Base your strategic decisions regarding warehouse operations on reliable statistical data

Logistics and statistical data are inseparable. To conduct an efficient logistics you need qualitative statistical data. Everything is connected in the supply chain, what you do on one end has consequences at the other end.

You need statistical data to evaluate the cost of the different stages of the supply chain and be able to evaluate what is the most efficient logistics in relation to the service rate and sales.

When I network with colleagues in logistics business, I notice that too many decisions in companies is based on assumptions and feelings. It is reprehensible. Daniel Kahneman describes in his book “Thinking, Fast and Slow” how we humans cannot think statistically, even if we are working with statistics throughout our lives, we are not able to make statistical assumptions. We must use statistical data and rely our decisions on facts.

Considering the above, it is extremely important to have good systems in supply chain and inventory management that has the potential to collect and analyze statistics that are the basis for decisions.

What decisions do I mean? For example, decisions that takes into account all interests in the sales department and the logistics department, decisions that makes the right compromises in relation to economic consequences. The sales department wants everything in stock so they can have 100% in service rate, which is obviously unreasonable. The company’s supply chain manager also want to have high service rate, but he also wants to keep down the value of inventory as much as possible. Warehouse manager wants to keep his costs down and have a good efficiency and quality.

Based on the above, it is a common scenario that Supply chain manager will have the task to increase inventory turnover and thereby reduce the stock value. What happens to the Warehouse? Well they get significantly more purchase order lines and more assignments. More warehouse transactions provides more steps that takes more time and therefore increased labor costs.

In this situation, it is important to analyze the cost of each process in the warehouse and to prove the statistical difference in the number of warehouse transactions. With help of statistical data it is possible to demonstrate the increased costs it causes the warehouse. Then there is senior management’s responsibility to understand this and be aware of what the consequences are. There is no right or wrong but every decision has consequences. It is not certain that it gives a great financial saving to increase inventory turnover. It is not certain that the stock value is reduced either, to lower the stock value is often more complex than that.

As for outbound orders, we have the same thing. The sales organization wants to be able to order and deliver from the warehouse 24/7 to be as competitive as possible, and there shall be only one type of order and you can use it as often as needed. Warehouse manager in its turn want high efficiency and keep down labor costs. It is important to understand the consequences and be able to explain the effects. You must be able to put a cost on each warehouse transaction and use statistics to show the differences. If you let go of the restrictions on the order structure such as number of orders and orderliness per order the efficiency in the warehouse will reduce drastically. It is important that senior management understands that the warehouse labor costs will increase and you may have to invest in more hardware to the warehouse. If you analyze the statistics and putting a cost on every transaction in the warehouse, you can provide a basis for senior management so they understand the consequences before they take decisions.

Many companies put great focus on expertise within sales organizations and supply chain. Unfortunately, it is rare to meet a company who also invests in warehouse logistics competence. A senior manager must understand how closely linked these three areas are and how dependent they are on each other. There is so much money to save if you work in cross-functional teams.

It is remarkable that not more companies putting together a cross-functional team working with data and statistics from all three areas and analyzes the benefits versus the costs before they launch projects and ideas which today are based on assumptions and feelings of each individual area.

Remember to invest in warehouse competence. Warehouse operations is complex and there is a big potential to save money with the right skills in place to analyze statistical data and take strategic decisions.

Roberth Karlsson

4 thoughts on “Base your strategic decisions regarding warehouse operations on reliable statistical data

  1. Statistics are key for warehouse design and operation. They show you the way to properly organize the space and point to the optimal handling methods. They give you one of the keys to success; one other relies on management.

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