High warehouse costs can be a sign of warehouse inefficiency. Not only does warehouse inefficiency affect the business negatively, but it could lower its customer retention rate. Inefficient warehouse operations can mean longer waiting periods for customers and waste in labour. In order to avoid this and achieve success, there has to be a steady decrease in warehouse costs and an increase in warehouse productivity.
Warehousing refers to the act of storing goods that will be sold or distributed at a later stage. The warehousing costs that are incurred differ from each warehouse, but they are broad categories of warehousing costs which are:
- Handling: This refers to the costs incurred while moving goods in or out of the warehouse. It includes human labour and equipment costs. Handling can also include pick and pack prices which are charged per pick or per carton picked depending on the warehouse.
- Storage: When you store your goods in the facility, you will incur costs for this. It is similar to paying rent for your goods. This ‘rent’ is calculated per pallet per week or by using the total space that the goods use up.
- Operations administration: This refers to the cost of keeping the storage facility open, including overheads such as insurance, taxes and line supervision.
- General administrative expenses: These are the expenses that the larger organization incurs and not what the warehouse incurs. These costs are obscure as it depends on how they are allocated.
Ways To Reduce Warehouse Costs
Prioritizing better management of your warehouse will be able to improve warehouse efficiency and lower costs as well. Here are some ways that you can use to spend less and make more.
- Gain inventory visibility
Warehouses are experiencing greater demands for products now more than ever, but it might not be able to reduce the time that products remain in the warehouse. Some companies might still have older stock as each day they receive more stock. It can be difficult to rely on employees’ memory to locate all products. The solution is to gain inventory visibility across your entire supply chain.
- Optimize storage space
The optimization of your storage space might seem like an obvious thing to do, especially when considering cutting costs, but it can be overlooked. Online shopping has created a greater demand of inventory as customers now demand more customization and personalization in the products they purchase. Having more personalized products increases inventory as there becomes more SKUs in your warehouse.
It is important to then optimize the space you have by adjusting the physical structure which could entail building a storage or adding extra storage aisles by reducing the distance between aisles. You can optimize your warehouse flow by aiming to increase warehouse productivity and performance.
- Prevent theft
Theft leads to a reduction in inventory and it is an issue that is difficult to prevent. In some instances, it could be difficult to identify whether there is stock missing due to theft or if it has been misplaced which makes it difficult to identify the perpetrators and prevent this from happening again.
There are signs within the warehouse that could indicate theft such as inventory levels not matching your sales records, missing or unusual invoices, and rumors about theft from the staff. The reason for why theft occurs can vary, but it is crucial to prevent it from occurring. To prevent theft, you need to do stock takes regularly, educate the staff about theft and how to identify it, and always have accurate inventory data.
- Employ cross-docking
One of the methods you can use to reduce warehouse costs is through cross-docking. This happens when products are transferred from the supplier straight to the customer which eliminates the need for the middleman. This is able to reduce costs for other points like delivery and labor. The different methods of cross-docking spend on the products that are being shipped such as flow-through, ship to mark for, merge in transit, and pure cross-dock.
Cross-docking does come with some risks as the business cannot package in the manner that they prefer which leads to a loss of inventory. However, WMS can assist with this as it can implement inventory control processes and practices. Though WMS can help with the limitations of cross-docking, it is important to remember that the purpose of cross-docking is to ship out inventory without making any adjustments.
- Slotting optimization
In warehouses, pickers end up spending so much time trying to move between orders and trying to find the right product to pick. Being able to have the right product at the right place and at the right time will greatly improve your picking speed and the time you take to process orders. Slotting optimization assists you with finding the best location to place your inventory by grouping them based on your picking methods.
In order to cut costs in your warehouse, you can create a ‘golden zone’ which is the most accessible location in your warehouse, and then you will store all your fast-moving items there. This method will also assist with increasing worker safety and productivity in the warehouse.
- Offer more customer pick up and deliveries
Another method you can use to decrease warehouse costs is through shifting the burden of storing inventory by moving products to retailers. This is done by using your retail locations to provide fulfillment by allowing customers to pick up their products there, which then shifts the burden to major retail outlets. This not only reduces warehouse costs, but it can also increase product visibility.
By following the recommendations above you will be able to have a more efficient warehouse and receive measures you can use to cut costs in your processes.