21 mistakes adding cost and killing productivity in your warehouse - #10

10.    Lack of appropriate materials handling equipment

Your choice of materials handling equipment (or lack thereof) will set the level of productivity available to you in the same way as your warehouse layout and racking.  One of my key observations in any warehouse is how well equipment been deployed and how much it eases the physical task.  This will be indicated by how much motion is required to complete a task.  Following the Lean Methodology, motion is a non-value adding waste that should be eliminated where possible.

The classic mistake many warehouse managers make is to think that materials handling equipment is expensive and should be used sparingly.  Regardless of the cost, appropriate materials handling equipment will:

1. increase safety (reducing the cost of safety related incidents),
2. reduce labour (operating expense) and
3. increase capacity,

so that it is soon paid for and generating additional profit through reduced costs and increased output.  

A materials handling system is composed of three elements:

1.    a container,

2.    a mechanical means of moving that container,

3.    a storage system for the container.

Containerisation of goods is the foundation all materials handling.  Basic packaging is packed into or onto a container to standardise the means of materials handling.  For example, a pallet makes a forklift possible.  Although pallet standards vary they are similar enough in concept to allow a forklift to be built that is able to handle the wide variety of pallets available.  Pallet racking provides a place to store pallets of goods with volumetric efficiency.

The containerisation concept is widely applied in many types of materials handling system to increase productivity.  There are a huge variety of materials handling systems available to suit most common applications.  Custom containers and handling systems can also be built for non-standard products and materials.

The most efficient warehouse will make the best use of appropriate equipment.  Here is a quick round up of the different types of materials handling systems:

1.    Trolleys and tote bins

a.    If you have a lot of small order picking and processing then a trolley and tote/carton system is essential.  Multi–order picking to a multi-level pick trolley will allow you to pick several orders in one pass through the warehouse and is very efficient.

2.    Motorised trolleys and stock-pickers

a.    A pedestrian picker is limited to the speed they can walk and how high they can reach.  Using a motorised trolley such as a Crown WAVE or a with a built in ladder or step to allow the picker to reach higher levels, will allow a dramatic increase in the range of stock accessible to a pedestrian picker.

3.    Forklifts

a.    Pallet jack

                                       i.    The most basic manual hydraulic lifting device for moving a pallet.  They only move pallets at floor level.  Motorised units are available to ease the physical effort.

b.    Pallet mover/low level stock-picker

                                       i.    These are large ride on pallet movers that are designed to facilitate carton picking from the first level of pallet racking and can also be used to load semi-trailers.  Some units can carry two or more pallets on extended tines.  Crown now has a unit that is remote controlled so that the picker does not need to get on and off to drive to the next pick bay.

c.    Walkie stacker

                                       i.    A walkie stacker is a most basic type of forklift for moving pallets into the higher levels of pallet racking.  There are a wide variety available and really suit small warehouses with low a volume of pallet movements.  They can work in aisles as narrow as 2.4m to get the best use out of small warehouse spaces.

d.    Counter balanced forklift

                                       i.    These are the traditional looking forklifts with a seat and fork tines out in front of the wheels and a heavy weight (counterbalance) at the rear.  They are now relegated to truck loading and yard work rather than use within pallet racking where a reach truck is more efficient.

e.    Reach truck

                                       i.    The reach truck is so named because it has a mechanism to move the pallet into or out of the racking from the body of the forklift.  
There are two types:       

1.    The moving mast type moves the entire mast back and forth.

2.    The cantilever type uses an X-type extending cantilever to move the pallet back and forth.

These forklifts work in much narrower aisles than the counterbalanced forklift of around 3.0m or less.  They can also now reach to very high levels of over 12m with the use of automatic level selection and video camera assisted positioning.

f.     Stock-picker

                                       i.    The stock picker is designed to carry a person to high levels in storage racking so that they can pick cartons.  This eliminates the need to reach up and pull down and then replace a pallet just to pick off a few cartons.  They are a productivity gold mine in the right circumstance.

g.    Turret truck

                                       i.    A turret truck is designed to work in very narrow aisles of 2.0m or less.  The turret refers to the mechanism that allows the fork tines to swivel from side to side as the turret trucks tines are moveable from side to side.  Most turret trucks also carry the operator to high levels to ease operation and allow for carton picking.  Turret trucks can reach up to 18m in height.

h.    High level cranes

                                       i.    A high level crane does the same thing as a turret truck, but it is built into the structure of the building and located on rails top and bottom so that it can reach even higher levels.

