21 mistakes adding cost and killing productivity in your warehouse - #13

13.    Products not slotted according to pick frequency

Traditionally, before computerised stock systems people stored products in warehouses in logical groups so that they were easy to find.  For example if you were a hardware wholesaler you would keep all the hand tools together with hammers, chisels, screwdrivers etc. all grouped together.  Lots of small warehouses still do this, even if they have a location system.  This strategy soon starts to fall apart when the business grows and becomes more dynamic.  

Changes in product stocking levels and turnover of products will require constant rearranging of stock to maintain the logical stock arrangements in the warehouse.  Because this is too much work, the system breaks down and stock gets stored wherever it fits and stock gets randomised and increasingly hard to find.  Does this describe your warehouse?

The simple antidote to this problem is to store products according to pick frequency.  Picking is the highest labour activity in the warehouse and as such is the process to be optimised beyond all others, which is why so much attention is focussed on it.

Product slotting is the calculation of the best place to store a product to minimise subsequent travel associated with moving of that product through the warehouse during put-away, replenishment and picking operations.

At its most basic this is the casual observation by the warehouse staff that it makes sense to keep a particular product down low because they pick it all the time.  The next level of sophistication is perform a Pareto* analysis of your order history to determine the fastest moving products in your business and apply this information to where you store your products and what goes in the fast zone or the slow zone of your warehouse.  Over time your business and product profile change so this must be periodically revised to keep your slotting current.

*Pareto analysis is the application of the 80/20 rule where 80% of the picking is from only 20% of the items in the warehouse.  Keep this 20% in the fast zone and you make a huge gain in productivity.

A basic Pareto analysis can be done on a spreadsheet with minimal effort.  We will be publishing a how to guide and spreadsheet template for members of the Warehouse Performance Initiative in the future.

Awareness of promotions and new products with a rapidly growing demand, and items that are dying or obsolete is also helpful to maintain the warehouse efficiency.  A product slotting review should be done at least twice per year if your business changes only slowly and monthly to quarterly if changes are more rapid and you want to keep your warehouse movements optimised.

The ultimate sophistication is to use product slotting software.  Optislot is the only standalone product in this market at the moment and is now available in Australia through Synermatic.  With typical improvements in replenishment and picking productivity of 10-15% this is a must have investment for large DCs running on thin margins.

According to the website: 

“OptiSlot DC addresses the complexities of slotting by utilizing advanced mathematical algorithms which consider a product's dimensions like weight and velocity, physical characteristics of your environment including slot configurations, pick path and material handling equipment, and operational goals like pallet building, seasonality requirements and retail groupings.”

It's probably worth noting that this is only possible when you have the data.  If you don't have a modern WMS with an accurate data set of your warehouse and product dimensions then this tool will not be any use to you.

Synermatic are also developing a subscription service for organisations that need more than a basic Pareto analysis, but do not wish to invest in purchasing the software, contact them for more details.

Some Warehouse Management Systems also have a product slotting package available.  Most notably Manhattan which was designed by the same person who developed Optislot.

The big hurdle with slotting your warehouse is not getting the information; it is acting on it.  What do you do when you find out that 75% of your stock is in the wrong place?  This is a huge and seemingly wasteful task if all you do is move it from bin to bin.  The answer is to:

• Understand that the effort required to move the product to the right place will pay you back in productivity gains (reduced labour)
• Let natural turnover drive the process over time.
• Change the home bin or pick location or put-away zone etc. (depending on what systems you have available) so that as new products come in, they are put-away where they should be and the wrongly located items are picked out.
• After a month or two bite the bullet and move out anything left behind.
• If natural turnover hasn’t moved it then it is a slow item that may take too long or never pick out.  You do not want slow moving items in fast moving areas!!!!!  I cannot emphasize this enough.
• Perform a more regular slotting review so that you do not get yourself in such a mess in future.

