A wide number of costs can factor into effectively running a distribution center. Because many of the expenses are essential and unavoidable due to the nature of the business, they are considered hard costs. However, it is very likely that a distribution center accrues unnecessary expenditures that may go unnoticed on a monthly basis. When distribution centers are experiencing top volume growth, most of the operating outlays are excused or overlooked in an effort to produce timely deliveries. Most troubling is that such expenses can continue to have a negative impact on the bottom line of the distribution center for years. Every dollar wasted takes away from critical investments in future advancements in equipment and technology. With a movement toward more specialized, omni-channel logistics, it will become necessary to invest into new systems and processes, making every penny saved all the more valuable.
In the logistics industry, improving operational efficiency is a key ingredient as consumers continue to demand rapid delivery of their goods and services. According to Intermec Marketing, in a recent survey of distribution center managers, 8 out of 10 stated they were charged with bringing down costs in the coming six months. At the same time, these same managers were tasked with the responsibility of increasing productivity due to the escalating demands within the supply chain.
With orders being placed from a myriad of new sources, the need for more technology and staff has grown, thus placing a greater stress on the financial resources of the distribution center. Because of these increased demands, tackling the challenge of eliminating hidden costs has become essential to organizational growth.
To uncover hidden costs within a facility, the first place the organization needs to analyze is the current layout and production schedule. Nearly two-thirds of organizations surveyed in a 2012 study by Vanson Bourne agreed that huge cost savings, including large time investments, can be found by trimming mere seconds off of routine workflows. The layout of the picking area is critical to achieving high levels of productivity. By analyzing the type of product and the type of orders that are flowing through the facility, a customized pick path can be developed to reduce travel time, increase efficiency, and reduce costs. According to a study by FastFetch, 60%-70% of labor expenses are related to traveling during the picking process. Creating distinct zones for each type of product that you ship will alleviate many mistakes and reduce wasted expenses.
The labor sector also offers another opportunity for cost cutting. By analyzing the storage and process flow within a center, management can identify daily unproductive steps taken per team member. From this evaluation, a plan of action and improvement can be developed as an effort to cut wasted labor costs. In a report conducted by Intermec Marketing, 42% of distribution center managers claimed a total lost time of 30 minutes per employee per day. However, 30% of these managers did not perform any kind of workflow analysis or review in their facilities. To discover where improvements can be made, it is imperative to analyze the details and movements of team members within the center.
By observing the number of touches by each team member, the excess travel taken place within the center, and the accuracy errors taking place at each station, improvements within the workflow and the department can be made. Additionally, investing in labor management software can help identify and isolate unnecessary labor expenses that are not detected during the workflow analysis.
Outside the four walls of the center remains another hidden cost for assessment. The approach utilizes a value stream map, and it evaluates all upstream and downstream partners of the distribution center. The value stream mapping strategy collectively involves all parties that touch a product during its flow through the supply chain. The goal is to find any opportunity to reduce costs. Opportunities can be found in various areas such as the order management system or simply the design of the pallets that carry the product. The goal of evaluating all parties within the supply chain is to maximize the efficiency for the end client and minimize the cost for the companies within the value stream. By taking this collective approach, often time distribution centers are able to discover other methods to work with partners in a more efficient manner.
Is your organization tasked with finding ways to cut logistic expenses? The single fastest way to improve logistics costs is to work with a third-party logistics company. At Barrett Distribution, we have developed a Blueprint® Process to help organizations just like yours improve supply chain performance. The Blueprint® Process is a proprietary and proven method of assessing your supply chain ‘current state,’ defining physical and information streams in place and creatively building improvements into the design for maximum efficiency and overall performance. Take the first step towards eliminating expenses and improving your logistics performance by contacting Barrett Distribution Centers today.