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Warehouse & Distribution – Reducing Warehouse Costs & Improving Warehousing Efficiency

20 warehouse management tips to help you to reduce your cost per order, increase capacity without expansion and improve service levels in warehouse and fulfillment.
F. Curtis Barry & Company developed these warehouse management tips to help multichannel businesses with reducing warehouse costs and improving warehouse efficiency. Our assessments are tailor-made to identify your needs and potential improvements to process, layout and use of space, staff productivity, systems and freight analysis. We have been successful in lowering the cost per order, increasing storage capacity within the center, reducing inbound and outbound freight, improving service levels and turnaround times.
1. Benchmarking
A program to set up internal benchmarks will reduce your cost per order or hold the cost in line as volumes increase. Translate these down to department and individual work standards.
Join F. Curtis Barry & Company's Warehouse Benchmarking ShareGroup to exchange metrics and best practices, network with peers, discuss fulfillment strategies, and tour and audit a member’s warehouse.
2. Manage the labor force
Labor is the largest controllable expense item in your DC. Successful practices to improve performance can lower your labor cost.
3. Hiring, retention and attrition (turnover)
Labor is your first or second largest expense after outbound freight in the fulfillment center. Review the reasons attrition is so high and work to close the gap. Review your hiring, retention and training practices. How well are you able to staff for the peaks?
4. Reduce handling and touches
The fewer touches of product, the less cost of shipping an order. Streamline the operation and apply industry best practices to reduce handling and cost of fulfilling an order.
5. Slotting
Effective slotting practices can lower your costs for picking, replenishment, and putaway warehouse labor.
6. Team building
Successful organizations take team building seriously. Take your organization to a new level and improve productivity.
7. Picking options
How can you use best practices to improve picking productivity?
8. Use what you have more productively
This is a mantra in fulfillment today. Our assessments will help you get more productivity from your layout, space/product storage utilization and staff. By not caring for the basics of fulfillment, you are adding costs to the warehouse operation. Increasing current capacity and utilizing that capacity more effectively are key objectives. We believe in getting as much productivity as possible out of the existing layout, processes and systems first.
9. Performance reporting
The old adage of, "You can't improve what you don't measure" is certainly true. An effective measurement and reporting process can improve performance and lower costs.
10. Packing options
How can industry best practices help you improve performance and reduce costs of one of the most labor intensive functions in the warehouse?
11. Freight management
Controlling inbound and outbound freight can make the difference between a profit or loss for your business.
12. Use proper levels of qa
Are you “over inspecting” activities to the point of diminishing returns and spending money that does not result in a return on the investment?
13. Receiving practices and cross docking
Cross docking is an effective practice to reduce handling and costs while improving customer service and shipping costs.
14. Process returns more efficiently
Returns cost more than orders to process. Untimely processing of customer credits, refunds and exchanges can damage customer service. Our assessments look at use of staff, people, space and systems to improve productivity.
15. Workforce software
Many companies are still using Excel for their staffing software. Excel cannot save you as much money year over year as a good workforce program. Team up with Contact Center to share a scheduling system. It will pay for itself quickly. If you have one, understand how to use it to its maximum.
16. Outsourcing option
There are practical and cost effective reasons to outsource part or all of your business. It may be to deal with a peak, new product categories or when fulfillment is not a company core competency.
17. Finding the right level of automation and systems
ROI analysis could put automation into your planning for cost improvement. The wrong material handling equipment can be creating hidden lost time and inefficient product flow, impacting cost and customer service.
18. Warehouse management/bar code systems
This should include reviewing how bar coding throughout the warehouse, conveyance, material handling and warehouse management systems can improve productivity, increase service levels and reduce costs.
19. Inventory management in the warehouse
Effective inventory management is the single most important tool to improve customer service and reduce cost of operation.
20. Replenishment practices
Effective replenishment is the basis of successful order fulfillment. Inefficient replenishment will cost huge dollars and negatively impact customer service.

