Moving your warehouse from cost center to competitive differentiator

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September 2, 2020By Josh Ferguson

Many organizations tend to view warehouse operations as cost center due to the labor, equipment, and physical inventory. However, with business models rapidly changing through e-commerce, omni-channel, curbside pickup, 3D printing, and more, warehouse operations empower a company to gain a competitive advantage by ensuring customer loyalty and brand excellence stays intact as products enter the last mile.

Common warehousing challenges

Warehouse directors understand the challenges most, if not all distribution centers manage. These challenges cover a wide range of issues which include picking optimization, inventory management, operational strategy, employee management, returns, and much, much more.

Picking challenges

For example, a large amount of productivity is often lost due to insufficient item master data. Without the proper item and location slotting for concepts such as seasonality, promotional activities, and sales projections, poor inventory placement across the warehouse can result in increased costs and reduced productivity.

Furthermore, many companies lack visibility into inventory quantity and location accuracy due to a heavy reliance on spreadsheets, pick sheets, the absence of cycle counts, capacity constraints, or a lack of digital monitoring all together. No visibility into inventory quantities or throughput can result in declining fulfillment rates, stockouts & backorders, decreased service levels, and waning customer loyalty and sales opportunities.

E-commerce continues to change the game

While e-commerce has created numerous challenges and adjustments to warehouse operations for years, increases in e-commerce activity sparked by 2020 shutdowns and safety protocols have expedited the need for near-instant adjustments, scalability, and the introduction of new business models.

In order to match the speed of digital business, warehousing is expanding into localized areas as space previously utilized as storefronts is emerging as smaller, localized fulfillment centers. This allows the organization to offer curbside pick-up, same day delivery, and more. As newly adopted customer behavior become permanent, more and more organizations will continue to explore and implement this model.

Persistent labor shortages

Prior to 2020, a warehousing labor shortage has been a consistent challenge. As a result, many organizations are increasing their headcount to meet demand and ensure enough employees are available if someone requires an extended absence due to illness or injury. To adapt, organizations need to implement advanced scheduling strategies, employee health checks, and routine sanitation schedules to ensure safety measures are maintained in order to keep the warehouse running smoothly.

Implementing a cost-to-serve model

As more customers expect specialized or customized services, the need to segment operations and evaluate cost-to-serve models can be the difference between sustainability and profitability. With more and more organizations seeking to outsource fulfillment operations to third-party logistics service providers, determining what to charge for specific services and requirements is critically important. However, many organizations have yet to adopt a true cost-to-serve strategy and continue to render “blanket pricing,” leading to higher fulfillment costs and lower revenue.

Increased need for streamlined reverse logistics due to returns and recalls

As online orders increase, so have returns. For example, a customer may order the same clothing item in multiple sizes with full intent on returning all but the one that best fits. The fulfillment costs, combined with the return management costs, will far outweigh the revenue associated with that order. In the case of returns, having a reverse logistics strategy to ensure items are properly marked for resell, repair, or recycle will maximize the product’s lifecycle and lower total cost.

While these challenges have been prevalent for several years, many organizations have yet to address them head on, or at all. For organizations looking to improve the warehouse operations to drive additional value, now is the time to explore the right strategies and tools to take the necessary steps.

To learn more about how you can drive operational excellence in the warehouse, checkout the complete best practices guide.

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