4.    Conveyors

a.    Conveyors are a substitute for moving stock by forklift or other device.  They are very fast and efficient but also very specific and not easily (or cheaply) altered.   Conveyors best suit mature businesses with high order volumes.  They are mostly used in very large and high volume warehouses where the investment is warranted by the high transaction and stock volume they handle. 

b.    Smaller scale applications of conveyors are used but can also introduce inefficiencies when the business needs change and the fixed conveyor no longer suits the new operation but is not updated.  Also when your conveyor system is down it can simply stop you shipping orders.  An efficient but more manual system is more scalable and has the flexibility to cope with changing business needs.

5.    Automated Storage & Retrieval Systems (AS/RS)

a.    AS/RS is a very broad term that can apply to anything from a carousel to a huge warehouse with conveyors and cranes moving pallets in and out of a very high level automated warehouse.  The technology removes human activity and brings the goods to the man for order processing.

6.    Automatic Guided Vehicles (AGVs)

a.    Forklift AGVs are available and well suited to high volume pallet movements often associated with manufacturing plants.  They can be configured as a turret truck and can even load semi-trailers.  Like most automation they are suited to high volume operations and will provide the highest return when operated in a 24/7 environment.

b.    Kiva Systems make a mini AGV that is so good at what it does that Amazon bought the company.  The Kiva system uses many small AGVs to move storage shelves around the warehouse to picking stations allowing the picker to stay put and perform a multi-order pick to carton without having to walk around the warehouse.

7.    Robots

a.    The Baxter Robot may not yet be a viable storeperson replacement yet, but watch this space. These devices will only get better and in 20 years or less will likely start to make inroads into all kinds of repetitive manual labour.

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 - #9

1.    Poor layout and product flow (in and out)

A poor warehouse layout locks in poor productivity and what’s worse is that it becomes invisible.  Because businesses change over time, a once perfectly suitable layout and racking arrangement can become a drain on productivity.  Perhaps the layout was never planned in the first place but racking was simply put wherever it fitted at the time the installer showed up.

The principles of process design dictate that the design of the supporting systems and infrastructure must support the business process.  So in order to get the layout correct you must first design the process that you want it to support - with full knowledge of what is possible.  This is the approach we take to all our warehouse designs – first the process then the layout and systems to support it. 

Many people make the mistake of starting with the current system and the existing infrastructure and then designing a process around that.  Unfortunately when you do it this way, you are accepting your current limitations without question and missing the opportunity to unleash greater overall productivity in your business.  What often starts as a need for some new racking, or an observation that you are running out of space in your warehouse can be an opportunity for a major reform and productivity gain if you open your eyes to what is possible.

The basic principles of efficient warehouse layout are as follows

1.    Keep fast moving product in the fastest to access areas.  The corollary also applies, put slow moving items in the slowest to access storage areas.

a.    If you have a bad building with pillars and walls in all the wrong places then this idea is what will bring back the productivity into your operations.  Many businesses simply do not apply this principle to their warehouses or do not apply it rigorously enough to get the full benefit.

2.    Use fixed pick locations near to the despatch dock with a periodic replenishment cycle.  This keeps fast moving products close together to reduce travel path.

a.    This requirement must be balanced by the need to allow sufficient access to the pick face so that all of the orders for fast moving product may be picked.  Too close together and you can create crowding as too many pickers need to access the same product at the same time.

3.    Store the balance of fast moving stock in randomly located bulk storage racks.

a.    As per point 1: in bulk storage racks, keep the faster moving products in the fastest to access locations, which, in pallet racking, will be low and nearest to the despatch dock.

These first three points are related to the idea that is commonly called product slotting.  They are important to layout because they will impact what type of racking you put in your fast zone.  We will talk more about slotting in mistake number 15.

4.    Build travel shortcut aisles into long runs of racking or shelving so pickers can cut across aisles to reduce travel path.

a.    Pallet racking should be continuous with beams removed in one rack bay to a sufficient height to let your forklifts travel underneath the higher levels.

5.    Maximise the use of the building volume with high level pallet racking, multi-level shelving modules and mezzanine levels.

a.    Generally you can stack stock to up to 45cm below the level of your sprinkler heads but check with your fire system maintenance provider for the clearance required for your particular installation.

