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9 Easy Ways to Cut Costs and Increase Warehouse Efficiency

By Ruthie Bowles logiwa-blog-author | Tags: Warehouse Management

There’s a positive link between customer retention and warehouse efficiency. When your warehouse efficiency slips, your customer retention rate will reflect that. When your customers choose to go with your competitor who delivers product faster, your bottom line will take a hit.

Inefficient warehouse operations can lead to long waits and inconveniences, which are the top reasons customers will stop buying from you. Inefficient operations also lead to wasted labor. Wasted motion in a U.S. warehouse averages about 6.9 weeks per year. How much better would your warehouse run if you had nearly 7 extra weeks of labor time?

While you may not have the budget to fully automate your warehouse, there are a number of things you can do to improve efficiency and reduce operating costs.

1. Optimize Warehouse Storage

More consumers are shopping online, which means a greater demand for suppliers and a growing need to expand inventory. In addition, a 2018 study shows that customers are demanding more personalization and customization options in the products they buy.

More product variants means increased inventory as more SKUs are added to your warehouse. While warehouse square footage space doesn’t cost as much as other commercial property, it’s not always easy to expand.

Setting up a second fulfillment location or expanding an existing one can be costly. We found estimates in a wide range. Some as low as $10,000, and others over $300,000. Where you’re opening your new location factors in heavily to the price.

Instead, you should first optimize the space you have. Build storage upward and see if you can add extra storage aisles by minimizing the distance between aisles. One way to do this is to create alternating one-way aisles instead of two-way traffic aisles.

In addition to getting more storage from your warehouse space, this can greatly improve the efficiency of stow and pick:

  • Equipment handlers can access the aisle on either side of the aisle while picking or stowing

  • Minimizes equipment collisions with one-way traffic

  • Minimize travel time from aisle to aisle

  • Improves safety by eliminating the need for employees to exit equipment

In 2016, Johnson Controls used logistics software when optimizing a new warehouse. The logistics simulation software helped the company design the most efficient layout and operation of the new space and improved picking capacity by 30%.

Optimizing the design and flow of your warehouse can significantly increase storage as well as productivity and performance.Most small businesses don’t have the capital to sink into costly warehouse planning systems. However, you can optimize your warehouse space and performance with a pen, some paper, and some time to look at your warehouse in a new way. We wrote an entire guide on the process, which you can read by clicking here.

BONUS: Before you read further, download our Warehouse Management Software Whitepaper to see how Logiwa uses real-time data to increase warehouse efficiency and reduce costs. Our customers get up to 100% inventory accuracy and double their shipment numbers. 

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2. Give Customers More Pickup and Delivery Options

You can reduce warehouse costs and shift the burden of inventory by moving product downstream to retailers.

Major retailers have started shifting the burden of inventory to retail outlets. Target, for example, revealed that 15% of its online purchases are marked for pick up in-store. If you have retail locations that can provide fulfillment then allow your customers to do local pick up.

For online retailers without brick and mortar locations, consider Amazon. Amazon Fulfillment allows suppliers and retailers to sell their products on the marketplace with product stored and fulfilled by Amazon’s own warehouse facilities.

Amazon has also introduced their own version of buy online, pick up in store. Customers can now purchase products and arrange to pick them up at an Amazon Locker. Once they receive a pick up code, customers have three days to pick up their package.

Cards Against Humanity reviewed a lot of ways to ship its product, which became a viral sensation when it’s Kickstarter exploded. They opted for Amazon Fulfillment over having their own warehouse busting at the seams with product. It was a smart choice since Amazon Fulfillment meant Amazon covered shipping costs and they handled all customer service issues related to shipping.

Not only does this reduce warehouse costs but it also expands product visibility, as Cards Against Humanity moves upwards of 120,000 units each month for over $1.5 million in sales.

3. Improve Pick and Stow Routes in Your Warehouse

One of the biggest resource consumers in warehouses is the amount of time spent by pickers moving between orders and locating product to be picked.

In fact, labor constitutes about 65% of the operating budget for the average warehouse and studies show that order picking counts for roughly 60% of a warehouse’s labor cost.

You can reduce a good chunk of that overhead cost by implementing a warehouse management system. When implemented, this system records all product data and its location in the warehouse. As your warehouse receives products, the system will direct where those products are placed.

In addition, a good warehouse management system will optimize the path for pickers. Based on product variables and incoming orders, the system will provide pickers with an optimal route through the warehouse from product to product. This greatly reduces the time spent walking and searching for product which is a drain on budget as well as employee energy.

Order Picking Guide: Order picking accounts for 60% of your warehouse operational costs. Download our guide where we compare the 3 most common picking methods and find out which method increased productivity by 50%.

4. Upgrade Mobile Technology In Your Warehouse

Most businesses understand that technology can improve efficiency and increase order handling speed. That all equates to cost savings, but only if you’re using the right equipment that’s up to date. 67% of warehouses plan to use mobile devices to manage inventory in the future.

And that’s a smart investment.

Most people think of barcode scanners when they picture warehouse mobile devices. However, your employees can also use smartphones and tablets loaded with a WMS software, like Logiwa, to receive pick orders and optimal picking routes. Thanks to WiFi, they can be anywhere in your warehouse and receive the order.

Ergonomically designed handheld devices may have a leg up on other mobile devices. Besides helping your employees avoid injury, they can perform many of the same functions. They also come equipped with RFID scanners, cameras, and touchscreens.

