There are lots of mistakes commonly made by small and medium businesses when running their logistics operations. SMEs are under acute competitive pressure to perform and scaling up only magnifies the issues. Even larger businesses often don't have the expertise and resources to get the most out of their logistics. We see it all the time. Here's our top 7 logistics mistakes and how to fix them.
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1 Carrying too much stock or too little stock
The money you have tied up in stock is usually one of the most significant ongoing investments you have in your business. Just like any investment, the return will depend a lot on your skill in investing in the right stock at the right time. Fortunately, there are ways of doing this much more reliably for your business stock than there are for your stock market investments!
Too much stock will cost you money not only to buy, but to store. Your warehouse is an engine that burns cash whether it is standing still or earning you money. Lease costs, outgoings, electricity, pallet hire, capital costs and depreciation add up to a significant cost per pallet of storage. This can be anywhere from $3-$8 per pallet per week depending on your circumstance. This is one of the most under estimated expense impacts in business. Slow moving or non-moving stock not only depreciates in market value over time, but it accumulates storage costs that eat away profit margins and also have an opportunity cost of not warehousing and selling productive stock. Often the realization of this does not come to light until the warehouse is full and newly delivered stock must go into hastily arranged offsite storage. This will get the finance manager’s attention when a large and unexpected invoice lands on his desk!
Too little stock will cost you money in lost sales. Perhaps the most basic business rule if you rely on product distribution for your bread and butter, is to have stock available when the customer wants to buy. Unless you are tracking this lost demand, you may be blissfully unaware that it is even happening. Stock-outs will drive your customers to your competition in search of what they need. It is literally like handing them cash out of your pocket. You let your customer down and your competitor saves them. The loss of reputation and customer loyalty may never be recovered.
There are three things you need to do to fix this problem.
This is the 21st century. The era of the most amazing technological advances in the history of mankind, and the pace of development and change is accelerating. Yet clearly much of the world cannot move this fast. The unfortunate reality for many distribution businesses is that they have missed out on the technological revolution that has occurred in warehousing over the last 30-40 years. For many warehouses, run by even quite large and successful companies, their technology consists of some pallet racking and a forklift (or shelving and a trolley) and best practice is storing products in family groups (or maybe by code or description) and a paper printout of an order is the warehouse control system.
The results of this are predictable - low stock accuracy, slow order fulfillment, lots of back-orders and disappointed customers. It is why many businesses choose to outsource to a 3PL, it can all get just too hard. But outsourcing is not always an option, and there are costs and risks associated with outsourcing a critical part of your business. Outsourcing tales of woe are common.
But as previously mentioned this is the 21st century and technology is more accessible than ever. There are an abundance of warehouse management systems (WMS) available now and cheaper than ever, but the take up is still quite low. Most WMS implementations are resolutely stuck in the top tier and larger mid-sized businesses. I think that this is both a failure of management in not wanting to spend money fixing what is not irrevocably broken and also of the WMS industry in sticking with lucrative high end clients and not doing the hard work of developing an effective delivery model for this vital technology to the SME market. I am rectifying these issues with Logistics Help by developing a strategic partnership with Upimium WMS and developing that delivery model that will ultimately put a WMS in every warehouse. Having said that, even without going the there is plenty that can be done to improve the efficiency of a warehouse without going all in with a WMS. In fact this is what we commonly do with our clients who are not yet ready for a WMS.
I call these essential strategies the Top 3 Warehouse Accelerators, because they quickly address the fundamental issues of a warehouse stuck with mid-20th century business practices and accelerate the performance to a much higher level. You can read more in the short report describing the benefits of these strategies in our free report.
The Top 3 Warehouse Accelerators are:
1 - Bin Location Management - a logical numbering sequence for the storage racking and shelving that takes five minutes to learn and allows anyone to find anything in the warehouse quickly, as well as presenting the order picks in a sequential travel path through the warehouse.
2 - Pareto Analysis & Product Slotting - as you will now be finding stock by bin location instead of by product name or family group, you are now free to store the fastest moving products from different groups, together at the front of your warehouse. Analyse your sales history and use a Pareto analysis (80:20 rule), to find the top 20% of your items which will make up 80% of your sales. Use replenished pick bins to create a a concentrated picking zone and store the bulk reserve stock higher in your racks. This substantially reduces your average travel path (and time) for order picking. Product slotting can get a little complex to do well, but you get the idea.
3 - Advanced Picking Strategies. There are two basic picking strategies - single order picking and batch pick and assembly. There are also advanced variants of these that you can't do without a WMS; including multi-order, multi-batch, plus the two modifiers - multi-zone picking and pick and pass. Batch pick and assembly is easily done in a paper based system and can give you a huge productivity gain over single order picking, as you travel the warehouse only once to pick a batch of orders. If you have a long tail business then it may be useful to batch pick the slow zone and single pick the fastest moving items.
Sometimes there is functional support for these strategies in your business system but often not, or its not well designed and needs modification to work well (yes even in modern systems). So what can you do if you find yourself in this situation? Well by all means take these ideas and run with them. Or you can get some guidance from Logistics Help in our Top 3 Accelerators Program designed to coach you through implementing these ideas in your warehouse. And if you need more or are ready for the advanced strategies, then book in for a free Performance Improvement Consultation. Give me an hour of your time and I'll give you a plan to help you scale up your business logistics or overcome the common service issues that plague the logistics operations of most SMEs.
This is a terrific short video by Tech Insider on how Amazon Prime Now run their warehouses. Amazon have 41% of the online retail market in the USA so they probably know a thing or two about warehousing and distribution. The Amazon Prime Now service is in 27 cities in the U.S. and will deliver to you in an hour for $7.99 or in two hours for free! Watch the video and then I'll unpack their warehousing secrets and tell you how you can get the same results in your warehouse.
The Long Tail
Warehouse Management Systems (WMS) have been around for over thirty years. They are one of the most significant ways of boosting warehouse productivity and can help enable productivity gains throughout the supply chain. Up until relatively recently they were very expensive large scale systems requiring significant computing power, expensive software, complex and costly implementation, and expensive industrial grade mobile computers. This kept WMS restricted to large corporations and a few of the larger medium sized businesses who could invest the millions of dollars required and still get a reasonable return on their investment.
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