6.    Eliminate air – your stock does not need to breathe!

a.    When I walk into a warehouse, one of the first things I look for is storage density as indicated by the amount of free space (air) around products in the storage racking.  Lots of air means lots of wasted space which means higher storage cost per unit, longer travel path for put-away and picking and poor productivity.

b.    Once you realise that an investment in the most appropriate racking and storage systems for your products is an offset of both rent and operating expense you will not quibble over the cost anymore.  Good racking and storage systems make you money, last indefinitely and are never superseded.  Is any other investment this good? (Maybe real estate!)

7.    Build optimised workstations for receiving, packing and despatching orders near the inbound and outbound docks.

a.    Too much focus just on the pick process and neglecting the whole of the warehouse operations will see you missing out on valuable productivity gains.  However your stock comes in or goes out, you need space and efficient process to get it into or out of the warehouse.

b.    This means a well laid out operations bench which is kept clear of junk and has everything you need to hand such as labels, packing materials, paperwork, computer workstation (if required) & printers.

8.    Allow sufficient staging space for inbound and outbound order staging and processing.

a.    Around the workstations and at each dock you need clearance for staging of product in and out.  Nothing kills productivity and throughput rates faster than the double handling caused by inadequate staging space.

9.    Principles of good warehouse layout must be applied as part of the overall operational process design. This includes the warehouse management system, data collection technology (mobile terminals with barcode scanners, voice directed task technology), racking systems and materials handling equipment.

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 - #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.

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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.

What is the internet doing to the supply chain?

Universal supply chain model

We all know that the internet has had a huge impact on our lives but we seldom give much thought to what this is doing to business relationships and the supply chain.

Traditionally the distribution of products from agriculture and manufacturing would be aggregated by wholesalers who distributed in bulk to retailers who sold goods in suitable package sizes to customers who then have their own micro supply chain to end users within their family or business site.

Manufacturers, wholesalers and farmers did not usually sell direct to the public consumer because they had significant barriers to doing so:

1. They have no relationship with the customer.
2. They could have little market penetration due to limited number of distribution sites.  One or two warehouses full of pallet racking in an industrial park does not make for a pleasing customer experience.
3. They were set up for bulk distribution not the small package supply typical of retail stores.

There have always been odd exceptions to these rules.  We have all stopped at roadside produce stalls next to the farm whilst on a country drive.  Manufacturers often have a seconds outlet attached to the factory or warehouse that sells direct to the public, but that was about it.  So what has the internet done that has changed this?

The internet has eliminated barriers 1 and 2.  The internet allows potentially deep connection and relationship between a manufacturer, or any vendor at any point in the supply chain, and the customer of their products (barrier 1).   This is way beyond anything that an old style mail order catalogue could achieve.  The advent of social media is just extending this connection even further and making it more personal.  

The internet also eliminates the need for physical retail store network.  We no longer need the retailer to explain the product to us.  Now when we walk into a retail store we usually know more than the retailer about the product we want to buy, all they need to do is show it to us and ring up the sale.  If all we are doing is going to the retail store to pick up the products we have already decided to buy, then we may as well have them shipped out to us.  Barrier 2 is now gone.  If retail is going to survive then it needs to have new reasons for existing in addition to physical distribution and product advice.

The third barrier is not impacted by the internet and is the hardest, and usually the last one addressed.  That is the organisational changes required to perform small order distribution direct to customer.  For a manufacturer, wholesaler or agricultural producer this means a fundamental change in business operations, marketing and sales that extends throughout the organisation.  Way beyond simply setting up a website and putting up product information and a shopping cart.  It means going from having only a handful of customers who buy in bulk to many thousands, tens or hundreds of thousands of customers who buy in single units and retail packs.  This means customer service, and sales support, individual marketing strategies, credit card payments, all those customer accounts and interactions when things go wrong. It is a fundamental change in business practice, and if you are not ready for it, you will fail.

The addition of an online D2C channel for a retailer would seem to be a smaller step.  After all they already have the customer relationship and the product range, all they need is a website and a distribution infrastructure.  However the number of large retailers who have been slow to embrace this strategy would indicate that this may be a bigger mental hurdle than a physical or business one.