Retail Economics

There are two basic indicators of evaluating the Retail performance

1. The Income statement or the Profit and Loss statement.
2. The Balance sheet.

The income statement is a record of the revenues earned by the organization and the expenses incurred. It is a snapshot of the company’s operational performance for a particular period of time. It is commonly known as the Profit & Loss statement.

It helps the management and investors to understand the direction in which the company is running its business and gives an indication of the possible dividends to shareholders. The net profit can also be reinvested for further improvement of business.

Comparison of the P & L statement of the organization with similar industry’s P&L ,is likely to assess the marketing strategy for the future


Chief components of an Income Statement:

1. Sales
2. Cost of goods sold
3. Gross Margin ( NET SALES – COST OF GOODS SOLD)
4. The operating expenses and
5. The net profit

PBDIT…. Profit before tax and Depreciation
PAT …..Profit after tax or also known as cash profit


The Balance Sheet

Investors use the balance sheet to study the turnover and study the company’s assets and liabilities at a particular point of time.

The data shown in a balance sheet can be interpreted in two halves. The first half indicates the money being used in the business, ie the net assets. The second half shows the capital employed or from where the money has been secured. The value of the two halves needs to be the same and hence the name Balance Sheet.

Common Elements of a Balance sheet:

Fixed assets…. Building, property, machinery, Fixed deposits

Current assets : Stock, cash in hand

Long term liabilities: Court litigation on financial or non financial issues

Short term liabilities: Investment risks ( investment on equities), fines and penalties

Net worth: Total assets less liabilities

Dangers : High stock and High receivables.


Efficient Store operation depends on

Customer Management
Inventory Management
People Management

Three areas important for the measurement of retail performance

People
Merchandise
Store and retail space

Key method to understand the performance is Ratio Analysis

Profitability Ratios, Gross and net profit margin, ROI, ROT
Liquidity ratios- Mainly used for short term solvency of the firm.-

CURRENT RATIO
( Current assets/current liabilities)

QUICK RATIO
( Cash + accounts receivable/ Current liabilities)

Debt/equity ratio – 2:1- for Long term solvency
PE ratio –Market price of share/ earning per share
Divident Yield – latest dividend per share/ current market price per share x 100


Key performance in merchandise

GMROI ( generally valued at Retail prices)
Inventory turnover ratio

Key performance of Retail Store and space performance.
GMROF: Gross margin return on footage. Increase margin or reduce space.
Sales per SQUARE FOOT . Storeise , category wise, productwise, brandwise
The conversion ratio walkin Vs buyers
Average ticket size, transaction value addition.
Sales per employee, Margin per employee

