Standing in a warehouse full of your products is intimidating. Endless rows of products and bundles intended for your future customers.
But do you have enough inventory for those customers? Is your warehouse optimized to get orders to them in time?
There is little room for error when moving products from the warehouse to the customer’s doorstep. One mistake or delay is all it takes to impact your company’s reputation and revenue stream.
But problems are all too common in ecommerce logistics. Warehouse operations can quickly break down due to an inventory miscount or issues with your back-end logistics
Warehouse optimization plans can offset these problems. We’ll explore what warehouse optimization means, why it is important, and how to create your optimization plan.
Warehouse optimization is the process in which the use of time, space, and resources in a warehouse is made more efficient through automation and careful planning, improving customer satisfaction and experience.
Table of Contents
- Importance of Warehouse Optimization
- Why You Should Optimize Your Warehouse
- Optimizing Space Utilization
- The Benefits of Warehouse Optimization
- Five Tips for Optimizing a Warehouse
- The Warehouse Optimization Checklist
- Implementing a Warehouse Optimization Plan
- Warehouse Optimization Trends to Watch
Importance of Warehouse Optimization
Warehouses are central to ecommerce success because they store the most important part of the business – inventory.
No matter what kind of warehouse you use – in-house or outsourced to a third-party logistics provider (3PL) – the internal processes must be as efficient as possible. Prioritizing efficiency ensures timely order fulfillment for the end customer and minimizes costs through an effective supply chain.
Optimizing warehouses allows firms to make the best use of space to create a productive and profitable environment.
Warehouse optimization does not mean sacrificing the quality of service to save on costs.
Regardless of whether a business is new to managing a warehouse or has been doing so for years, warehouse optimization should guide all internal procedures. Especially for a new business, it can help build a strong foundation for future success and growth.
For businesses already with a functional warehouse, it can assist in streamlining your inventory management strategy and improve areas that are not performing to their full potential.
Besides efficient warehouse operation, optimizing workflows also translates to financial benefits. As we know, a lot of things have to go right to fulfill a single order.
However, warehouses lose money every day by sending out the wrong shipments, dealing with returns, inaccurate inventory counts, and human error.
These errors all stem from one cause ─ inefficient practices. For example, each time a wrong shipment goes out, a business must pay $22 on average in labor costs and customer impact.
A warehouse management software coupled with an inventory management system can address these inefficiencies through barcode scanning to mitigate mistakes.
One last reason to consider optimization is for the positive human impact it creates.
It’s easy to forget that real people work in warehouses where material handling equipment such as forklifts and pallet jacks are common.
A warehouse without the structure to address the movement of these tools and the safety of employees can ruin staff morale and lead to insurance claims in case of a serious accident or injury.
Why You Should Optimize Your Warehouse
While some businesses may outsource their inventory and delivery processing to a 3PL fulfillment warehouse, others prefer to handle things internally.
Depending on the business model in use, either method can be successful. For internal operations to succeed, warehouses must make effective use of space while keeping employees safe.
The safety of employees is by far the most important challenge facing warehouse operations.
The mere presence of safety precautions such as fire extinguishers, emergency exits, LED lighting, and mirrors can be psychologically reassuring and ease the minds of employees.
However, these features also take up valuable real estate, which could hold inventory instead.
So how do you determine how much space to use for safety precautions?
Optimizing Space Utilization
The calculating space utilization formula can help determine how to optimize space in a warehouse.
The space utilization formula relies on two key statistics:
- Total warehouse storage capacity (not including restroom, office space, etc.)
- Inventory capacity or the total volume that all your products take up.
Using this formula provides a comprehensive overview of how space is being used instead of basing it solely on total warehouse space or total inventory.
Pairing space optimization with optimized processes and real-time data can unlock opportunities to improve your bottom line become clearer.
The Benefits of Warehouse Optimization
Warehouse automation consists of two parts ─ process automation and physical automation.
Whereas the prior refers to the automation of manual processes such as data collection for inventory purposes, physical automation refers to the use of tools such as drones and robots to assist in the movement of goods.
Here’s how these benefits translate to more profit:
Accurate matching of labor to workload
Better planning and forecasting
Being able to plan and forecast inventory demands allows warehouses to better plan for the future. Having this data makes it easier to allocate resources without having to incur extra costs.
More return customers
Providing good customer service (timely delivery) is one of the key deciding factors when it comes to repeat business. Optimizing a warehouse creates conditions in which high-demand items in-demand are always stocked, leading to timely order fulfillment.
When all this automation is combined, it creates a reliable system of flowing inventory, better inventory procedures, and faster packing processes. This all translates to improved order fulfillment rates.
Five Tips for Optimizing a Warehouse
Realizing that your warehouse requires an overhaul is only half the battle. The next (and most important) stage of the optimization process is to take specific steps to bring about change.
While no two warehouses are the same, several strategies can jumpstart the process regardless of the type and size of your warehouse.
Understand product velocity
Product velocity refers to the rate at which certain items sell. Every warehouse will have certain products that move much more quickly, whether it be seasonal or during special promotions.
Warehouse design and layout must enable easy retrieval of these fast-moving items. Placing them on high shelves around the warehouse increases travel time and slows down operations.
A solution would be to place them in pallet flows close to your packing area.
Reduce human errors
When human error at a warehouse decreases, warehouse productivity increases. It’s the reason why it’s important to automate the repetitive task of marking all the products in your inventory.
If done manually, mistakes will happen regardless of how much training an employee takes. Invest in a warehouse labeling system and mark your aisles, racks, and your products.
