Warehouse Optimization - A Competitive Edge In Your Supply Chain

Alvis Lazarus, CEO, Hesol ConsultingAn enterprising leader with a strong leadership experience and excellenct track record, Alvis has an expertise in spearheading Logistics & Supply Chain strategy, Planning, Design and Execution.

Warehousing and Logistics are two key levers and enablers within Supply Chain. To describe them in one word, I would use the verb `Store' to Warehousing and `Move' to Logistics. Supply chain cease to perform without these key verbs (Store and Move) ­ products have to move through multiple nodes of the supply chain to undergo the transformation from raw material to final product and then move through different distribution channels to multiple channel partners before it reaches the customer. Logistics is all about this journey to ensure that the journey happens on time and happens efficiently; Storage (Ware-housing) gives the opportunity for consolidation and gives you much control to have enhanced service levels.

Kano Model Is Getting Skewed Day by Day
Customer Expectations keep pushing us to limits. To explain through a KANO model - most past Wow moments through `Excitement' factors and Performance factors have moved to `Basic Need' in the KANO Model. I have been doing a lot of KANO models and I can see for the same industry, KANO is getting Skewed a lot due to the above happening.

In this article, I have focused on the warehousing specifically and how it can be the organization's competitive edge.

Warehousing has Just Become Part of Your Top Company Strategy:

Decades before, Warehousing is never even part of the company strategy and it always took the back seat. The focus is always on the Manufacturing and the game is all about running your factory efficiently. As years passed by, the competitive edge created by lean manufacturing and other TPS concepts slowly dried down and it has become an even game. With that, Warehousing and Logistics started coming to Limelight.
In a supply chain, Warehousing cost is about 1-2 percent of the total sales. Efficient supply chains operate at less than one percent of warehousing cost to total sales. But there is a huge variation between different organizations. For example, current e-Commerce companies operate at 4-8 percent of the total sale. Yes, e-Commerce industry was not much worried about this leakage in 2010 but today leadership team from e-Commerce industry is in tremendous pressure to monetize and certainly warehousing costs can't be left out and I'm sure warehousing and logistics costs are in the top three of the priorities.

Warehouse Optimization is not a one-time exercise; it is an activity to be done every Quarter

The lamest argument I have heard is `Anyways I will bury this in my costing and why I have to invest on any technology or skills here at warehousing? Investment here won't break even?' Answer is pretty simple, (1) current market is so competitive and customers can see all competitive info right on their hand-phones itself and if you are not price competitive, you cease to exist. (2) We are talking about leakage of 3-4 percent on total top-line and that's a huge stake.

Warehouse Optimization
There are two main optimization verticals under warehouse optimization.1.Warehouse Resource Optimization2.Warehouse Space Optimization

Warehouse Resource Optimization
Warehouse Resource Optimization is all about the efficiency of the people. There are about 10+ measurements on evaluating the efficiency but all those get consolidated to a single metric called the `LPMH' ­ Lines per man hour. Efficiency here is achieved through eliminating non value added activities. There are multiple methods here ­ Theory of Constraints (TOC), Waste Analysis, Therblig Study, VSM (Value Stream Mapping), GEMBA Study, Spaghetti Map. These techniques are used de-pending on the type of problem and used as stand-alone or as a mix.

Out of the total value that can be brought to table through ware-house optimization, Resource optimization contributes around 15-30 percent of the total value addition as bottom-line savings.

Warehouse Space Optimization
In a business language, It's all about using each square feet you are paying for.

• When you are business teams are sweating it out on field building the top line, these space inefficiencies slowly eat out in percentage in bottom-line. Unfortunately, most ware-houses operate at around 60 percent or less in cubic space utilization.

On a positive note, once you warehouse optimization in radar and drive that, you have a lot of potential to make your warehouses a lever in customer experience.

Space Optimization can be done on a green field project or on a brown field project or on an existing warehouse.