Six Sigma Strategies: Creating Excellence in the Workplace

During the last decade, numerous articles have explained the Six Sigma quality program but few have proposed a standard, systemic approach for implementing it. Yet the program's benefits are substantial and worth pursuing.
A gauge of quality and efficiency, Six Sigma is also a measure of excellence. (For an explanation of Six Sigma, see the Motorola sidebar on page 28.) Embarking on a Six Sigma program means delivering top-quality service and products while virtually eliminating all internal inefficiencies.
A true Six Sigma organization produces not only excellent product but also maintains highly efficient production and administrative systems that work effectively with the company's other service processes. However, not every organization takes this holistic approach. A manufacturer, for instance, may concentrate instead on implementing Six Sigma for outgoing product quality -- through 100-percent final inspection, for example -- thereby assuring that quality level for its customers. But production processes still may run at low yields with high scrap ratios and defects.
That is the typical scenario. A better strategy optimizes the production process, bringing it to Six Sigma (i.e., plus or minus six standard deviations within specifications) and assuring high yields with little or no scrap or defects. Any product made by such a process also will fall within specification limits.
Thus, implementing a Six Sigma program in manufacturing means more than delivering defect-free product after final test or inspection. It also entails concurrently maintaining in-process yields around 99.9999998 percent, defective rates below 0.002 parts per million and virtually eradicating defects, rework and scrap. Other Six Sigma characteristics include operating processes under statistical control, controlling input process variables -- rather than the usual output product variables -- maximizing equipment uptime and optimizing cycle time.
In administrative processes, Six Sigma may mean not only the obvious reduction of cycle time during production but, more importantly, optimizing response time to inquiries, maximizing the speed and accuracy with which inventory and materials are supplied, and foolproofing such support processes from errors, inaccuracies and inefficiency.
Because Six Sigma in essence means overall excellence, implementing it requires more than simply explaining what Six Sigma means and expecting everyone to begin doing it immediately. Such an approach leaves numerous questions unanswered, directions undefined and everybody -- particularly those inexperienced with the concept -- scrambling to invent their own version of the program. The inevitable free-for-all that ensues yields all too few successes, lowers the program's acceptance rate and endangers its very existence.
Obviously, a strategy outlining the necessary elements for a successful Six Sigma quality program would be preferable. The following approach will help organizations interested in implementing such a program.
The Six Sigma challenge
Once an organization decides to implement a Six Sigma program, it must impart the challenge to every employee. This includes not only people close to production -- where indexes and measurements are relatively easy to implement on physical processes -- but also administrative and service providers.
Through an executive directive, the organization establishes its Six Sigma challenge, vision, customer satisfaction promise, goal and new measurement indexes. The directive distinguishes between former business policies and the new challenge of working toward excellence. It establishes a common goal for all employees in the organization: reduce variability (i.e., standard deviation) in everything they do. The directive requires all employees to participate in a day-long course outlining the "Five W's" of Six Sigma. This course explains the who, what, where, why and when of the organization's new way of doing business.
In a Six Sigma organization, employees assess their job functions with respect to how they improve the organization. They define their goals, or the ideal of excellence in their roles, and quantify where they are currently -- their status quo -- with respect to these ideals. Then they work to minimize the gap and achieve Six Sigma by a certain date.
Individuals in the finance department, mail room, human resources, purchasing and everywhere else also are challenged to achieve Six Sigma in everything they do, cumulatively bringing excellence to the organization as they achieve individual excellence in their jobs.
For an organization to reach Six Sigma successfully, the program must define a standard approach. If the approach is left undefined, too many individuals will spend too much time engineering and reengineering it. Standardizing a methodology to achieve Six Sigma allows individuals to focus on reducing the standard deviation within their individual projects rather than obsessing over method. It also establishes a common approach that speeds up the execution of all Six Sigma improvement projects.
This standardization creates a common language and a common cause among all employees. Many organizations implementing quality programs become mired in arguments and disagreements over methods and never move forward. A Six Sigma program, by contrast, focuses on reducing variability and reaching excellence.
Establishing a quality goal
An important aspect of the Six Sigma program is total process characterization, which involves optimizing all manufacturing processes to a very high Cp and Cpk value (see sidebar on page 30). TPC is a systematic approach for characterizing, optimizing and controlling a process; achieving a high Cp and Cpk value marks a team's success in reaching Six Sigma.
An organization must establish a Cp and Cpk goal. It should be tied with the organization's quality goal, which is established throughout the organization by an executive directive.
The quality goal should not be zero defects, by default an impossibility and simply unreasonable. Rather, the organization should set a value, such as 0.002 parts-per-million defective (plus or minus six sigma), 3.4 parts-per-million defective (4.5 sigma shifted) or some other challenging but achievable value. A Six Sigma quality goal strives for a stringent but achievable Cp and Cpk value equal to 2.0. This value would bring considerable profit to an organization. Motorola, for example, established a quality goal of 3.4 parts-per-million defective (Cp=2.0, Cpk=1.5).