Ideally, these labels should be easy to read from a distance and easy to recognize. It should be possible to identify them using barcode scanners at a distance to avoid confusion and errors.
Make use of warehouse management software
Warehouses are places bustling with activity. Workers must complete multiple tasks at any moment, including moving products, packing, labeling, and fulfillment.
Instead of trying to optimize for each of these activities separately, integrate your warehouse management software (WMS) with an inventory management system (IMS) like Skubana. This integration allows for all tasks to be managed from one unified platform.
A WMS allows managers to keep tabs on stock levels and how inventory moves out of the warehouse, which helps avoid stock control issues and unnecessary overhead.
Yet, when combined with an IMS tool like Skubana, the possibilities for your warehouse are endless.
Skubana comes with purpose-built warehouse optimization features, allowing users to do the following:
- Track live inventory down to the specific pick location
- Provide visibility of inventory across multiple warehouse locations
- Automate the packing and shipping process, including rate shopping
- Track which orders are assigned to which employees
- Adjust packing slips to group items by pick location
Automate shipping routing
A key step in the order fulfillment process is to ensure that packed goods go to the correct collections area for delivery. Instead of relying on human labor to do this, order routing automations can streamline the process.
Skubana offers an order routing automation called Orderbots that allows warehouses to pre-program where orders should go.
Skubana even makes it easy to choose the most cost-effective shipping provider with its shipping calculator, which calculates the best rate based on distance and delivery date.
Invest in robotic technology
Warehouses that invest in robotic technology experience clear tangible benefits of cutting expenses and increasing efficiency.
A few decades ago, the extent of technology in warehouses was limited to robotic arms that could move or lift heavy objects as directed by humans. Nowadays, technology can take on more tasks.
Here are a few machines commonly found in warehouses today:
- Automated guided vehicles
- Autonomous robots
- Automated storage and retrieval systems (AS/RS)
These tools are among some of the latest innovations used in warehouses. Some positive impacts of this transition include higher customer satisfaction, fewer mistakes in the delivery process, and the reputation of being an innovative brand, which can attract customers.
The Warehouse Optimization Checklist
Remember that these steps will only be effective if you’ve optimized for space beforehand. Still unsure if you’re getting the most out of your warehouse space?
- Measure the space you have to work with
- Define a clear-cut storage, sorting, office, and shipping locations
- Pick a shelving solution that best matches the type of products in stock
- Create labels for aisles and products
- Establish optimal material flow routes
- Place hot selling items in easy to reach locations
- Avoid overstocking on slow-selling items to save on space
For large businesses or those that serve a large geographical area, one efficient warehouse operation will not be enough to keep customers happy who expect swift delivery.
However, since it is not economical to create massive storage warehouses, many businesses set up several distribution centers. These allow them to send products temporarily from the warehouse before being processed and shipped to a customer located nearby.
Implementing a Warehouse Optimization Plan
A warehouse management system is made up not only of technology but people as well. Whether they be the forklift operator, material handler, shipping specialist, or the warehouse manager, each one of them has a role to play when it comes to reducing warehouse costs.
While it is the warehouse manager’s responsibility to implement an optimization plan, he/she still requires the ‘buy-in’ of every employee to ensure success.
Naturally, most employees will be resistant to change initially. It’s not always easy to convince people to adopt or use a new piece of technology, especially if it puts their job at risk.
To get employees to play their part, warehouse managers should do the following:
- Communicate the benefits of the latest software or technique to employees
- Include employees in the decision-making process by collecting their feedback
- Set-up training for employees to understand how the new software and tools work
A warehouse optimization plan can’t be completed overnight. Changing your warehouse operations can take months.
Re-evaluate your warehouse optimization plan three months after implementation. This ensures the processes are being followed correctly and allows you to make adjustments if needed.
Here are some common touchpoints to review when evaluating the success of your optimization plan:
- What are the experiences of the staff using the new system? Is it positive or negative?
- Is there any unforeseen friction in optimization? For example, are the warehouse aisles serving as a bottleneck for movement of inventory despite them being wide enough?
- Are there any errors or glitches in the WMS and IMS integration? If so, what are those errors?
- Has your warehouse performance improved? For example, has the rate of customer satisfaction increased or have inventory miscounts gone down?
Warehouse Optimization Trends To Watch
Warehouse optimization may sound challenging, but it is a process that businesses must use to survive. The rise of new business models, changes in employee expectations, and the use of sophisticated technologies will continue to penetrate the warehouse in the future.
Warehouse owners are offering brands the option of flex land or the ability to temporarily extend the size of a warehouse to accommodate extra storage capacity for seasonal products.
As labor shortages hit the warehouse industry, competition is stiff for the limited pool of potential workers. Many employers are now focusing on employees’ quality of life by adding features such as air quality sensors and efficient lighting in the warehouse.
Internet of things (IoT)
The internet is slowly taking over devices as items as common as thermostats, refrigerators, and the cars we drive.
Similarly, smart devices placed around the warehouse are opening up the possibility of detailed warehouse reporting, such as the quality of goods in stock and accurate real-time reporting.
The secret behind a successful warehouse is not just a good location, first-mover advantage, or pure luck. It is optimization.
Just like any business, warehouses must adapt to changes in the market or otherwise risk failure.
Warehouse optimization is a long-term project, and businesses should have a plan before they construct their warehouse. However, that doesn’t mean you can not start to make changes to your existing warehouses.
Using the information in this article can set you on the right track for overhauling your warehousing strategy to your benefit.