Executive Briefings

Mitigating Labor/Space and Meeting ROI Hurdles in Warehouse Logistics

Analyst Insight:  A central challenge with the return of sales is the optimal use of the resources of space, people and technology. This pressure, cited by more than 60 percent of today's supply chain managers, is pushing them to improve their warehouse operations by increasing flexibility, realigning assets and improving labor efficiency.

-Bob Heaney, senior research analyst, Supply Chain Management, at Aberdeen

Between October and November 2010, Aberdeen Group surveyed 158 companies, documenting their processes and capabilities regarding warehouse management excellence and producing an ROI Investment Matrix to detail areas of focus and payback expectations across a broad spectrum of options to improve warehouse operations, capacity and efficiency.

It's clear that among the companies surveyed, there is a focus on improving the efficiency and performance level of resources (on average, over 45 percent of respondents cite the need to support increased sales without adding labor/space resources) as the top pressure.

Today's warehouse environment is clouded with an array of functional areas to manage, imbalances of volumes and staffing mix, and capacity restrictions of process and equipment - which all hamper the ability of the workforce to be efficient and productive. To correctly explore the options for bolstering capacity, resource allocation and efficiency companies should:

Fully assess warehouse capacity. Improve the overall labor efficiencies under constrained operating budgets, balancing part-time and full-time labor, and maximizing people/process/technology in both the peaks and valleys of the business . This requires an assessment of each distribution point. Specific space/labor capacities and requirements should be done annually or more frequently.

Review capacity, technological investment hurdles and ROI guidelines. What are the various cost/benefit tradeoffs one must examine in their warehouse and fulfillment operations? Beyond the ROI guidelines for solution selection (across automation, software and outsourcing) an assessment is needed to define the scope and scale of internal capacity with and without added investment. If internal capacity is constrained, look to the use of overflow and 3PL facilities to handle capacity constraints in labor, inventory and space - and balance all options against each other.

Monitor and adjust workforce requirements across roles / tasks within a given workday. This requires process knowledge. A key differentiator for the Best-in-Class is that they are 1.6 times as likely as the Industry Average and 2. times as likely as Laggards to utilize established standards against which employees can be measured. A process of establishing standards and then monitoring actual performance is the foundation for workforce flexibility.

Consider material handling solutions like conveyors, unit sortation and so on. While there is a steeper investment required to justify these solutions, they can be very beneficial and can sustain considerable growth in throughput volume without the need to add to headcount. It is also apparent from our research that many of these solutions are in use by the Best-in-Class, which are two to three times as likely to have many of them as their peers.

The Outlook

In 2011, expect to see more investments in automation like auto ID and material handling solutions and a return to the basics of efficient labor management. A key step in mitigating labor/space capacity and meeting ROI hurdles is in maximizing labor allocation and productivity. About 70 percent of all companies are using labor management solutions and about half of the companies use labor management solutions in more than one functional area. Expect even more companies to focus on non-picking areas in 2011.

Analyst Insight:  A central challenge with the return of sales is the optimal use of the resources of space, people and technology. This pressure, cited by more than 60 percent of today's supply chain managers, is pushing them to improve their warehouse operations by increasing flexibility, realigning assets and improving labor efficiency.

-Bob Heaney, senior research analyst, Supply Chain Management, at Aberdeen

Between October and November 2010, Aberdeen Group surveyed 158 companies, documenting their processes and capabilities regarding warehouse management excellence and producing an ROI Investment Matrix to detail areas of focus and payback expectations across a broad spectrum of options to improve warehouse operations, capacity and efficiency.

It's clear that among the companies surveyed, there is a focus on improving the efficiency and performance level of resources (on average, over 45 percent of respondents cite the need to support increased sales without adding labor/space resources) as the top pressure.

Today's warehouse environment is clouded with an array of functional areas to manage, imbalances of volumes and staffing mix, and capacity restrictions of process and equipment - which all hamper the ability of the workforce to be efficient and productive. To correctly explore the options for bolstering capacity, resource allocation and efficiency companies should:

Fully assess warehouse capacity. Improve the overall labor efficiencies under constrained operating budgets, balancing part-time and full-time labor, and maximizing people/process/technology in both the peaks and valleys of the business . This requires an assessment of each distribution point. Specific space/labor capacities and requirements should be done annually or more frequently.

Review capacity, technological investment hurdles and ROI guidelines. What are the various cost/benefit tradeoffs one must examine in their warehouse and fulfillment operations? Beyond the ROI guidelines for solution selection (across automation, software and outsourcing) an assessment is needed to define the scope and scale of internal capacity with and without added investment. If internal capacity is constrained, look to the use of overflow and 3PL facilities to handle capacity constraints in labor, inventory and space - and balance all options against each other.

Monitor and adjust workforce requirements across roles / tasks within a given workday. This requires process knowledge. A key differentiator for the Best-in-Class is that they are 1.6 times as likely as the Industry Average and 2. times as likely as Laggards to utilize established standards against which employees can be measured. A process of establishing standards and then monitoring actual performance is the foundation for workforce flexibility.

Consider material handling solutions like conveyors, unit sortation and so on. While there is a steeper investment required to justify these solutions, they can be very beneficial and can sustain considerable growth in throughput volume without the need to add to headcount. It is also apparent from our research that many of these solutions are in use by the Best-in-Class, which are two to three times as likely to have many of them as their peers.

The Outlook

In 2011, expect to see more investments in automation like auto ID and material handling solutions and a return to the basics of efficient labor management. A key step in mitigating labor/space capacity and meeting ROI hurdles is in maximizing labor allocation and productivity. About 70 percent of all companies are using labor management solutions and about half of the companies use labor management solutions in more than one functional area. Expect even more companies to focus on non-picking areas in 2011.