What every financial manager should know about the warehouse
Is it time for a warehouse management system? How do you know if your company could benefit from a new system? While almost any company can reap rewards such as cost savings and improved customer satisfaction from a new system, there are certain times when those rewards can be much higher than average. If any of these key indicators are present at your company, now may well be the time to move to a new warehouse management system:

Moving warehouses
If you're relocating to a new warehouse, you've got a golden opportunity to do it right at the new location. You can design a plan from the ground up that will eliminate the bottlenecks and inefficiencies of your old location. Now is the ideal time to plan and implement.

Staying Competitive
If your industry is changing very quickly, you may well require new efficiencies in the warehouse if you plan to stay competitive. Trends to watch for are rising customer expectations, increased competitive pressure, or dropping margins.

EDI requirements
Perhaps your business success is allowing you to sell to ever-larger companies. If you plan to count large retailers among your future customers, you'll need extensive compliance to stay in good standing and keep your margins in place. Most large retailers (Wal-Mart, Sears, etc.) have very strict vendor compliance requirements that will make a modern warehouse management system absolutely essential for your success.

Changing Business Models to E-Commerce
If you're one of the many new e-businesses selling your wares on the web, a warehouse management system is an absolute must. You're looking at a high transaction volume coupled with high customer expectations. Your material handling needs will be very different if shipping directly to consumers. There will be many small unit shipments to handle as opposed to pallet or case shipments. Without the right system in place, it's a formula for disaster. And with thin retail margins, mis-ships can chew right through your profits. You'll benefit right away from a modern system.

New materials Handling Equipment
If you're investing in new equipment for your warehouse, such as carousels, conveyors or reach trucks, make sure you put that investment to good use. A good warehouse management system will integrate technology and optimize performance.

Sixth Sense
If you've got the nagging sense that your warehouse just isn't running at peak efficiency, don't ignore your inner voice. Many successful implementations start with a manager who simply says, “I know this can work better.” If frequent errors and inaccessible data are making your life miserable, take action to improve your company. Your business sense is telling you something.

Benchmarking
An objective way to assess your warehouse efficiency is to conduct a detailed benchmark that measures your current capabilities. The benchmark will tell you how well you're performing and give you some clear ideas of areas where you'll want to concentrate improvement efforts. Some techniques for Benchmarking your warehouse include:

• Two-day count
• Lines/hour
• Feet / hour
• Items / hour
• Accuracy Actuals
• Accuracy Standards

Different Companies, Different Warehouses
If you've worked at more than one company with a warehouse, then you already know that each one is different. Different processes, different tracking systems, cause different problems. As a result, you'll need a system tailored to your specific needs. Just 10 years ago, you could easily have looked at every warehouse solution available. And, back then, if you weren't a huge company with a huge budget, you probably couldn't afford a fully automated system at all. But thanks to today's technology, you can now choose modestly priced systems that outperform yesterday's products by a mile. But the down side is that there are so many choices, you have to find a way to narrow your selection process early on. Help define your solution by defining your warehouse:

Distribution Center
Distributors add value by stocking and shipping a wide variety of items, sometimes by assembling or grouping components purchased from other sources. This may be as simply as re-packaging, grouping (kitting) or very simple assembly. Typically this kind of warehouse has a wide variety of stock items that are shipped in pallets, cases or singles. In terms of material handling these warehouses can be described as pick-pack-and-ship operations. Often, these warehouses start as simple flow-through depots and, as the inventory items multiply, they become increasingly out of control.

Internet Distribution Center
This center is similar to a distribution center, but it is typically servicing a demanding, web-savvy retail clientele. If shipping directly to consumers, your material handling needs and processes will be very different from traditional replenishment. Speed and accuracy are extremely important and value per order may be quite low. Your warehouse management system needs to be able to handle lots of small transactions, in record time.

Manufacturing Center
This warehouse supports a manufacturing operation and in its smallest incarnations may simply be referred to as “the cage.” It’s not unusual for some of the inventory items to be quite expensive, so control is important. Receiving is also an issue for this warehouse, since incoming parts may require testing.

