12 January 2023 Small bottlenecks in processes hide warehouse costs that affect the financial health of the company and even customer satisfaction. When was the last time you evaluated the real cost of your warehouse? What factors were taken into consideration? Do you really have an efficient and cost-effective operation today, or is there still room for improvement? Receiving a product, storing it, sorting orders, and shipping it seems like a relatively simple procedure, but you, who work with these processes, know that it’s not quite so. The big challenge is ensuring that the right item is in the right place at the right time. It is also important to ensure that the entire operation takes place in a continuous flow without bottlenecks. Not to mention the great care that must be taken in handling, allocating, and securing goods to avoid losses. And then we talk about managing thousands of references, managing spaces well, monitoring people’s work, ensuring the intelligent use of equipment and its proper maintenance, in short… In every aspect, there is an intrinsic cost, and any oversight at the same point can not only cause a loss but also impact the costs of the entire operation. It is for these reasons that it is necessary to understand the expenses related to each process, paying particular attention to hidden costs in the warehouse. We will address them in this text. Where you might be spending more On average, 70% of warehouse costs are related to product handling, meaning the most expensive part of its operation is precisely handling. Picking is one of the most expensive processes and can consume up to 60% of the total operation expenses. But we cannot forget other stages that also involve the handling of goods, such as receiving, storage, replenishment, and shipping. It is also necessary to consider expenses related to the use of space, especially if you use a rented warehouse. You must exploit every square meter of your warehouse because it is worth a lot. Have you also thought about the costs related to reverse logistics? And when exchanges and returns occur due to picking errors? You have surely already realized that we are talking about a domino effect. If one of your employees improperly handles a product, sends it damaged to the customer, and the customer requests a replacement, not only are you losing money in your business, but you can also undermine the company’s reputation. This also happens when the sorter sends an incorrect product, which can even be damaged in the “round trip” between the customer and the distribution center. In this sense, a fundamental point is to ensure that each merchandise is handled as little as possible and in the correct way. Similarly, your team must be ready to perform their tasks with absolute precision and assertiveness. But, after all, what makes one warehouse more efficient and profitable than another? There are many factors at play, but we can assure you that one of them is attention to hidden costs. Do you still have questions about what they are? Discover them below. Hidden costs in the warehouse We call “hidden costs” those that can go unnoticed or do not clearly manifest in financial management but certainly weigh on expenses and cause your company to lose money that could be invested in improvements. Let’s go into more detail about each of them: 1) Employee movements: repeated accesses to the same place and/or long distances Employee trips represent, on average, 60-70% of labor costs. Since the movement of operators in the warehouse is a routine activity of the company, it is difficult to understand that there may be expenses. However, if you pay attention to the details, you will surely be able to identify it. For example, if the employee goes back and forth multiple times to the same place to separate a product, there is an inefficiency that could be corrected with the help of technology. For these cases, common in operations dealing with fragmented orders, the WMS system has the solution of order grouping, or batch picking, through which the picker goes to an address and separates a larger quantity of a given product present in multiple orders. In the shipping area, these products are separated in the storage wall (or hive division), and the order is finalized. As a result, there is an increase in productivity, and the additional time the employee would spend “back and forth,” separating one item at a time, can be used to perform another task. The situation also occurs where the picker travels long distances to retrieve the goods included in the order, dedicating an excessive amount of time to the picking process. This could be resolved with the intelligent organization of the storage space (according to ABC classification) and the employee’s route. The WMS also helps in these situations. In addition to automatically directing stocks, following the storage rules of each item and the ABC curve, the software also coordinates task execution (Active Call), organizing them so that the operator always travels the shortest path. The system performs all movements also aiming to reduce product handling. 2) Products in inadequate positions and/or housing defects Inadequate storage of goods increases the number of pallet positions needed to store the item and the operational efforts for storage and picking. For example, in some companies, product addressing is defined exclusively based on the type of SKU, dimensions, or storage requirements, without considering product turnover and distances traveled by employees. Therefore, the problem presented in the first topic ends up occurring, delaying processes and potentially causing errors and rework. Not to mention that excessive stock fragmentation can lead to poor use of storage space. In the end, you end up spending more. It is for these reasons that companies have invested in management systems, such as WMS. The software has the slotting functionality, which aims to define the best position for each product with the goals of maximizing space use, improving storage and separation efficiency, and reducing handling costs, optimizing product positioning, and balancing the workload. This strategy takes into account a series of factors, such as location, size, and weight of the product, to sequence items on the picking path and, thus, define the best positions. Proper slotting results in reduced employee movements, more stable loads, fewer accidents, and less product breakage. 