the higher the number the better.  Detailed analysis by product groups and items will show you where you need to focus your attention.

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

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

If warehousing, logistics and supply chain are important to your business or your personal career then why not follow this blog by email or on Google+.  To tap in to the full benefits of business and career boosting ideas I suggest you join The Warehouse Performance Initiative.

The building blocks of the supply chain

Universal model of supply chain

The front end of the supply chain that we are all familiar with stands on the shoulders of the long established building blocks of primary production, raw material and component manufacturing.

It is worth noting that everything we consume comes from just two primary sources, (apart from the air we breathe and the freely available materials around us).  That is mining and agriculture.  We grow it or we dig it up*.

Most food production is unique in requiring little if any additional processing before it can be consumed.  This is why there is an emerging trend of farmer direct to consumer food supply as people look for quality and a unique story in their food supply.

Next comes the raw material producers who turn raw food into processed food,  cotton and wool into thread, crude oil into food and plastics, metals into sheet, rod and billet forms, minerals into chemicals and so on until we have the raw materials for the component manufacturers.  Unlike agricultural products, consumers have little use for theses basic raw materials.

The component manufacturers turn thread into cloth, metal sheet into Colourbond roofing, rod into nuts and bolts etc.  There may of course be many links in the component supplier chain with ever increasingly elaborate transformation up until you get a computer chip or an electric motor, or pharmaceutical ingredient.  At some point in the supply chain the components are put together into a finished product which is ready for consumption or use by the end user.  

At any point in this component manufacturing supply chain there are likely to be wholesalers and distributors and of course when this happens there is an opportunity for short circuiting the middle man and going direct to the customer.  An example of this is when large construction companies buy fasteners direct from manufacturers in China instead of sourcing from local distributors.

This concludes my overview of the modern supply chain.  For those who have not thought through what goes into the end result of being able to walk into an Apple store and buy a new iPhone, I hope this was useful.  Without doubt, supply chain is an amazing and complex human endeavour that involves a significant part of the workforce and impacts all of us.

*As with everything there are a few particular exceptions, notably in the medical field where there are human derived raw materials such as blood and organ donation which in one sense could be thought of as a variant of agriculture as it is grown but would not be put into this category.

If warehousing, logistics and supply chain are important to your business or your personal career then why not follow this blog by email or on Google+.  To tap in to the full benefits of business and career boosting ideas I suggest you join The Warehouse Performance Initiative.