Import/Export Center
These companies have all the requirements of the typical distribution center, with the added tracking requirements of government paper flow. These centers require detailed documentation and the ability to inspect and store shipments.

Accounting and the Warehouse
To successfully improve the warehouse, Finance and Operations have to work together. This is often easier said than done, since the two groups have different goals and priorities. The more their objectives can be aligned, the more successful the implementation will be. In many companies, the two groups are entirely separate entities. Years ago, when the pace of business was slower and customer expectations were lower, this separation was livable. But now, a great deal of your company's success hinges on how well the finance manager can communicate and work with the warehouse manager.

Your warehouse management system won't deliver maximum results unless it's tightly integrated into your financial software. So if you're thinking about a new warehouse system, you ought to seriously consider new accounting software as well. A smoothly running warehouse system that can't drive data into your financial systems won't do you much good. As you review systems, make sure the contact points between warehouse and accounting are solid.

Reduced inventory shrinkage
With the right tracking and improved accountability, a good system helps you keep track of inventory and prevent losses. As a result, more of your purchased inventory ends up in final goods. If you're an average manufacturer, plan on reducing shrinkage to about 1% from your current rates.

Reduced costs through improved accuracy
By receiving goods into the warehouse accurately, the pickers will be faster and more accurate when fulfilling orders. With better checks on picking and packing, you'll be able to avoid re-ships and mis-ships that eat away profit margins and destroy customer loyalty. Internet companies have been especially hard-hit by inaccurate shipping problems. During the 1999 Holiday season, industry experts estimated that 20 percent of Internet orders shipped incorrectly. Talk to anyone who purchased during that season and you'd see what kind of dissatisfaction it created. With the right system, you'll have the numbers you need to build customer loyalty 95 to 100 percent accuracy.

Reduced labor costs
A radio frequency warehouse management system not only gives you the tools to automate the materials handling process, but to increase labor productivity. Using hand-held RF scanners that display instructions, pickers are directed to the correct picking locations in the warehouse. Searches are eliminated and the travel time within the warehouse minimized. Replenishing stock to picking locations takes place concurrent with picking, ensuring that pickers never come to empty pick bins. A good system also gives you the ability to handle multiple orders simultaneously, so fewer people get more done in less time. Picking rates generally increase by at least 200%. A typical warehouse implementation may reduce the number of employees by 20% to 50%.

More cost savings
With a completely integrated solution between accounting and the warehouse, there is no more need for data entry to and from the accounting system. Since a radio frequency warehouse management system is completely paperless, there is no need to double check orders before they go out the door. You can re-deploy these employees to more productive activities.

Could your company do better?
Calculate your own return by adding up your savings and divide it by your estimated costs. You may be amazed to learn that many companies find that a new warehouse management system pays for itself in a matter of months.
 

Cost Savings
Estimated Savings:
Inventory-Related Cost
Decreased shrinkage:
Increased Inventory Turns:
Reduced inventory obsolescence through enforcement of FIFO:
Reduction in physical inventories:
Reduction of safety stock:
Productivity-Related Cost
Reduction of manual data entry:
Reduction on administrative and clerical time processing/sorting forms and paper:
Reduction in travel time moving product from one area to another:
Reduction in time searching for lost product:
Elimination of idle picking time waiting for stock:
Reduction in time spent correcting errors:
Elimination of shipment documentation preparation:
Elimination of manual rating of shipments:
Elimination of applying shipping labels:
Elimination of manual Manifesting:
Reduction in handwriting forms:
Reduction of compliance fines:
Space Utilization improvement
Reduction on honeycombing, resulting from put-away or replenishment:
Reduced shipping and receiving staging requirements:
Capacity to use differential cube storage locations:
Ability to use mixed-SKU storage locations:
Reduced inventory, providing more useable space:
Picking/Shipping Accuracy
Reduction in freight cost:
Reduction in labor picking wrong items or wrong quantity:
Reduction in order verification time:
Reduction in back orders because of product not visible in the system at pick time:
Reduction in paperwork:
Reduction in returns to stock:
TOTAL

Reprinted by permission from Radio Beacon.