How to manage a warehouse, particularly in today's economic climate, is a tricky question. On the one hand you need to be as efficient as possible, to maximize service levels and profits, but on the other hand, with funds tight and the digital world upon us, it isn’t necessarily the ideal time to invest millions into sophisticated software and conveyor systems. Plus, many functions, such as building sets or kits, don’t lend themselves to being completely automated. Before any major investments are made, a thorough cost/benefit analysis, combined with a realistic SWOT analysis, is a prerequisite. What "black swans" are out there that can disrupt your business?
Nevertheless, even without major investment, there is usually a lot that can be done to dramatically improve efficiency. Simple things, such as keeping products that sell together near each other, and fast movers towards the shipping area, can make a huge difference. How orders are released to the warehouse is extremely important, as is what type of storage area is used. There is probably no area of operations that lends itself so well to being automated with software as a distribution center, with as quick a payback. And don’t forget error checking—simple weight checks can catch a lot of problems, and a good shipping system with well laid out conveyors can vastly improve customer service. Much of this can be accomplished with minimal investment.
Many companies are electing to outsource their warehousing facilities, gaining the economies of scale and automation without a large investment. Is this right for you? It depends on a lot of things, but the two big ones are how you feel about losing direct control, and what rates you can negotiate. When negotiating, don’t forget about freight charges—if you can share in the discounts a larger facility can negotiate, then there are savings to be had. However, if freight charges are a profit center for the 3PL (third party logistics) site, then you’ve lost a potential source of savings for your fulfillment costs.
Not just any 3PL vendor is right for your business either, and cost should not override all other considerations. How difficult will it be to integrate to the 3PL vendor's warehouse management system (WMS)? That is a huge concern. Will you be a big fish in a small pond, or a minnow?--that affects how much personalized care you receive. What are the SLAs (service level agreements) and what is the mechanism if these goals are not met? How are they defined?
Crow Hill Associates can help you with these questions. We have set up two Shared Service Centers, outsourced a warehouse (which saved over $1MM annually for a medium sized publisher), project managed the set up an 800,000 sq. ft. fully automated warehouse in IN, and managed oversight of large facilities, including distribution centers.
Photo above: A forest of 6-High narrow aisle racks at a new Shared Service Center in Northborough, MA