Measuring efficiency to uncover the hidden cost of poor warehouse operations
Order picking is expensive. If you diligently compare the cost of various activities in your warehouse, you will undoubtedly find that your picking personnel cost you a lot more than just their salary and benefits. There are enormous hidden costs associated with picking and shipping errors.
Do you know how much this is costing your company?
The first question is: Do you know how to measure the cost?
- What is the rate of picking errors?
- What is the rate of shipping errors?
- What is the rate of out-of-stock inventory?
- What is the “bounce” rate associated with lost sales due to out-of-stock inventory?
- What inventory levels are too high, because warehouse efficiency is too low?
- How many inventory turns per year do you achieve?
- Could your turns be higher, if you had more efficient warehouse operations?
- Could you ship as much or more with less warehouse space?
- How long does it take to train new warehouse employees?
- Does your inventory usage information adequately inform your purchasing department?
- What is the time from receipt of inventory until it is available for sale?
- What is the time between order receipt and shipment?
- If you ship by UPS, or FedEx, are you getting back-charged for dim / weight errors?
This is a general list. There will be unique performance metrics for every company, but this list gives you a starting place to determine the areas you should be looking at. If you aren’t measuring the warehouse inefficiency factors that impact your business, you cannot know how much your warehouse inefficiency is costing your company. These costs can be huge. And they can never be recovered.
So, the first step is to consider what metrics really define the cost of inefficient warehouse operations to your company.
Even then, if you can’t gauge the impact on lost sales of inaccurate or slow shipping, you still don’t really know what your warehouse inefficiencies are costing your company.
After you have looked at the “inside” costs of warehouse inefficiency, the second step is to try to assess what the lost-sales impact of inefficient warehouse operations is to your company.
Once you’ve quantified the cost of warehouse inefficiency, at least in general terms, the next thing to consider is whether a technology upgrade (which involves both RF technology and software upgrades) would improve the situation.
Again, until you know (at least in general terms) the cost of your warehouse inefficiency, it will be difficult to cost-justify moving to new RF technology and new software.
You won’t improve what you don’t (or can’t) measure! We can help.
Avectous Integrated Software.