Upgrading technology, including mobile systems and the use of pick-to-light, RFID, and pick-to-voice tech, reduces picking error rates by 67% compared to aging manual methods. That’s a significant cost savings when you calculate the costs associated with processing returns, shipping costs, labor related to customer service, customer credits, and more.

5. Create an Inventory Review Process

We may be getting product out to customers more efficiently than ever before, but that’s not reducing the amount of time product lingers in your warehouse. According to Supply Chain Digest, companies are still holding on to more inventory – likely related to the increase in the number of SKUs being stocked each day.

The amount of inventory on hand based on an average sales day has risen by 8.3% over the last 5 years.

This is where you need to use data to review your inventory, because dead inventory filling your warehouse costs you money.

Optimize your inventory by looking at metrics. Audit your inventory and identify the inventory that’s not moving. Metrics to monitor include:

  • Average days to sell inventory

  • The turnover rate of products

  • The return on investment and how it diminishes based on how long you hold the product

  • Gross profit of products (price minus cost to make, hold, and sell the product)

Holding inventory for too long eats at profit margins and costs you money. Find a way to move those products and/or eliminate them from your inventory.6. Review Product Replenishment Practices

As warehouse operations grow, it’s common for a company to hire a full-time inventory controller. This individual is in charge of monitoring inventory levels and handling reorders to maintain stock.

Unfortunately, human error plagues manual replenishment practices. Inefficient replenishment can cost you in two ways:

  • Overstocking inventory that doesn’t move

  • Understocking inventory resulting in out-of-stock and lost customers

Warehouse management systems can help automate some or all of this process. By setting periodic automatic replenishment levels in your inventory, you can create triggers for low inventory to ensure more product is ordered. You can also set a maximum inventory cap to reduce the chance of having too much product on hand.

7. Audit Packaging for Products and Shipment

There’s a lot of waste in order fulfillment and it’s not just in the shipping supplies. When you’re dealing with various products, many teams have to prep products for shipping. Specific packaging and even packaging removal might be involved in this process.

Amazon saw multiple opportunities to make packaging more efficient and create a friendly experience for customers. It’s Frustration Free Packaging Program requires products using Amazon Fulfillment to have certified packaging. This means the package requires no additional shipping prep or an overbox to be applied.

The company has already reduced waste over the last 10 years. This includes eliminating more than 500 million boxes and over 240,000 tons of packaging materials.

Review your packaging operations and find ways to reduce the number of boxes, size of boxes, and the materials used to package individual products for sale. See if you can work with the suppliers in your supply chain to create a greener packaging process.

Reviewing the packing process can ensure teams are using too much material which inflates the costs of shipping and handling.

Likewise, you want to make sure your teams aren’t using too little or inappropriate packing materials which can lead to product damage, customer returns, and lost business.

Better Warehouse Performance = Higher Profit Margins: Logiwa syncs accurate data across your entire interface so the inventory numbers you see on your dashboard are what your employees see on their devices. Learn how Logiwa can help you prevent keeping inventory for too long.

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8. Standardize and Audit Your Workflows

From the time a product arrives in your warehouse to the point where it leaves, every activity and process for moving that product should have an established workflow. Without a workflow in place, employees either work in a way that is most efficient for them or most comfortable.

What’s efficient or comfortable for the employee may not be the most efficient or profitable way for the company.

With standardized workflows, you can ensure that every employee operates within the same standards. Most importantly, you can monitor individual employee performance against benchmarks established for that segment of the workflow.

When fulfillment issues arise that can impact operational costs, a quick audit can typically reveal the workflow bottleneck. If it’s a performance issue, management can work with the employee to quickly correct the deviation and restore the workflow.

One case shared by Inbound Logistics showed how an employee responsible for unloading trailers was struggling to hit productivity goals within his area. When management personally reviewed the employee’s performance, they discovered the employee had added a step in the unloading process. After identifying and correcting the problem, the employee easily hit the established performance goal and productivity was restored.

Before you audit and change any workflows in your warehouse, remember that your employees the heart of that process.

Workflows rely on people, not only to complete the task but also to improve them and make your warehouse more efficient. Turn to your staff when you want to optimize workflow efficiency. Create a feedback loop and allow your employees to show you ways they feel each task can be improved.

Some measurement will be required, but even seemingly simple improvements in the packaging and handling process can reduce a significant amount of waste and lost revenue.

9. Consider Automation in the Picking Process

As your business grows you may need to reconsider the picking process within your warehouse. Smaller operations can function well enough with manual pickers delivering products to the packaging and the shipment side of your facility. This approach isn’t scalable and will begin to impact productivity.

For example, the average order picker can pick between 60 and 80 products per hour when routes are optimized in your warehouse. This pick rate can be improved to as much as 300 pieces per hour when utilizing sorters and conveyors that can move product through the facility.

Of course, there is a cost involved with upgrading and adding automation. However, by reducing travel time, you can dramatically increase the productivity of your fulfillment center and ultimately reduce costs.

Every Improvement Has the Opportunity To Reduce Operating Costs

The above recommendations can each help improve the efficiency of your warehouse, and many revolve around leveraging a warehouse management system. An audit of your operations can help you determine bottlenecks and find opportunities to improve efficiency. Just remember that a single audit will likely reveal some cost-cutting measures, but not all of them.

The best approach is to implement a warehouse management system and continually monitor KPIs and performance. Over time, each change you make will continue to reduce costs and innovate your warehouse operations.

Interested in looking at the most integrated WMS on the market? See what the Logiwa WMS can do for your business.

Ready to see the most powerful warehouse management software in action?

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Ruthie Bowles

Written by Ruthie Bowles

Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.