Importance of transition from traditional warehousing to warehouse production

The interest and focus on warehouse logistics have exploded last year during the pandemic. The increased interest started already a couple of years ago because of increased e-commerce and greater demand for better service and with that increased costs was a fact.

The problem is the traditional view on warehouse logistics. Historically, the ambitions have been quite low. The willingness to invest in both technology and soft values has been quite low.

The traditional view have been, “storing goods in a structural way with acceptable quality”. The costs have not been in focus. Even if it has been fluctuations in demand, you have just “invented” tasks for staff in order to avoid layoffs of staff. For example extra cleaning, extra stock controls and the pace have been lower etc.

I have a good example regarding above. This mindset still exists to a very high degree.  I shared below picture on LinkedIn. Apparent efficiency vs. True efficiency, this also applies to warehouse logistics. If you don´t have any value creating tasks you can´t invent tasks for the staff. You need to adapt resources to current demand regarding inbound/outbound flow. However, when I shared below picture I received many questions from persons in senior roles who asked “what to do with the staff?” I am quite surprised so many people do not understand and accepts true efficiency! The same rules applies on warehouse logistics as production units. If no demand, no activities and you have to adapt/reduce resources. If higher demand, more activities and you have to increase resources.

(The picture is shared from Lean Enterprise Institute)

This mindset is the most important you need to implement in a modern warehouse logistics. That is why I keep repeating, the first thing you need to have in place before investing in technology is a competent warehouse management. This is why I have written so many articles about leadership and lean.

Senior management often underestimates the old culture in their warehouse logistics. You have to educate and work with the old static mindset and adapt to a production-based mindset. That is why I prefer to say “warehouse production” not “warehousing” Warehouse production is so important as a margin enhancer you can´t afford to ignore that.  As I wrote in my last article, according to a McKinsey report “Lean and mean: How does your supply chain shape up?” you can reduce warehouse operations costs with 20-50% when implementing lean! The main reason for this increased efficiency is the focus on adapting resources in lean and the mindset to focus on value creating tasks. Minimizing “touches” in the flow and “hunting” time thieves, reducing bottlenecks etc.

The times when we could have too much resources in periods with low demand is over. As all productions, you need to adapt to demand, that is why everybody is talking about agility. E-commerce with low margins and very volatile demand knows this. They could not survive without production-based mindset. However, the trend is coming to warehouses working with B2B too. Every business need to look at all costs including warehouses for many reasons. For example increased labor costs, increased facility costs and shortage of labor etc.

As I wrote before you need to have a competent warehouse management in place before looking at investments in any kind of automation and/or WMS. Otherwise, you will certainly not have the expected impact. You need to adapt your KPI to the new mindset. Every important KPI should affect and be visible in financial figures. It is the same for all KPI, productivity, quality, HR and so on.

Transparency is also important just like in production. The staff need to see the pace in warehouse in order to feel ownership and take responsibility. Visualization is an important part of this and I have written an article about that on my blog. You need to communicate the current state in warehouse in regular meetings, talk about the KPI´s and financial figures. The more knowledge in the organization the better understanding for the actions taken. This applies to all levels in the organization from the top to the floor.

I often see companies with high ambitions regarding warehouse logistics but often they have forgot to involve and educate warehouse management and they also seems to have trouble identifying the issues regarding high costs despite big investments in automation and/or competent WMS. My advice, start with people and culture, a new mindset before investing in technology. Lean can be the right alternative for your organization.

Roberth Karlsson

1 Comment

  1. A manufacturing plant delivers customer orders. A warehouse, too.
    The difference comes on how to build an orden. In most of the cases, assembly is the only task in a warehouse; there are many other tasks in a plant.
    All the manufacturing concepts can be applied to logistics.
    Regards.

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