Analysts expect the global warehouse industry to grow at a compound annual growth rate of nearly 6% over the next four years. As consumer expectations around fulfillment rise, we will need more and more warehouses to meet them.
The warehouses that succeed will steadily grow their business while carefully managing their operating costs to remain profitable. To this end, lean principles and lean manufacturing have become a popular strategy for warehouses who wish to streamline their processes, practice continuous improvement, reduce excessive inventory, and eliminate warehouse waste.
The Most Common Types of Warehouse Waste
What is Lean Manufacturing?
Before we dive in, let’s talk about lean manufacturing and what exactly it means. A management philosophy based on Toyota’s innovative manufacturing system, the Toyota Production System (TPS), lean manufacturing became popular as companies prioritized “make to order” versus “make to stock.” Today, lean manufacturing also focuses on continuous improvement which is about constantly striving for perfection and refusing to accept inefficient or problematic methods.
Lean manufacturing identifies 7 types of warehouse waste:
1. Over-Production Waste
When you produce more products than your customers want or faster than they need them, you get over-production waste. It leads to excess inventory which raises the cost of managing stock.
In addition, you may decide to limit production until clearing inventory, leading to reduced employment. While this may sound like a straightforward solution, reducing employee work in the short term can lead to attrition, effectively costing your company more money in recruitment efforts and last-minute hires.
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What Are the Common Causes of Over-Production Waste?
A Stubborn Commitment to Historical Processes
Skeptical managers often continue doing what they’ve always done. If you've always ordered a specific amount of product, you may stay the course, even if you wind up with more products than needed.
Some machines have long set-up times. Rather than addressing the underlying cause — the need for efficient machines — choosing to maximize production while the machines are running to produce batch orders can cause over-production waste
How Can You Combat Over-Production?
Over-production is one of the most pernicious forms of warehouse waste. It hides the underlying problems in your organization such as poor processes and old machinery, thereby creating operating costs that silently eat away at your bottom line. You can adopt the following strategies to limit over-production.
Adopting a Data-Based Approach to Inventory Management
Many lean manufacturing proponents prefer a pull manufacturing strategy in which products are made based on orders, not forecasts.
Not ready to adopt a full “just in time” inventory strategy? Consider taking a math-based or data-based approach to your inventory management. Rather than playing it by ear, base your orders on a safety stock formula that incorporates your standard deviation in supplier lead time and demand averages. This will limit inventory costs without completely eliminating buffer stock. If you use a warehouse management system (WMS), this tool should automatically generate this information.
Upgrade Set-Up Capabilities of Machinery
Instead of batch production, you can evaluate your existing machinery. This might include:
- Replacing machinery altogether: You can detail its specifications, such as desired start-up time, and replace or upgrade equipment as needed.
- Employing existing equipment more effectively: You can run existing machines more efficiently through upgrades or educating operators.
- Increasing the amount of time existing equipment is used: Rather than replacing existing machines, you can limit over-production and allocate money for potential overtime to operate existing machines if demand unexpectedly rises. This may not be a good long-term strategy depending on how often this occurs.
- Outsourcing manufacturing needs: Rather than blowing money on carrying costs, you can consider outsourcing some of your manufacturing needs when demand fluctuates. This may not be a sustainable long-term strategy considering the urgency with which these orders may be needed.
2. Over-Processing Waste
Over-processing is doing more work than required, such as painting a section of a product that the customer will never see. Unlike over-production or inventory waste, over-processing waste is a little harder to assess. It’s sometimes difficult to gauge when a necessary task, such as quality checks, becomes over-processing, such as over-stringent company policies.
Left unchecked, over-processing raises labor costs and leads to unneeded wear and tear to your equipment. It also reduces your company’s ability to add value in areas customers actually care about.
What Are the Common Causes of Over-Processing Waste?
Oftentimes, over-processing waste arises from ambiguity. Poorly developed standards, processes, and specifications leave judgement about work and due diligence up to staff. Methods used by employees during different shifts vary, leading to fluctuations in productivity. In addition, poorly developed processes also increases the amount of repeated work.
