Warehouse Optimization: Maximizing Space Utilization and Reducing Costs

In the world of supply chain management, warehouses play a crucial role in storing and distributing goods efficiently. However, many companies struggle with limited space and rising operational costs, which can hinder productivity and profitability. The key to overcoming these challenges lies in warehouse optimization. By maximizing space utilization and reducing costs, businesses can unlock significant benefits and gain a competitive edge in the market. In this post, we will explore practical strategies and actionable tips to optimize your warehouse operations and get the most out of your warehouse or distribution center.

Conduct a Comprehensive Warehouse Layout Analysis: A crucial step in warehouse optimization is analyzing the current layout to identify inefficiencies and areas for improvement. Consider factors such as storage density, product flow, accessibility, and safety. By critically evaluating your warehouse's layout, you can identify opportunities to reorganize storage areas, implement better aisle configurations, and utilize vertical space effectively.

Embrace Technology and Automation: Incorporating technology and automation solutions can revolutionize your warehouse operations. Implementing the right Warehouse Management System (WMS) can streamline inventory control, order fulfillment, improve overall accuracy, and enable further improvements. Additionally, technologies like barcode scanning, RFID tagging, and automated systems can enhance picking and packing processes, reducing human errors, and saving valuable time.

Prioritize Inventory Management and Sales and Operations Planning (S&OP): It is very important to look at supply chain planning from a holistic, end to end, point of view. This will help the overall business on a strategic level and positively impact the warehouse operation by having better inventory management. Successful S&OP and inventory management is crucial for space optimization and cost reduction. By understanding your inventory levels, turnover rates, and demand patterns strategies can be implemented that minimize excess stock, reduce carrying costs, and maximize available space. Furthermore, adopting an ABC analysis methodology can help prioritize items based on their value and optimize storage allocation accordingly.

Implement Lean Principles: Applying Lean principles to warehouse operations can lead to significant improvements in space utilization and cost reduction. Techniques such as 5S (Sort, Set in Order, Shine, Standardize, Sustain) can improve the efficiency at workstations by eliminating waste and creating an organized and efficient workspace. Lean methodologies also promote employee involvement, creating a culture of continuous improvement.

Optimize Slotting and Picking Strategies: Effective slotting and picking strategies can minimize travel time, reduce labor costs, and enhance overall warehouse productivity. Analyze your SKU velocity and order patterns to strategically place fast-moving items closer to shipping areas, reducing the time taken to pick and pack high-demand products. Regularly review and adjust your slotting strategies to align with changing demand and business requirements.

Foster Collaboration with Suppliers: Collaborating closely with suppliers can help optimize warehouse operations and reduce costs. Explore vendor-managed inventory (VMI) programs which allow suppliers to monitor and replenish stock levels directly. This reduces lead times, minimizes stockouts, and frees up your warehouse space. Additionally, explore opportunities to change that way that vendors ship product to help expedite the receiving and put away processes. Potential changes include packaging, labels, and cross-docking practices to reduce handling.

Warehouse optimization is a critical aspect of supply chain management that can yield significant benefits for businesses. By maximizing space utilization, implementing efficient processes, and leveraging technology, companies can reduce costs, improve productivity, and enhance customer satisfaction. Remember, optimizing your warehouse is an ongoing process that requires continuous monitoring, analysis, and adaptation to evolving market dynamics. By adopting the strategies discussed in this blog post, you can take a proactive approach towards warehouse optimization, unlocking its full potential and positioning your business for success in the competitive market landscape.

Why you Should Prioritize Reverse Logistics and Returns Management

This year, returns set an all new single-day high and certain companies are so overwhelmed that they are refunding consumers and telling them to keep the items rather than shipping them back. Returns have become a large pain point for many companies and can add a lot of extra costs when not handled correctly. A thorough understanding for reverse logistics and returns management can allow companies to minimize the added costs and recoup some value while earning increases in customer loyalty.

Returns can happen in any industry for many different reasons. Whether the reason for return is the consumer’s fault (e.g. they ordered the wrong size), a carrier’s fault (e.g. product got damaged during transit) or the distributor’s fault (e.g. shipped an expired product) every company should prepare themselves to handle reverse logistics and returns.