3) Wrong picking method for the company In the first topic, we talked about batch picking as a strategic solution for warehouses that handle fragmented orders. Well then. In many cases, more common picking methods, such as order picking, where each operator fulfills a single order at a time, are still used in these operations. In this context, inefficiency is certain, as is the increase in costs. Similarly, warehouses that handle large volumes must use the most appropriate type of separation. And so on. Each operation has its peculiarities and needs to adopt the picking model that best suits its needs. When this does not happen and the company uses a method without criteria, it is likely that there will be a greater cost in what is already one of the most expensive processes of the operation. 4) Paper-based storage and picking Both the storage of products after receipt and the separation of orders are crucial processes for the warehouse to function efficiently. Failures and delays in any of these stages affect the operation as a whole and, worse, can even impact customer satisfaction. In many companies, these processes are carried out 100% manually, with the help of documents and paper lists. With paper in hand, you already lose the natural efficiency in retrieving information, reading, inspecting the product, confirming, etc. Moreover, when the employee has to go to the print shop to retrieve documents, there is another loss of time. Additionally, paper-based processes are subject to errors and rework. To avoid these bottlenecks, it is worth investing in the use of collectors or smartphones integrated with the WMS system, or even, in the case of more complex operations, in automation systems. Technology comes precisely to eliminate the problems caused by manual processes, therefore, companies that have prioritized digitalization and modernization in their operations end up making a huge leap not only in terms of efficiency but also in profitability, as warehouse costs are reduced with the gain of agility and precision. 5) Little attention to inventory monitoring Inventory management is a challenge that primarily involves maintaining balance. You can’t have too much, which can lead to shelves full of expired or obsolete products, cash lying around, or a larger installation than actually needed. And you can’t have too little, resulting in product shortages, unfulfilled orders, and dissatisfied customers. Therefore, balance is essential. To get an idea of what this means in financial terms, it is estimated that companies can increase profitability by 20 to 50% through careful inventory management. Monitoring is essential. The product must be monitored and recorded from receipt, as poor practices at this stage affect the entire remaining flow of the operation. Whether through the use of barcodes or radio frequency identification (RFID), a detailed history of inventory transactions entering and leaving the warehouse can improve visibility and reduce errors, helping to reduce costs. Using one of these tools integrated into the WMS system, which provides data and updates stock in real-time, guarantees you greater accuracy. It is worth adding that shelf life and stock rotation can also have a significant impact on hidden costs in the warehouse. Therefore, it is essential to know where each lot is located and when the product will expire. If losses occur within the inventory, there is a loss not only associated with the value of the item but also with the storage cost and labor used to receive and allocate the goods. Reduce hidden costs in the warehouse with the right investments! Through the descriptions of the previous topics, we tried to show the hidden costs in the warehouse, indicate ways to reduce or even eliminate them. And you will have noticed how the WMS system can be a great ally in this sense. Having a powerful WMS will help reduce expenses, increase inventory accuracy and storage capacity, and improve customer satisfaction. All of this can bring a great competitive advantage to your company. In times of strong competition and with increasingly demanding consumers, the difference between surviving in the market and thriving lies precisely in how managers look at their operations, especially in the details that can go unnoticed. Many of these “details” can involve hidden expenses that prevent a company from growing. In the case of logistics, the problem can become even more critical if the solution used to cover costs proves inadequate. There are those who, for example, believe that hiring more employees, extending the deadline for completing activities, spending hours and hours redoing an operation map, or reviewing spreadsheets can solve the problem. And indeed, this can lead to even more expenses. It is for these reasons that today investing in technology is no longer an element of differentiation but a necessity. With the right tools, it is possible to use warehouse resources intelligently, increasing gains and profits. Therefore, our recommendation is: do not postpone to tomorrow the innovation you can implement today! Hidden Costs in the Warehouse: Discover Where Your Company Might Be Losing Money Deagor WMS per ecommerce può aiutarti!