Today all levels of management from the CFO to director of warehouse operations are taking a critical look at the warehouse and measuring its impact on customer satisfaction and sales. The warehouse is no longer "that dirty place full of boxes" but rather a strategic aspect of the supply chain that directly shapes the experience customers have with a company.
Customers bring their business to companies with exemplary warehouse operations. Why? Because the warehouse is integral to their purchasing experience. Will the products they need be in stock? Will they get what they ordered, when and where they need it? Will product arrive undamaged, with an accurate invoice and documentation?
To better serve customers, management teams at all levels are reviewing their warehouse processes to find new ways to increase efficiencies that ultimately raise customer service levels and contribute exponentially to the company's bottom line.
Companies that are leaders in their category are thinking differently about the warehouse. They know that warehouse operations and product distribution can be a competitive advantage or a constraint. It can be a key competitive differentiator and play an important role in retaining customers. Many distributors have even found that a simple tour of the warehouse and a demonstration of their automated system in action can be a key factor in helping them win new business.
Rising Customer Expectations
As today's customer expectations continue to rise, their service requirements are constantly evolving. Customers expect more frequent shipments and direct delivery of product. They expect product to always be available and orders to be perfect and on time without fail. Furthermore, these customers are expecting more and paying less.
Businesses are meeting these increased customer demands by automating their warehouses with warehouse management systems. Consider the following:
After implementation of a WMS, Appliance Parts Depot, headquartered in Dallas, increased pick productivity in its warehouse by nearly 100 percent. Inventory accuracy jumped 40 percent and order accuracy now runs at 98 percent or higher, with shipping errors virtually eliminated.
Atlanta Dental Supply, headquartered in Duluth, Ga., is a premier provider of dental supplies to more than 5,000 dentists in the Southeast. Since deploying a WMS, it found the greatest benefit to be the increased satisfaction of its sales representatives, a byproduct of having a more accurate and efficient warehouse. Atlanta Dental Supply, a privately held company, competes with multibillion-dollar corporations and so its sales reps, and the relationships they hold with customers, are critical to the company's success.
Simply put, when there are errors in the warehouse the result is unhappy customers and unhappy sales reps, with the risk of both moving elsewhere. Order accuracy with a WMS is a key competitive advantage that helps smaller companies go up against larger competitors and win.
Consider McLendon Hardware, a retail franchise with six stores in the Pacific Northwest and family owned and operated since it began in the 1920s. The company relies on technology such as its WMS to not only survive but thrive against big-box retail competitors. Since implementing a WMS, order fulfillment and receiving have both increased in accuracy and efficiency due to the verification prompts on RF terminals used by warehouse employees. The WMS also improved the company's ability to fill internet orders more accurately and monitor the picking of inventory.
Inventory control is also an important consideration in the warehouse. C.C. Dickson Co., one of the largest wholesale distributors of heating, air conditioning, ventilation and refrigeration equipment in the southeastern United States, found that its WMS enabled it to consolidate and drastically reduce its inventory. As a result it was able to close two distribution centers, move more inventory out to its 110 branches, and improve point of sale product availability. The overall cost savings and improved customer service was tremendous.
Conduct a Warehouse Audit
It's important to step back and take time to evaluate the overall warehouse strategy as well as measure ongoing results. What does it really cost to pick, pack and ship an order?
When McLendon Hardware's distribution center was bursting at the seams with no room for additional stock, the company took a hard look at its operations. Managers found they were carrying a vast amount of inventory to ensure products were always in stock and they could meet customer demand. But even with the massive inventory, the company still suffered from customer service issues due to out-of-stock items.
McLendon Hardware needed to solve its inventory and customer service challenges, but building or leasing another facility was not an option. Instead the company automated its distribution center and increased the efficiency and accuracy of its current facility.
When taking an audit of the warehouse, consider three important categories: inventory management, people/productivity, and customer service.
Because of the sheer size of the inventory investment in most wholesale distribution companies, effective inventory management is key to achieving profitability goals. At a minimum, isolating the following areas which impact warehouse inventory can help establish benchmarks for more effectively managing inventories through automation techniques.
Safety Stock: How much inventory is being carried to cover expected "sales opportunities"?
Stock-outs: Are there discrepancies between what the system says is available and what is actually on the shelf?
Lost Inventory: How much is "lost" because employees can't find items? What's the impact of a lost sale when a customer has to go to a competitor?
Shrinkage: Have obsolete inventory items been identified? If these items are "dead stock," are they still taking up space? Could inventory write-offs be reduced if slow movers were identified and located sooner?
When taking a critical look at inventory control, two key measurements are inventory accuracy and turnover. Accuracy can be derived from automated cycle counting (a function found in some warehouse management systems) or with an annual physical inventory (a tedious process that cycle counting eliminates). Turnover measures the management of purchasing and timeliness of vendor returns. Each warehouse is unique and will have a different target for turnover that balances inventory investment against fill rate.
With the right inventory tools, distributors and wholesalers know at all times exactly what's in the warehouse, where it's located, and when it needs to be replenished. With greater inventory accuracy and control there is less overstock/dead stock, higher turnover, and better data for financial planning.
The second key area to monitor is people versus productivity. The most simple and useful measurements are sales per warehouse employee and lines shipped per employee. Ask how much time do order pickers spend looking for lost items? How long does it take for a new person to find items in the warehouse? How much clerical time is spent with paperwork associated with orders received, picked, packed and shipped?
Most importantly are measurements that identify customer service levels. Key metrics include: ship to promise, which is the timeliness of order filling over a set period of time; shipping accuracy, the accuracy of order filling as viewed by the customer over a set period of time; and fill rate, the number of lines shipped complete compared to lines ordered.
Understanding how shipping errors impact customer service should be a high priority within any warehouse operation. How many shipping errors per month does the company experience? What does each error cost considering the return shipping cost, and the associated labor to process a credit return, put away the items to stock- not to mention the cost of an unhappy customer.
Customers that experience extremely high levels of service are willing to pay more for products, buy more products more often, and pay on time. So today's leading companies prioritize projects and warehouse initiatives to focus on how to better serve the customer-they know it's really the only thing that matters. No one cares if the warehouse is just efficient. Effective managers know they must directly correlate those warehouse efficiencies to sales and the broader financial success of the company.
To conduct an effective warehouse audit, consider working with a partner that is a specialist in warehouse practices. To help define the top issues and target objectives, choose a consultant with the appropriate tools for benchmarking the current state of the business, identifying the goals of the company and warehouse, and developing a plan to accomplish those objectives.
A specialist in warehouse management systems will invest the time to consult with a variety of key professionals in an organization, from the owner/president to the IT director to the warehouse operations manager to capture what is often diverse perspectives and goals. A great partner will dive in and work to truly understand both the overall business as well as the intimate details of the warehouse to identify the most effective ways to improve operations that drive greater sales and profitability.
Eric Allais is the president and CEO of PathGuide Technologies, a provider of warehouse management solutions for wholesale and industrial distributors across North America. Visit www.pathguide.com
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