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COST-EFFECTIVE STRATEGIES FOR MINIMIZING WAREHOUSE EXPENSES DURING ECONOMIC DOWNTURNS

by | Jan 13, 2024 | Blog

As order volumes decrease and warehouse capacity exceeds demand, effectively handling warehouse costs in order fulfillment becomes crucial. Michael Barela, Regional Manager of Operations at , emphasizes the complexity of navigating a downturn, highlighting the need for vision, strategy, and precision to make advantageous decisions. He underscores the role of leaders in managing, communicating, and guiding the vision through challenging times.

To address significant cost factors such as labor, shipping costs, inventory, and waste, consider the following tips.

MINIMIZE LABOR EXPENSES – A PRIMARY COST COMPONENT

Labor expenses can constitute up to 70% of a warehouse’s operational budget. While a quick reduction in staff might seem like an immediate solution to cut costs, it can have lasting negative effects on your business. Instead of taking such drastic measures, several strategies can be employed to optimize staff utilization and diminish costs associated with employee turnover:

  • Review Shifts and Schedules: Aligning work schedules with anticipated volume and current sales projections can help manage the fluctuations in warehouse activity. This approach ensures that staffing requirements are in sync with the dynamic nature of the business.
  • Cross-Train Employees: Training employees to perform various functions within the warehouse, such as receiving, puta way, picking, packing, and cycle counting, can enhance flexibility. Cross-training enables the team to adapt quickly to changing goals and business conditions, addressing workflow fluctuations and potential bottlenecks while fostering teamwork.
  • Prioritize Employee Retention and Performance Incentives: Recognizing the high costs associated
  • with turnover, it is crucial to focus on retaining employees. Offering competitive wages, cultivating a positive workplace culture, improving working conditions, providing support, and offering training opportunities contribute to employee satisfaction and retention. A content and committed workforce leads to increased efficiency, high morale, and superior performance.
  • Utilize Warehouse Technology: Incorporating technology into warehouse operations is vital for enhancing efficiencies. Warehouse automation, including optimal Material Handling Equipment (MHE), automation systems, and Warehouse Management Systems (WMS), can streamline operations and contribute to cost reduction. Embracing technological advancements is key to staying competitive and efficient in the modern warehouse environment.

MINIMIZE EXPENSES RELATED TO SHIPPING

Shipping stands out as another significant area of expenditure. The costs associated with order fulfillment shipping are both intricate and variable. To curtail these expenses, consider implementing the following measures:

Shipping stands out as another significant area of expenditure. The costs associated with order fulfillment shipping are both intricate and variable. To curtail these expenses, consider implementing the following measures:

  • Evaluate Service Levels: Adjusting service levels can unlock substantial opportunities for savings. If you currently provide free shipping, consider modifying your shipping service levels to mitigate the overall shipping costs.
  • Conduct Shipping Invoice Audits: Ensure the accuracy of your shipping invoices. Regularly reviewing shipping performance and scrutinizing invoices can help you identify potential overcharges and discrepancies.
  • Review and Negotiate Shipping Partner Contracts: Delve into your shipping partner contracts and negotiate rates to seize opportunities for cost reduction. Consider factors such as the Dimensional Weight (DIM) factor and how it compares to industry standards. Assess if collaborating with a third-party logistics (3PL) partner could yield more competitive shipping rates. Additionally, evaluate if you are utilizing appropriate shipping supplies and boxes for customer orders, avoiding the expense of shipping empty space.
  • Implement Carton Models: Employ a carton model that systematically identifies the optimal box size for each order, reducing shipping costs by avoiding unnecessary empty space. This strategic approach ensures efficient use of packaging materials.
  • To gain a comprehensive understanding of shipping costs, explore the intricacies outlined in the Anatomy of a Parcel Rate.

STREAMLINE YOUR INVENTORY MANAGEMENT FOR COST REDUCTION

Consider the following steps to optimize your inventory and reduce costs:

  • Evaluate Inbound Product Receipts and Purchase Orders: With high cost-per-square foot, reducing carrying costs significantly impacts warehouse expenses. Adjusting the flow of inbound products can accelerate the sale of existing inventory, thereby lowering on-hand inventory and minimizing labor required for receiving and puta way.
  • Transition to a Just-in-Time Inventory Model: If feasible, adopting a just-in-time inventory model reduces on-hand inventory, thereby cutting capacity costs and inventory carrying costs. Effective management on tighter margins necessitates precise forecasting and efficient order fulfillment technologies.
  • Purge Excess or Stale Inventory: Reduce on-hand inventory to diminish capacity expenses, particularly by eliminating excess or stagnant inventory.
  • Conduct a Slotting Analysis: Review warehouse product storage methods to optimize order picking efficiency. By locating inventory closer to pickers, you can reduce the time and labor costs associated with order picking.
  • Examine Capacity and Real Estate Costs: Managing space effectively is crucial, considering that capacity and real estate costs are among the highest expenses in warehouse operations, and they continue to rise. Strategic space management can result in significant cost savings.

MINIMIZE EXPENDITURES THROUGH WASTE REDUCTION

Identifying and addressing various forms of waste is essential, often requiring a deliberate search. By applying LEAN principles, non-value-added activities and processes can be pinpointed. For instance: