Do you have total cost control in your warehouse production?

Supply chain including warehouse production is all about cost control. Every process, from orders to suppliers to picking and packing to customer. It is all about analyzing, measuring and finding a cost price for every process. If you have a price there is a lot easier to make the right decisions, both at strategic and operational level.

As I have written in many of my previous article’s humans cannot think statistical, even if we have long experience of numbers and worked with analyzing (read Daniel Kahneman  “Thinking, Fast and Slow”) therefor it is crucial to have facts on the table before you take decisions regarding changes in the logistic flow. Even the smallest changes in flow can have economic consequences, like changes in order policies for customers, it can have major impacts in warehouse efficiency. More picking rounds to a lower order value. Or if purchasing department calculated a incorrect economic order quantity and/or carrying cost of inventory it can have a very negative impact in warehouse costs because of difficulties using floating pick locations and hard to ABC categorize because of low quantity of empty picking locations and in worst case a high percentage of obsolete stock. As a responsible for warehouse operations you may think that obsolete stock is not my problem and same to EOQ but that is not true. It is your staff who is going to handle all the obsolete goods or all the bonus purchases that is flooding your warehouse, and it is you who is going to try to explain in front of senior management why warehouse operations is so expensive and why the costs is pointing in wrong direction.

In my opinion you can never have too much knowledge about the business in warehouse. Even if purchasing is not your responsibility it is good to understand the subject and have knowledge about the costs, same applies to sales departments. But remember senior management always look at the total costs and sometimes maybe the warehouse costs increases but the total cost decreases. Still it is important as a responsible for warehouse operations that you can explain why the operational costs are increasing. Maybe you are wondering how can I get all the figures about EOQ or carrying cost of inventory? My advice is to be curious and ask about everything! Ask someone at the purchasing department how they calculate the costs, then look at your warehouse what is the cost when you handle goods in and put away. Calculate what each type of location costs in a year. In this way you can compare and see if it appears to be consistent with reality. Don’t be surprised if your reality differs from purchase departments reality.

The best way to have cost control in warehouse is to have a competent WMS with a good and detailed time logging feature or a LMS (Labor Management System) In this way you can analyze the time you spend on every operation and what impact sales and purchasing departments decisions have on your warehouse operations.

As I have written before a warehouse manager with management team need strong analytical skills and a great technical interest to be in the forefront of warehouse development and be competitive.

To avoid sub-optimization between departments and keeping focus on total costs you need to use cross-functional teams that work together regarding important questions with major impact on logistic costs. It might sound obvious, but the fact is when I visit companies most of them don’t work like that.

Roberth Karlsson

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