How Can You Combat Over-Processing?
To start, you can create Standard Operating Procedures (SOP) that provide clear guidance to employees about your warehouse processes. You can develop your SOP by consulting with relevant stakeholders, such as your employees, understanding the scope of the SOP (multiple processes, multiple machinery, etc.), documenting the procedure, and brainstorming possible issues with the revised procedure before presenting a final version.
Moreover, assess your current processes in terms of cost and compliance. Are you being overly cautious with your existing processes? Is there a cheaper alternative to a currently expensive process? Consider these elements as well while addressing over-processing waste.
3. Transport Waste
When warehouses move products unnecessarily, they contribute to transport waste. Transport waste leads you to rent or purchase unneeded warehouse space and excessive inventory. You may also face increased energy costs and forklift operations, and more.
Considering the many ways transport waste impacts your operating costs, it’s no wonder it’s taken so seriously by lean principles practitioners.
What Are the Common Causes of Transport Waste?
The most common causes of transport waste are:
- Poor warehouse layout: Machines used sequentially aren’t placed close to each other, resulting in unnecessarily long trips to and from.
- Double handling: If you place new arriving stock in a buffer storage area with pallet racking (one trip) before moving that material to the pick face (a second trip). This results in double handling. Products with high customer demand, and therefore with higher pick face replenishment rates, exacerbate the problem.
- Inventory shuffling for accessibility: Workers move inventory around to access other stock due to poorly organized sections.
- Large batch sizes: Properly storing a large batch may require multiple trips, which is immensely wasteful if the large batch sizes contribute to other types of warehouse waste such as over-production, inventory, and motion waste.
- Multiple storage locations: You store the same products in multiple locations.
How Can Warehouse Owners Combat Transport Waste?
There are several ways to address transport waste. For starters, managers should rethink the layout and align it to warehouse processes so that a machine needed for Step 2 is located near the machine for Step 1. In addition, pallet flow racks may be a worthwhile investment.
Pallet flow racks allows more stock to sit in the pick-face, limiting the amount sitting in buffer storage and thereby reducing double handling. Finally, a reorganization of storage can address inventory shuffling and the presence of multiple storage locations.
4. Motion Waste
Think of all the people running around to keep a warehouse operational. Undoubtedly, these individuals work incredibly hard, but they often work harder than they need to. When people move more than necessary, this is known as motion waste.
Motion waste is distinct from transport waste. While the former refers to the movement of people, the latter deals with the movement of products.
What Are the Common Causes of Motion Waste?
Ultimately, motion waste comes down to a poor layout, poor organization of products and tools, and limited space. Poor processes and work methods can also be the cause of motion waste if a specific task requires extensive manipulation of a particular tool or product.
How Can You Combat Motion Waste?
Your employees can provide valuable insight into what is and isn’t working, which tasks are needlessly taxing, and which processes are downright ridiculous. They can quickly identify which areas require reorganization and provide guidance on how to organize the warehouse more efficiently.
You can invest time into a 5S training exercise in which workers apply the following steps towards improving processes:
- Set in Order
You can use the 5S exercise to create an environment built around efficiency and continuous improvement. We found an example exercise you can look at here.
5. Waiting Waste
Time is a precious resource and many warehouses casually waste it. Examples of waiting waste are:
- People waiting while a machine processes/produces a specific product
- Products waiting to go through the next step in the assembly line
- Products waiting for shipping to a store, back to the customer, etc.
- Equipment sitting idly because of bottlenecks
All of these examples can impact your ability to utilize people, processes, and technology effectively. Fortunately, experts have investigated the common causes of waiting waste and developed solutions for this problem.
What Are the Common Causes of Waiting Waste?
Waiting waste occurs for a number of reasons such as:
- Unscheduled downtime
- Poor internal communications
- Production bottlenecks
- Long set up times
- Labor shortages
- Poorly developed processes
- Unscheduled employee absences
A warehouse experiencing waiting waste rarely suffers from all these problems, but they’ll certainly experience a couple. Once they identify the cause, it’s easier to treat and eliminate the problem.
How Can You Combat Waiting Waste?
