July 11, 2014
special report | New Ways to Reduce Warehouse Costs

Five ways to cut DC costs

Five ways to cut DC costs

Under pressure to slash expenses? Consider these five recommendations from top consultants.

By James A. Cooke

Cut distribution costs. That's the mandate logistics managers keep hearing from their companies. But that raises a question: Given that the cost-cutting pressure has been there for so long, are there really any new ways out there to cut costs?

Yes, according to the consultants contacted for this article. In some cases, getting the savings requires an upfront investment in technology; in other cases, it merely involves operational changes. Although some of these ideas are variations on old ones, they still deserve a close look by logistics managers looking to rein in expenses. What follows are five ways to improve efficiency and cut DC costs:

1. Give "building information modeling" a try. Before breaking ground on a new or revamped warehouse operation, conduct a virtual test of the proposed layout. Today's "building information modeling" (BIM) technology provides three-dimensional simulations of what takes place inside a facility, allowing managers to identify any work flow problems that could hinder efficiency and raise labor costs. Although architects and engineers have used this technology for the past couple of decades to help design facilities ranging from schools to prisons, it has only recently been applied to distribution center operations.

What makes modeling so valuable is that it can detect "possible physical conflicts" in the warehouse design, says John M. Hill, a director with the supply chain engineering and logistics consulting firm St. Onge. An example of a physical conflict might be a conveyor that extends into a building column or a brace that blocks door access. Hill reports that correcting building flaws in the design stage has spared his clients some serious headaches, not to mention money. "It saves a company costs before a spade is put into the ground," he says.

2. Consider investing in shuttle technology. For distribution operations challenged by "each" picking, the solution might lie in shuttle technology, says Steve Osburn, a director in the Kurt Salmon Supply Chain Group. Shuttles allow DCs to use the goods-to-person approach to order picking, where machines bring the goods to the workers rather than having them roam the warehouse to retrieve items. Although Kiva—now owned by Amazon—popularized this technology, a number of material handling equipment manufacturers, including Dematic, Knapp, Schaefer, and TGW, offer these machines.

Because shuttle systems are expensive, often costing upwards of $2 million, they're not practical for small operations. However, for high-volume DCs engaged in e-commerce, these systems can yield both labor and space savings, a consideration in high-rent areas of the country. "If you're picking discrete orders, it could increase productivity two times over what you currently do," says Osburn. "If you do batch picking to a unit sorter or put walls, you can still get a 40- to 60-percent boost in pick labor."

3. Conduct a do-it-yourself time-motion study. One simple way to save money is to ensure that all workers are following best practices. That was the premise behind the traditional time-motion studies, in which an industrial engineer would study how the best workers performed an activity. Today, any logistics manager with a digital camcorder at his or her disposal can record workers as they go about their daily tasks, says consultant Steve Mulaik, a partner in The Progress Group. Afterward, the manager could study the videos to determine the best methods for carrying out each task.

Clips of the best methods can then be compiled into a video that can be used to train new workers. Instead of letting new hires figure out for themselves the best way to perform a task, the videos can show them how the best workers do it, according to Mulaik.

4. Put a stop to "inventory safaris." Companies often store multiple stock-keeping units (SKUs) in a single bin location to save on space. However, that doesn't necessarily promote efficient picking. Instead, it can result in what consultant Marc Wulfraat calls "inventory safaris," where workers are forced to spend valuable time sorting through all the products stored in that location to find the desired item. "This may sound trivial," says Wulfraat, who is president of MWVPL International Inc., "but many companies still mix multiple SKUs together in the same bin location, and this can easily introduce five minutes to a pick task."

The solution is for companies to set up discrete bin locations sized appropriately for the majority of their products, so that each item can be stored separately. Then, it's a matter of setting inventory business rules in the warehouse management system (WMS) to ensure individual items are assigned their own bin locations, Wulfraat says. "A pick transaction should always be performed as fast as possible," he says, "and searching is an unnecessary evil that can easily be eliminated."

5. Pay temps on a cost-per-unit basis. When DCs need extra hands, they generally turn to staffing firms for temporary help. Trouble is, they don't always get the most for their money. While the DC generally pays the same hourly rate for temporary help as it does for full-time workers, the temporary workers often perform only half as effectively as their full-time counterparts, according to Mulaik.

That's why Mulaik recommends that DCs arrange to pay temporary workers on a "cost per unit" basis rather than an hourly rate. "You don't pay the staffing firm by the hour. You pay them by the unit worked—for example, every unit picked," he explains. "This puts a much larger burden on the staffing firm to find people who will show up, learn the job quickly, and generate solid productivity faster."

About the Author

James A. Cooke
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.

More articles by James A. Cooke

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