Warehouse operating costs constitute an unavoidable component of supply chain expenses that impact a company’s bottom line. Since these costs differ from company to company, there is no universal formula for cost analysis that operations managers can follow. There are, however, common warehouse expenses related to labor and storage that businesses share. By addressing these costs, operations managers can find opportunities to lower their total cost of business (TCOB) and increase their profit margin.
Three Key Warehouse Operating Costs
Labor is one of the largest warehouse operating expenses, as a significant amount of warehouse operations depend on manual labor. According to the U.S. Bureau of Labor Statistics, last May an estimated 1.2 million workers were employed in warehouses as material handlers, supervisors, or packers. The extensive size of the warehouse workforce provides opportunities for operations managers to increase efficiency by implementing procedures—like tracking and comparing workforce schedules and actuals—that increase productivity.
Optimizing warehouse storage space is a top priority among operations managers. Wasted warehouse space increases operating costs, and storage expenses accumulate as stored goods linger at these inefficient waypoints in the supply chain. For this reason, every square foot of the warehouse floor should be evaluated for improved space utilization techniques.
Order fulfillment, a time-consuming and labor-intensive warehouse operation, can contribute to higher warehouse costs. Employees traveling the warehouse floor to manually locate delivered orders and products to be picked can negatively impact productivity and foster increased picking error rates. As a result, fulfillment inefficiencies also lead to significant wastage.
Ways to Reduce Warehouse Operating Costs
Technology has transformed supply chains across industries by automating tasks, reducing labor costs, and increasing the efficiency of warehouse operations. By introducing technology in supply chains and supplementing those innovations with warehouse cost reduction strategies, companies can effectively reduce operating costs. Here are a few considerations when developing a strategy for lowering warehouse operating costs.
By introducing warehouse automation, operations managers can realize labor cost savings, as well as productivity increases across the floor. An Automated Storage and Retrieval System (ASRS) can benefit warehouse operations centers by allowing goods to be stored with minimal handling. Likewise, when warehouses implement automation machinery like conveyor belts and cranes, they can further reduce the handling required for warehouse operations. In addition to cost savings, automation strategies can help improve critical time management across operations that further increase productivity.
In order for operations managers to increase the efficiency of warehouse operations, they must maintain high throughput speed and accuracy. In addition to ASRS, managers can adopt technology trends such as the usage of autonomous guided vehicles (AGVs) and high-density vertical storage to significantly enhance the throughput speed. Further, managers can use Warehouse Management Systems (WMS) to log and track inventory by the unit load or by individual Stock Keeping Unit (SKU). In doing so, they can save time on manually checking inventory and managing paperwork.
Equipment and Streamlining
While equipment costs cannot be eliminated, they can be reduced by ensuring that warehouse equipment and practices are streamlined to take advantage of automation and technological innovations.
In addition to establishing dense storage and processing practices, managers also look for ways to optimize auxiliary equipment like shipping platforms.
When automating a warehouse, operations managers take steps to ensure that heavy equipment like AGVs, conveyors, forklifts, and cranes can function smoothly and efficiently when complemented with WMS and Radio Frequency Identification (RFID) technology. In addition to establishing dense storage and processing practices, managers also look for ways to optimize auxiliary equipment like shipping platforms.
Since wood block pallets often have protruding nails and splinters that can damage both warehouse machinery and products, operations managers seek safer and more durable alternatives that will increase warehouse efficiency and productivity while decreasing warehouse operating costs.
Plastic Pallets — A Strategy for Minimizing Warehouse Costs
Unlike wood pallets, lightweight, durable, and recyclable plastic pallets are well-suited to automated warehouses. Listed below are a few advantages that enable plastic pallets to decrease warehouse operating costs:
- Consistent weight and dimensions: The consistent weight and dimensions of plastic pallets makes them easier to move within the warehouse and less expensive to transport.
- Automation-friendly: Plastic pallets are up to 35 percent lighter than conventional wood block pallets — a 20-pound savings per pallet that reduces wear and tear on machines. Since plastic pallets offer a lighter and more uniform weight, they make it easier to calibrate automated equipment. Further, the unmatched durability of plastic pallets makes it cost-effective for the integration of surface Radio Frequency Identification (RFID) tags.
- Pallet pooling: The storage and maintenance of empty pallets within warehouse premises leads to wasted space. Renting pooled plastic pallets helps optimize expensive storage space while obviating the need to maintain a fleet of pallets. Additionally, pallet pooling decreases the operating costs related to the storage and transport of empty pallets.
Businesses often delay warehouse innovations due to their costs. And while transitioning to a fully automated warehouse is a large investment that could require years to effect, switching to plastic pallets and pallet pooling can help operations managers with immediate savings across the supply chain. Further, the compatibility of plastic pallets in an automated environment makes it easier to integrate them into the supply chain.