There are several strategies you can employ to eliminate waiting waste. Often, this means redesigning existing warehouse processes and workflows to ensure the continuous movement of product and activity of employees.
Another common cause of “waiting waste” is machine downtime. You can consider the following solutions to the downtime issue.
Practice Preventative Maintenance
Understand the cost and repair time for various equipment. Unbeknownst to you, a critical machine may require a part that is manufactured overseas, delaying a repair by weeks. Preparing for such scenarios is essential.
You can prepare for such scenarios through preventative maintenance. Traditionally, preventative maintenance simply meant routine “check ups.” Today, warehouses employ low-cost sensors that detect the probability of equipment failure or damage by analyzing variables such as temperature, vibration, heat, and light.
Standardize Training Across Your Team
Operator error is one of the most common causes of machine failure. Operators often receive extensive training on operating, maintaining, and troubleshooting specialized machinery, but there are times where labor shortages require you to shuffle the team. While the pinch hitter may be technically qualified, they may lack hands-on experience, increasing the likelihood of errors. Managers should consider cross-training employees to ensure they have ample experience operating critical machinery. In this way, almost any employee can replace an absent employee.
6. Inventory Waste
Inventory waste is the unnecessary accumulation of everything from raw materials to work-in-progress (WIP) materials to finished products. Every piece of excessive inventory costs money, and this ties up cash, negatively impacting a warehouse’s cash flow. If your business is already cash poor and using financing options to manage carrying costs, the accompanying interest payments bring further strain. Examples of carrying costs include, but are not limited to:
- Rent/storage costs
- Insurance premiums
- Interest payments
Lean principles promote just in time (JIT) manufacturing, meaning companies limit the amount of time materials spend in production or final products sit on shelves. They produce what’s needed, when it’s needed, and produce minimal to no excessive inventory.
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What Are the Common Causes of Inventory Management Waste?
Over-production often causes inventory waste. When business owners stubbornly stick to gut-based forecasting methods, fail to introduce efficiencies to limit bulk production, and lack faith in their suppliers, they create the conditions for over-production which in turn leads to inventory waste as well as motion and transport waste.
How Can You Combat Inventory Management Waste?
Addressing over-production waste effectively reduces inventory waste. This means taking a data-driven approach to inventory management, improving the set-up times of machines or replacing them altogether, and building a stronger relationship with suppliers.
Using a WMS that’s fully integrated with your sales and shipping channels, not to mention your warehouse systems, can help you gather the data you need to get get rid of inventory management waste.
7. Defects Waste
Defects waste occurs when warehouses make mistakes during processing or produce faulty products that need to be re-made or shipped back. In the event of a full recall, your warehouse may be unable to handle the surge of returned inventory. Even if your warehouse can manage it, it’s a strain on your resources.
Simply speaking, any mistakes during warehouse processes can fall into the category of defects waste. Examples of defects waste include:
- Incorrect data entry for orders
- Incorrect or missing deliveries
- Returned inventory without the appropriate paperwork
What Are the Common Causes of Defects Waste?
Defects waste is usually caused by poor training, unclear procedures and warehouse processes, operating errors, and bad suppliers.
How Can You Combat Defects?
Warehouses combat defects waste by taking the following steps:
- Assessing existing warehouse processes and improving them
- Assessing the training/skills of current employees and re-training where necessary
- Evaluating current suppliers to ensure they are meeting agreed-upon service level agreements and ending the relationship with suppliers who fail to do so
Reducing your defects waste can also limit other sources of warehouse waste such as excessive inventory.
Eliminating Warehouse Waste Leads to Efficient and Profitable Companies
Reducing and eliminating warehouse waste allows you to focus on adding value in the right places, prioritize the right activities, and strive to perfect your manufacturing processes. Indeed, eliminating one type of warehouse waste, such as over-production waste, often contributes to the reduction of others like waiting and inventory waste.
The warehouse industry is booming. By using lean principles and continuous improvement strategies, you can build and grow an efficient and profitable company.
Interested in learning about more inventory management best practices? Read our annual guide by clicking here.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.