It usually takes a team working a few hours a week for a few months to characterize a machine or process. Characterizing all processes in a manufacturing site usually takes continuous effort for a few years. During that period, an organization must invest its resources, time and money. A five-year plan mapping the organization's progress from its present state to Six Sigma is necessary.
To keep the program focused, scheduled and running in a timely manner, the five-year plan should identify teams and their members as well as schedule processes and machines. The five-year plan itself should be reviewed annually. At this stage, it may prove helpful to hire a consultant. This person would train, facilitate, coach and guide organizations as they develop a Six Sigma program; assist in planning and managing process characterization studies; and oversee the program's implementation.
When deciding the order in which process steps or operations should be scheduled for process characterization, it helps to rank the steps according to their impact on the product's final characteristics. Such a process might proceed as follows:
Form a team of process and product engineers, as well as product managers.
Identify all the process steps for a particular product line.
Review each process step, starting with the first one.
Identify all the response variables within each process step.
Classify each step as critical (c), major (M) or minor (m) with respect to its impact on the product's final characteristics.
Once all the process steps are classified, schedule them into the five-year plan, first scheduling the critical, then the major and, finally, the minor process steps.
Team presentations and documentation
A Six Sigma program requires a review, as well as an audit, to make sure everything progresses as planned. During a presentation held each month, teams report on the progress of their process characterizations and/or improvement studies. Teams follow standard formats for quick, direct and efficient presentations. The presentations should emphasize data, which is as important as the teams' conclusions. Teams should describe their progress, roadblocks, milestones, needs and findings.
External and internal organization experts are invited to attend these presentations. The team shares the knowledge it acquired with attendees, which enhances learning and experimenting. Managers provide support and commitment, keeping the team focused on the organization's objectives. After hearing attendees' comments, the team decides on a project's direction.
A Six Sigma process improvement book also is kept in the production area. As the projects progress, documentation of all efforts related to the process is archived here. The archives, available for use by other teams as they study similar processes, also can fulfill documentation requirements of ISO 9000 and QS-9000.
The consultant should request bimonthly reports from each team to track and report their efforts to management. This bimonthly reporting avoids any surprises during the monthly presentations concerning a team's lack of progress. The reports note progress toward Six Sigma and compare that progress with goals established in the five-year plan. The consultant measures and tracks actual vs. scheduled times to keep the whole program in focus and in motion.
Award recognition and TPC competition
To recognize teams and promote interest in the quality goal, management should present an award to each team member who successfully completes a process's full characterization (i.e., achieves Six Sigma). The award comprises three things: a plaque and attachment, a pin and nomination in the TPC competition. The award plaque should be designed so that attachments for each completed project can be added.
Once a year, all teams whose projects have achieved Six Sigma participate in the TPC competition. Teams present their projects, their approaches and their improvements. Judges from within the organization assess the teams' roles and improvements to ensure they meet evaluation criteria. Through a process of elimination, they select a winning team.
In this event, employees see firsthand the organization's commitment to quality, improvement and efficiency. The TPC competition encourages empowerment through demonstration and action.
The winning team becomes that year's TPC competition winner and receives some form of compensation, such as an extra week of paid vacation.
Creating companywide excellence
Nontechnical processes within, say, the purchasing or finance departments, are considered invisible processes because their elements are not physical or tangible like those in production. Due to their intangibility, nontechnical processes are difficult to define, measure, quantify and optimize to Six Sigma levels.
Nevertheless, a methodology for optimizing nontechnical processes to Six Sigma levels also should be standardized throughout the organization. This methodology should include process delineation, index measurement generation, data collection for quantifying the process, a structured gap-minimization strategy for performing statistical analysis (most likely, using nonparametric statistics) and to demonstrate significant improvement toward Six Sigma.
The Six Sigma quality program has a rightful place in the overall organization, but particularly in manufacturing. When properly implemented, the program reduces inefficiencies and produces very high yields and returns. This requires proper planning and implementation. All too often, with resources limited and attention to detail lacking, the organization's vision falls short of expectations, and the program stumbles along or is summarily terminated.
Given the substantial investment -- and the potentially substantial rewards -- a Six Sigma program warrants a long-term vision and commensurate attention and resources. Developing a cohesive and comprehensive strategy for implementing Six Sigma only increases the likelihood of a company achieving this worthwhile goal.