Part 2. Controlling labor costs. If you ask any distribution company what the most difficult cost is to control and they would most likely say labor. This is of course the largest part of the cost in a warehouse operation.
Take a look at what is being done today. Question and document who is doing each function and how long it takes them to do it. Start with receiving; go through the whole process all the way up to replenishment and picking. You will most likely find that picking takes most of your time to complete. Find out what takes them the most time for each function and what areas they struggle with. Ask questions, they are the ones that know in many cases how things can be improved to make them more efficient.
You will also want to check the layout of your warehouse. Make sure that it is laid out in the most efficient manor to help reduce time hunting down inventory. Make sure that your fast moving inventory is front and center.
Once you have a good handle on the current processes, don’t be afraid to try to improve each one. Start with the smaller ones that you know you can improve quickly. You will be amazed how easy this actually is. Once you have hit the low hanging fruit move on to the larger or more complex processes. Don’t be afraid to create a small team to make recommendations and drive improvement.
Consider automating these processes. There are many ways to do this to cut down or eliminate paperwork and time wasting processes. Manual processes are very time consuming and are extremely error prone. Even if you are not making many mistakes right now, what is that costing you in terms of everyone that has to touch or check each order?
Picking typically accounts for approximately 60% of labor costs. Companies that implement a system to improve labor utilization by about 16% to 35%. These companies also maintain steady labor and equipment levels while they increase sales. Indirect labor, overtime, and duplicate data entry are drastically reduced.
There are many warehouse management systems and tools to help with this process. The idea is to better control your labor costs. The most efficient warehouses are able to reduce warehouse cost significantly by reallocating employees to other areas of the business or not replacing employees that have left or have retired. They are even able to grow more quickly and substantially without adding new labor costs in the warehouse.
By aligning all the stars in your warehouse you will also reduce labor turnover. It costs a lot of money to hire and train new employees. Create incentive plans around your now more efficient warehouse to ensure things flow smoothly. This will help you to motivate your warehouse employees and to keep them satisfied. The most efficient warehouses implement systems that require very little training for new employees for when they do need to add new ones. It is also very easy for them to hire temporary and seasonal laborers and get them to work in just a few minutes.
Eliminate physical inventory. If you have good processes in place you can eliminate the fun everyone has doing a physical inventory. You can simply do cycle counting to ensure that inventory is accurate. If you are like many distributors, you shut down your business for a few days and pay people overtime rates just to count what you have in inventory. If set up properly, you should already know this. Imagine how much money this can save you in recovering lost revenue and keeping the money you pay in overtime.
Lastly, seek professional help. Warehouse experts know the best way to layout a warehouse and know what systems make the most sense to implement to add to your bottom line. They will also help to plan for your future needs.
Make Money here:
- Personnel handling paper – potential headcount reduction or resource redeployment
- Personnel handling order picking – potential headcount reduction or resource redeployment
- Personnel handling shipping paperwork and confirmation – potential headcount reduction or resource redeployment
- Eliminate physical inventory-Cycle counting will replace physical inventory requirement.
- Reduce excess labor by eliminating material returns due to picking or shipping errors. Improvements of 16% to 25% are often realized.