Finally, some personal experience of what having a jumbled warehouse is like.  When I was Logistics Manager at Clifford Hallam I had to re-layout my warehouse to install a lot of new racking (more than doubling the storage by using the height of the building).  I did this whilst continuing to operate the business.  

This process took several months and the entire stock got jumbled due to all of the relocations required during the installation.  My overtime costs for normal operations went through the roof!  I finally sorted it out by re-slotting and working even more overtime (that went down well with my boss, as you can imagine!) to move product around to where it needed to be.  My excess labour fell back to even better than before the re-design and everyone was happy in the end.  So if your warehouse has never been slotted properly then imagine what productivity treasures are waiting to be revealed!

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 - #11

11.    Not separating fast pick areas and bulk storage

At the heart of all warehouse productivity improvement is the target of eliminating the waste of motion.  Simply moving something from one place to another in the warehouse does not add any value.  One of the most common mistakes we see in warehouses is the failure to optimise the placement of the most commonly picked items to reduce travel path when picking and replenishing.

What do you do when you have lots of stock of those fast moving products?  If you keep all your stock together it will take up so much space in your fast moving rack zone that your fast moving products will not be near each other.  

The solution to this problem is to create a pick location with just enough of each fast moving product to allow you to keep a lot of products in a restricted amount of space and keep the bulk quantities of the stock somewhere else in your warehouse.  This means you will need to periodically replenish the stock of each item in the fast from the bulk zone.  This process is known as pick area replenishment.

The configuration of your fast pick zone will depend upon your products and their physical size and order profile.  Ideally you want at least a day’s worth of stock in a pick face and more is better.  If the stock is batch controlled or expiry dated then you will want to have two pick faces to allow for different batches/dates.  You should avoid mixing batches/dates of product in the same location if batch control and traceability is important to your business (it may not be).

Replenishment of the pick face can be done on demand or to a schedule.  On demand means that you do not do any replenishment until you absolutely have to.  When you release a wave of orders the replenishment moves needed to fulfill them will also be generated.  The disadvantage of this is that it can slow down your order fulfillment as you cannot complete those orders waiting of the pick face to be replenished.

Scheduled replenishment means that you can use slower times of warehouse activity to perform replenishment so that your high activity times during order processing can be devoted to processing orders in the shortest possible time.  The best solution will depend on your particular cycles of activity for your business.

If you have a basic business system that only allows one location per item (there are still too many of these around) then how do you find the bulk stock if you have set the pick face to be the only location for the item?  There are two solutions to this problem:

1.    Keep the bulk stock nearby.  Usually on a level above or below that is not located on the system.

2.    In a manually recorded location with a paper trail to the pick face.  Keep a card in the pick face with a list of locations where the balance of the stock is held.  Cross off the locations when you empty each location during replenishment and write on new locations when you receive and put-away new stock.  Also note the quantity held by the pick face so that you can use these cards to drive the replenishment process when pick faces are empty.

Further productivity gains can also be made by making sure you store your bulk stock to minimise the travel required during replenishment.  Keep the bulk stock of the fastest moving products in the fastest to access bulk areas.  This is another example of product slotting technique which we will cover in more detail in #13.

This is post is taken from an ebook 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. The WPI is essentially a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals  (coming soon!).

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 #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.

What if your logistics is already the best? (Part II)

Is collaborative logistics the future?

Yesterday I suggested that you should collaborate* with your competitors to reduce your logistics costs.  If you actually did this what might it look like and where could you take it?

Well it might look like BevChain. Which is a joint venture between Lion Nathan and Linfox.  This is a live example right now of what I am talking about at least in basic principle.  It obviously helps if you start off with a giant like Lion Nathan to kick things along.  

I think the joint venture is the key.  It is not just a venture by Linfox and Lion Nathan is not trying to be a 3PL.  The two together provides the critical volume required to get economies of scale and essential infrastructure and process development that can be sold to other industry players.  I see no reason why the joint venture idea could not be extended to multiple industry suppliers who provide the logistics volume to make a viable business and who also have a stake in the new company and share in the savings.  Indeed the whole thing could be run almost like a co-op to reduce costs to all concerned whilst still providing a return to the 3PL partner.