The What: Standardized Process with Automated Workflows

All efficient returns management strategies rely on understanding returns data so that standardized processes can be built, and workflows can be automated. This will prepare an operation to handle all the different returns and minimize the decision making happening in real-time. Defining necessary functionality and selecting appropriate support systems is good practice. A pre-screen with the consumer to allocate the return into the correct workflow allows the logistics team to predict and plan for inbound goods. Workflows can vary company to company, but a quality check is consistent. Assessing goods and distribution into pre-determined workflows leads to quick turnaround time and fastest recouping of investment.

The Why: Financial Incentive AND Customer Loyalty

Financial incentive is clear – the opportunity to resell the goods and recoup value, whether on the primary market in full or a secondary market for fractions. What is less recognized, is the influence on customer management. Customer expectations are high for returns – quick and easy response with free shipping. Managing that relationship can go a long way. Remember that returns contribute to the bigger picture: customer loyalty and repeat sales.

The How: Valuation

With every product, being able to appraise a return is absolutely necessary. Understanding why the return is being made, any repair/refurbishment costs necessary and the future-value of the product reselling (if at all) on the primary or secondary market is key. Having a system in place to do so is extremely important. It has even led to some companies leaving the product with consumer free of charge.

Goods valuation does not paint the entire picture. A considerable piece of the puzzle is customer loyalty and retention. Determining value here is specific to each company, and something not to be ignored.

Looking Ahead

A trend significant of late is that of sustainability. Government regulations have taken interest in the proper disposal of goods and incentivized reuse and recycling. Secondary markets have flourished in recent years, leading to the development of closed-loop supply chains – those with 0 waste. We predict that 2021 continues to bring a focus to ESG initiatives, and that those not invested there will be left behind.

5 Supply Chain Trends for 2021

This past year has created many new challenges for everyone, causing consumers and companies to adapt. We expect some of the supply chain changes to be temporary but that many of them will have a lasting impact on the supply chain industry going forward. Below, we discuss some of the trends that we expect to see in 2021.

Fulfillment and Logistics as a Competitive Tool

Every year we continue to see consumer behavior change, and in no year has that change happened as rapidly as in 2020. People want to get quality goods for a reasonable price and quickly. Unorganized supply chains will become increasingly exposed as companies will have to choose between bad service levels or unsustainable costs to meet customer demand. The most obvious example of this trend is Amazon's move to achieve next-day or same-day shipping. As stated above, consumer expectations for service continue to rise. This means businesses that have systems in place to forecast well, stock optimal levels of inventory and fulfill efficiently have a significant advantage over those that do not.

Focusing on E-Commerce, Service Levels and Omnichannel Development

The shift from brick and mortar retail to e-commerce has been growing every year, and COVID-19 only expedited that growth even more. It's no surprise that consumer’s extreme shift to e-commerce seen in 2020 will have a lasting effect on the way people do business moving forward. In addition to the e-commerce shift, service levels are also becoming a higher focus as consumers are going to choose the quickest and most reliable option. To keep up with these shifts, companies are going to have to continue to focus on developing their omnichannel strategy. This means using support systems to create an interconnected network of stores, warehouses and 3PLs, providing the flexibility to fulfill both large wholesale purchases and small e-commerce orders. Companies can then leverage this interconnectivity within the network to optimize fulfillment strategy on an order level basis.

Shifting E-Commerce to a 3PL

Another industry trend we expect to see is a significant shift for e-commerce distribution towards third-party logistics companies (3PLs). The e-commerce industry, in comparison to brick and mortar stores, presents a complexity that is hard to tackle for smaller companies. 3PLs provide an option that will allow companies to set up much quicker than if they opened their own warehouse and allow them to avoid significant fixed costs, have access to an already established network and get specialized processes based on their needs.

Making Procurement a Focus

COVID-19 complications and global trade friction with China mixed with consumer’s increasing expectations for better service have signaled to the supply chain world that now may be the time to focus on procurement. By moving suppliers closer to home (near-shoring) and prioritizing the procurement process to make lead time and flexibility priorities, companies can improve their fulfillment times and overall supply chain. Developing a regional supply chain offers the better potential for mutually beneficial relationships and improves both time and proximity to market. This confidence in relationship management and product could challenge the prior approach of low-cost country sourcing.

Freight Normalization – A New Baselinne

COVID-19 has caused overwhelming increases to volume causing capacities to be tested and costs and rejection rates to skyrocket. As the freight companies profit on these higher rates, it can be expected that they will reinvest into capital expenditures, such as more trucks, increasing capacity to meet market demand and normalizing from the economic shifts of 2020.