An online sales strategy also requires a significant change in warehousing infrastructure and technology.  Bulk distribution requires pallet racking, and forklifts and stock pickers to pick pallets and cases.  A single order can have hundreds of lines and fill a semi trailer.  By contrast in a typical direct to customer business 20-30% of your orders will have a single line and ship in a post pack.  This requires a change in warehouse layout, picking methods and technology and freight arrangements.  Failure to invest in the correct warehouse processes and systems to support an online eCommerce based business will result in very high cost per transaction  This will result in either an unprofitable business or an over-priced one that will fail to gain traction in the market.

Although the organisational and operational changes required to run a successful direct to customer online business are not simple, they are not new.  They are really a re-use of existing business systems and strategies in a new context and are achievable by any business that sets its course in this direction.

In the universal supply chain diagram I have highlighted four online Direct To Customer (D2C) channels in use today in addition to the traditional customer pick up channel from the retailer.  So it is now possible for anyone to go direct to the customer.  When you combine this with the rise of contract manufacturing you have a powerful combination - isn't that right Mr Kogan?

I have described here what is possible and happening now in the supply chain. However deciding to go direct to your customers will dramatically change your business model and will of course have an impact on your current downstream distribution channels.  If you are a manufacturer then what will your retailers think if you start shipping direct and how could this damage your business in other ways?  

The classic conundrum here is when the retailers service and support for your products is intimately tied to their distribution of your products.  If you go direct, would you put your retailers (and your product support model) out of business?  Would your retailers (and wholesalers for that matter) find alternative sources of supply to their customers? (remember you may not yet have a well established relationship with your customers).  

You must expect that if you decide to compete against your upstream or downstream supply chain partners that this will have an impact on them and they will develop a competitive response.

For this reason traditional retail still works very well in a lot of industries.  This will likely change as the market gets more used to paying for services that they used to get for free.  We will come to understand that when the cost of support is no longer built into the price of the product, we will have to do it ourselves or pay for it when we need it.  Increasingly we get product knowledge and support much better from online resources or by asking friends.  This is not only free but much better.

We are still in the early stages of online commerce and the impact of the internet on the supply chain, new business models are being developed all the time and there is still a lot of room for innovation and change.  We live in interesting times!

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.

Now anyone can be a manufacturer

Universal model of supply chain

Manufacturing is now a commodity service in many industries.  So many industries have sent their manufacturing into low labour cost countries such as China and throughout South East Asia that these countries have grown their own manufacturing expertise.  These factories are geared to produce goods and can and will produce them for anyone.

So the brand originator does not even have to do their own manufacturing.  They can contract this out to someone else who is great at making things but not so good at innovating new products or selling them into overseas markets (otherwise they would be a brand).  

Of course some of these manufacturers can and do develop their own branded products.  We are currently witnessing the rise of global Chinese brands in the same we we have seen the rise of Japanese brands through the sixties and seventies and Korean brands in the and nineties and noughties.

It works both ways and if the brand originator is also a manufacturer then they can also choose to manufacturer generic versions of their product so they don't lose out entirely when the generic competition comes along.  They can sell the generic versions themselves at a lower price point under a different brand or to someone else who puts their label on the product.

All of these sources of manufactured goods has exploded the range of generic products with someone's brand on them.  My new Agora smartphone from Kogan was made in a factory in China or Korea or somewhere.  All Kogan did was agree on a price and send the manufacturer some artwork.  Now anyone can do this, you can do this if you want to!, just go to alibaba.com.

In the supply chain model we see the flows of generic products from both contract manufacturers and brand originators to wholesalers and retailers who source their own branded products to sell into their existing markets.  This is seen everyday in the supermarket chains all over the world who have their own branded peanut butter alongside the premium brand.  You can only do this if you have a brand you can leverage or are prepared to do the very hard work of building your own brand like Mr Kogan.

Although this can be a very powerful strategy it is also a strategy that is now open to everyone.  This was brought home to me recently when I spotted the same LED head torch that I bought from Anaconda for $45 on display at Kathmandu for $120.  I am glad it happened this way around!  This is however a great example of the power and value of a brand.  Kathmandu is a premium brand and can charge a premium for their products because of the trust and loyalty it has built up with its customers.  Anaconda is a discount store.

Contract and generic manufacturing has had a huge impact on the supply chain and has helped to make goods cheaper and more readily available.  It has also suffered the same fate as any other easily accessible business strategy, it has diminished in value.  This reinforces the power of the consumer who has wide choice and availability, but it also reinforces the power of the branded product originator who stands out with the unique and desired product.

Next we will look at the product flows in more detail and see how the internet is shaking things up with new customer channels and what this might mean in future.

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.