If you apply some Vested Outsourcing concepts you will ensure that the costs keep going down over time whilst also enhancing the profits for the 3PL partner.  Once you have the basics running well then why not go further up and down the supply chain?  The new industry based logistics company could aggregate demand for common supplies, raw materials or even  stock and buy on behalf of the group.  This would allow them to negotiate better volume discounts and also manage inventory jointly to eliminate multiple safety stocks.  

Managing the total freight task goes without saying, but why not develop a shared services online direct to customer distribution model?  This could be presented to the customer as a category killer single distributor or individually branded mini-sites, but offer to consolidate freight as an incentive to buy across multiple brands.

Of course such a strategy endangers the currently entrenched distributors, and depending on the relative market power differential between maker and distributor, this may or may not be a good strategy.  Generally the theme of the internet age is that the middle man is being squeezed as the makers of products seek direct relationships with their customers.  If the only value you add is a cheap price, someone will eventually find a way to do it cheaper than you.

This idea was developed by DHL with their Pharmacy Supply Model in 2006.  For a while they turned their pharmaceutical pre-wholesale 3PL business into a wholesale distributor and challenged the big three pharmaceutical wholesalers (Sigma, Symbion, API).  The alliance that made it possible with Alphapharm eventually failed and the business could not fulfill its promise, but it was a very innovative idea at the time.

I worked on the DHL Pharmacy Supply project for my first consulting job with Logistics Bureau and it was an extraordinary experience to help develop such a a ground breaking new logistics service.

If the manufacturers and product originators can't or won't develop such a service it leaves the door open for the wholesalers to do essentially the same thing further up the supply chain - if the circumstances are right.  The retail pharmacy supply industry certainly has the right set of conditions for this to occur.  Three wholesalers serving the same market in a highly competitive and increasingly commoditised environment plus a number of smaller distribution operations fragmenting the supply chain.

These are I think the prime conditions to make such a solution possible:

1. A few major players who can reach agreement for a joint venture to pool their logistics operations
2. High competiton with price sensitivity
3. Opportunity to grow by securing some of the remaining logistics and thus make some profit from logistics services that would not otherwise be available to them.

Like all good consultants I have come up with a name for this idea.  I call it the Integrated Collaborative Logistics Service or ICLS for short.  In part III I will discuss some other reasons why I expect to see more of this type of collaborative logistics in future.


* Just in case it is not obvious, the sort of collaboration I am talking about is not anti-competitive or price fixing in anyway. The formation of a joint venture aimed at achieving a low price logistics service does not limit what any of the joint venture partners do with their cost savings.  They can hold on to them to invest in innovative and more profitable business ideas or continue the price war and be back where they started.  I am simply pointing out the next logical step in logistics evolution when a certain set of conditions exist.

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Is your marketing being sabotaged by poor inventory planning?

#1 on our list of logistics best practices is:

 1. Inventory is planned according to the best information available from forecasts of known accuracy and market information from suppliers, marketing, the sales force and customer feedback.

There is no more important activity in the whole of supply chain than inventory planning.  Correctly determining when and how much stock should be procured will impact every other supply chain activity and affect the value an organisation provides both in cost and service delivery to the market.

5 Rules for managing expiry dated stock

Expired stock?

Managing expiry dated, use by or best before dated stock can be a real headache for the inventory manager.  My background is in pharmaceuticals and medical devices but many of the same principles apply to food as well.   I also think that even non-expiring product has a use by date;  particularly electronics and fashion or anything that behaves like these products.  Once it gets old, you either can't sell it at all or its value diminishes rapidly.  So here are my rules for managing expiry

Can we manage expiry dated stock better?

A great discussion on Linked In, about the possibility of extending the expiry life of medicines after a recent study revealed that some drugs may retain viable potency for decades; long after the product officially expired.  The possibilities of some drugs being able to be sold with very long expiry dates is tantalising and holds the promise of