 We wish everyone a safe and healthy 2021.

Blockchain in Logistics: How it Started and How It's Going

Blockchain’s origin is rooted in the release of the whitepaper written under the name Satoshi Nakamoto explaining the foundation of what we know as today, Bitcoin. Bitcoin offered an avenue to worry-free digital transactions due to transparency and decentralization of the data. This ensured that information could not be altered and prompted the crypto-currency boom. The core-principles of blockchain and success of Bitcoin started a wave of curiosity into other possible applications, thus the development of the technology began to arise.

One of these applications was supply chain. Blockchain emerged and appeared to be the solution to everyone’s problems. In 2019, The Port of Rotterdam and The Port of Busan pilot tested blockchain into their maritime logistics and found success in automation and reducing operation cost.

What is Blockchain? As Explained from Blocklab:

• A “digital ledger” or spreadsheet that is duplicated and stored in a distributed network in multiple locations which can be updated instantly at any location.

• Data is decentralized since it is in multiple places at once. Thus, becomes a secure network as data cannot be modified without all approval of all the members and makes it difficult to hack.

• Information is constantly monitored which makes it difficult to change data and ensures that the information is distributed but not copied.

• Agreements become mutual and documented which enhances security and traceability as transactions are logged into the ledgers which reduces the worry of parties keeping their end of the deal.

• This results in lower costs, improved efficiency, increased transparency and increased trust.

Blockchain enables users to record and store data more easily and in a decentralized way which allows for transparency from all parties, accurate/real-time data, and improved traceability from production to delivery. Currently most companies manage their data individually on independent software support systems. The information is not shared across platforms which can cause confusion and miscommunication when the information does not align. Now, imagine the ability to track end-to-end performance of your goods and trust in the data being viewed. Blockchain provides exactly that solution. Participants in the network will provide information that would be difficult to change. The transparency allows anyone to audit any point in the supply-chain and reduce errors. Goods come as expected and as a result, increase trust amongst parties and reduce operation costs.

So Why isn’t Blockchain Used More?

 A study published in 2020 in the Journal of International Trade and Commerce, delved into the blockchain adoption focusing on Port of Busan and Port of Incheon. Despite all the possible applications of blockchain, the finding suggest it may be more difficult to sell than people think.

1. Logisticians have difficulties getting a clear idea on the benefits and successful blockchain adoptions.

2. Consultants and academics worry about the technological maturity of blockchain.

3. Competitive edge of the industry is highly influenced by economic factors related to financial and time-related aspects.

Blockchain Takes a Huge Shift in Infrastructure to Implement

Blockchain performs its best with more participants because there is more information. Without participants, the use case of blockchain no longer becomes applicable. Therefore, a decent size number of entities must agree on implementing blockchain which is harder than it sounds. Blockchain requires a huge shift in infrastructure.  Instead of storing information on their own subscription platform, the information will instead be widely available to anyone in the network which may be intimidating. Not only that, but the technology is new, and companies are hesitant on uplifting their entire structure. The pilot program by The Port of Rotterdam and Busan has shown that blockchain does perform up to expectation, but only provides a single example of the tangible benefits of adoption. A few ports have started pilot testing since, but until we see more entities willing to integrate this technology, it will be a long time till we see any major shifts in supply chain management.

Blockchain is the Future of Logistics

As supply chains become increasingly complex to meet the needs of consumers, the benefits of blockchain are far too good to not be considered as a solution. Not only does it provide relief to cumbersome problems in logistics, but transparency is becoming an important factor to consumers. Ethical sourcing and detailed package tracking are just a few factors that consumers are starting to consider. Blockchain allows for trusted end-to-end product visibility, which will become more vital to companies and consumers alike.

Supply Chain Network Optimization – How to Do it Right

The time is right to re-align your Supply Chain Strategy, for many reasons including:

• Logistics and fulfillment are the new storefronts and sales tools

• The explosion of direct-to-consumer business forces all companies to have an omnichannel strategy.

• The sourcing landscape is rapidly changing with more near-sourcing and risk minimizing.

• Sustainability awareness is increasingly unavoidable - and transportation is a big piece.

The traditional approach very often leads to more of an endless data crunch and, in best case, a mathematical answer that minimizes the theoretical logistics costs but does little to create an implementable supply chain strategy.

