Storage costs can increase without anyone noticing. And before you know it, quarterly numbers are down and margins are thinner than expected. But there’s usually a silver lining behind this: most warehouse operations have significant room to reduce costs without sacrificing performance or service quality.
Not sure where to start? Here are some places to look:
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Optimize your layout
A warehouse layout that made sense five years ago may cost you money today. Product mix changes and shifting order profiles. Not to mention the fact that your SKU count is probably growing year over year. The reality is that the physical arrangement of your space doesn’t always match those changes.
The most common presenting problem is lost travel time. Your highest speed items should be positioned in the most accessible places. Otherwise, your constituents are walking further than them must in every I order. This extra distance adds up to hundreds or thousands of choices per day. It shows up in things like business hours and order fulfillment speed.
Perform a crack analysis at least every year. View your SKU velocity data and make sure your fastest moving products are in the most ergonomic and accessible positions. (Ideally, this is at waist height in the picking areas closest to packing and shipping.) Slower moving items can occupy less accessible locations without affecting efficiency.
Aisle width is another area worth a closer look. If your aisles are wider than your equipment requires, you’re giving up storage density for space you’re not using. Try to narrow aisles where possible. This either reduces your need for space or increases your storage capacity within the same footprint. Each of them is a victory!
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Reducing energy costs
Energy is one of the largest controllable expenses in a warehouse. It’s also where targeted investments can produce some of the best returns.
Lighting is the obvious starting point. If your facility still has metal halide or fluorescent fixtures, switching to LED lighting reduces electricity consumption. Moreover, it reduces maintenance costs. (That’s because LEDs last dramatically longer.)
However, HVAC and cooling costs are where the biggest savings live. In warehouses with high cooling demands, the type of cooling system you’re using makes a big difference in your operating costs. Water-cooled chillers are worth evaluating if you’re running a large facility in a warm climate. These systems can reduce electricity consumption from 20 to 37 percent compared to air-cooled systems, depending on facility size and local climate conditions. The initial investment is higher, but the long-term reduction in operating cost is huge. For warehouses with cold storage or climate-controlled areas, the turnaround time on a water-cooled system is usually shorter than people expect.
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Check your inventory practices
As you know, keeping inventory costs money. Each unit sitting on a shelf represents capital that is tied up instead of working elsewhere. These expenses usually go between 20 and 30 percent of inventory value each year.
The goal is not to eliminate inventory. Really, you just want to keep the right amount, as excess stock ties up money and space. On the other hand, lack of inventory creates inventory that costs you sales and damages customer relationships. Finding the balance requires accurate forecasting of demand.
Dead stock is something that deserves special attention. Products that haven’t moved for 90 or 180 days are consuming space and capital without producing revenue. The best thing you can do is liquidate them or return them to the supplier. Freeing up space and capital is almost always it is worth more than keeping them in the hope that they will learn.
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Invest in your work efficiency
Labor is usually the highest cost in a warehouse operation. It is also the area where efficiency improvements produce the most immediate results. Here are some good investments you can make:
- Try to apply documented standard operating procedures for collection, packaging, receiving and placement. This kind of consistency raises the level of performance across the team.
- Batch picking, wave planning, and zone picking strategies can reduce the labor hours required to fill the same number of orders. The right strategy depends on your order profile. A facility that ships many small orders benefits from batch picking, where a single picker collects items for multiple orders in one pass.
- Technology investments at the individual employee level also make a difference. Things like barcode scanners and voice-guided picking all reduce errors and increase pick rates compared to paper-based processes. The error reduction alone often justifies the investment.
Finding your profit
Storage profitability lives in the details. Operations that consistently produce strong margins are those that regularly examine each cost category and make data-driven decisions about where to invest and where to cut. If you can master these areas, you will get the results you need.
Photo by Ioana Cristiana: Unsplash
