Warehousing remains a critical portion of the supply chain with increasing complexity driven by the speed, scale, and volume of customer ordering. The growth of e-commerce has led to a proliferation of stock keeping units (SKUs), and there’s an ever-broader need to engage and retain customers by offering immediate fulfillment. Technology is a factor as well, as new automation systems flood the market, and operations leaders face the challenge of keeping pace and understanding which technologies apply and what kind of impact they can create.
Worldwide, companies spend an estimated US $350 billion a year on warehousing. That number grows each year as pick sizes, or the size of orders picked from warehouse shelves, shrink and costs balloon, raising pressure not just on margins but also on service levels.
The warehousing categories that drive service level improvement include inventory accuracy, efficient space utilization, and proper process and physical workflows. Each category facilitates speed and accuracy and can be improved by implementing basic, but critical, practices and management capabilities, by leveraging a control tower concept. By implementing a technology enabled warehouse decision making process and system commonly called a control tower, operators attain real-time end-to-end visibility, predictive decision support, and collaborative information sharing.
From our work we’ve identified five best practices to enable the key capabilities and benefits of the warehouse control tower:
1. Disseminate clear instructions to warehouse personnel
Cross-functional key tasks are communicated, defined every day, and communicated in real-time resulting in synchronization of schedules and work efforts under a warehouse control tower system. This resolves the common operational issue whereby information is siloed in warehousing operations. This typically happens where the warehousing operations have grown so fast that functions develop processes and collect data that is rarely democratized across the organization. Disseminating information clearly and comprehensively in real-time helps to avoid the problems associated with that common pitfall and this has a big impact on the efficiency of cross-functional activities.
2. Leverage technology and automation
Under a control tower structure, equipment is informing the warehouse, human error is removed, and data is tracking warehouse activity from receiving to shipping. Warehousing operations sometimes struggle with automating manual processes and maintain robust receiving to shipping back office activities that are paper based. By using technology and automation, companies can streamline their processes.
3. Implement a stocking, put away and picking strategy based on demand characteristics
Inventory is categorized according to customer demand characteristics and warehouse space is shaped to ensure the most “in-demand” SKUs are slotted to reduce travel times. A control tower system supports the runner, repeater, and stranger technique that promotes operational efficiency. Runner, repeater and stranger analytics help identify SKUs in three categories. Runners are SKUs that have the highest throughput and lowest demand variability. Repeaters are SKUs that have medium throughput and medium demand variability, while strangers are SKUs that have the lowest throughput and highest demand variability. From our experience, warehousing operations fail to conduct runner, repeater, and stranger analytics that consider the velocity, value of contribution to sales and demand volatility to properly place the right SKU items in the right warehouse spaces.
4. Optimize the use of space
Using a warehouse control tower creates an environment where there are optimal material and traffic flows, outdated inventory is removed, and receipt to shipping cycle times are minimized. As a result of failing to implement the correct stocking, put away and picking strategies, many warehousing operators miss out on an opportunity to decrease receiving to shipping cycle times by five to ten percent. Implementing a strategy to optimize space can minimize these delays, reduce bottlenecks, and improve traffic flows.
5. Manage and track performance
Under a control tower system processes are standardized, there is measured performance, and continuous improvement initiatives. Nearly all warehouses monitor key performance indictors (KPIs), but operators rarely understand how to translate KPIs into continuous improvement opportunities. By using a control tower system KPIs can be considered as part of the bigger picture, rather than in isolation, and they can be amended where necessary.
Erratic and unpredictable, the economic climate rarely stays stable. Maximizing profits for businesses takes a well-planned strategy to increase warehouse productivity while cutting down operations costs. Competition is rampant, and it can be easy for a warehouse to fall into the trap of spending money on things they do not need. Reducing warehouse costs is at the top of the list for distribution professionals. At the same time, it is crucial the levels of quality and customer service continue to rise. Put simply, operating a warehouse is far from the easy task it looks to be.
As businesses compete to provide the fastest delivery times, warehousing operators will be expected to keep up. Maintaining inventory accuracy and seamless inbound and outbound operations by leveraging data democratized through control towers, and managing cost will prevent warehousing from becoming the bottleneck in the supply chain.