But you don’t do a network optimization to relive the linear programming classes from college and show your mathematical acumen. Well, some of us may. For the rest of you, here are some crucial hard-earned learning points from many network optimization projects:

1. Avoid Spending Time and Money Feeding the Monster with Data

Nobody has perfect data. A proper strategy for cleaning and curate the data will be one key to the success of the project.

The important thing is to know what data really matters and how to curate the imperfections into a usable dataset.  The most critical data for the outcome is the shipment data and it is often the hardest data to get. If you don’t have access to this data internally, the carriers do have it. They are not always keen on sharing it, but they are still the best source. The order data is usually readily available and can be used to recreate shipments though the dim/weight can complicate things. This is an area where data-enrichment from firms specializing on this can work and also item profiling to reduce the complexity to where it matters.

Most advanced models require much more data to run, but the impact of other data is less critical and can in many cases be handled with benchmarks to get a starting point and sensitivity analysis where you rerun the model with the critical datapoint varied until you find the breaking point where the recommendation changes. It is much easier to make a call when you see where it really matters and have clear choices.

2. The model will not give you a strategy. It will only tell you which alternative is mathematically the best.

Before you run the model; use the data that has been collected to profile your supply chain. This will enable you to evaluate relevant solutions.         

• Customer profiles and requirements: Delivering to the big retailers demands a different solution than direct to consumer deliveries. Two separate networks?

• Inventory profile: Certain products may have demand patterns very tilted geographically or being critical from a supply perspective. Slow-movers vs best sellers. Examples of facts that would determine the eligible alternative network structures to optimize such as Central DC, Regional DCs, Satellites, Forward Stocking Locations, etc.

• Order profile, supply profile, product profile are other examples of facts that are important to analyze pre-modelling.

3. Sensitivity Analysis

Instead of trying to create the perfect dataset. Use the model to find out with what value on critical but uncertain data that the recommendation changes. This saves a lot of time and makes the decisions relevant.

4. Use the Right Software Tool for your Challenge

The most advanced optimization tools are expensive and require a lot of effort to configure. You’ve spent a lot of time and money before you are ready to run the model. This is totally worth the investment if your supply chain is very complex and you intend to, once configured, use the model frequently. Those software tools are sophisticated and awesome with all their possible add-ons.

Most companies have a more straightforward supply chain or can optimize the network in North America, or Europe, Asia, etc. separately and then piece them together. If this is the case, the most complex tools are complicating things without the added value. Spend the time and money you save on an adequate optimizing tool to focus on strategy development instead.

Supply Chain in COVID-19: The Option of Nearshoring

Our CEO, Håkan Andersson, was recently featured on a podcast with industry expert, Bob Hess, about the potential for #nearshoring as a result of the pandemic.

Listen here: https://nkf.re/3dhqU0

Lean Supply Chain & Logistics Management Training and Consulting

A lean supply chain & logistics process has been streamlined to reduce and eliminate waste or non-value added activities to the total supply chain flow and to the products moving within the supply chain. Waste can be measured in time, inventory and unnecessary costs. Value added activities are those that contribute to efficiently placing the final product at the customer. The supply chain and the inventory contained in the chain should flow. Any activity that stops the flow should create value. Any activity that touches inventory should create value.

Supply chains gain waste and non-value added activities for many reasons, both internal to the company and external. Regaining the lean supply chain may mean addressing many of the same issues that created the problems of extra and unneeded time, inventory and costs.

The ideal approach is to design the perfect supply chain and fit your company’s operation onto it. Supply chain management is meant to reduce excess inventory in the supply chain. A supply chain should be demand driven. It is built on the pull approach of customers pulling inventory, not with suppliers pushing inventory. Excess inventory reflects the additional time with the supply chain operation. So the perfect supply chain would be lean with removing wasteful time and inventory.

A supply chain, with demand pull, flows back from point-of-sale demand (resulting in deliveries to the store) to the customer distribution center, back through to purchase orders placed on suppliers and onwards, up the supply chain. Anything that delays or impedes this flow must be analyzed as a potential non-value added activity.

Lean supply chain management is for all companies. It is not just for manufacturers who practice lean management. It is also for non-manufacturers, wholesalers, distributors, retailers and others.

Lean Transformation in the Supply Chain & Logistics environment can result in benefits such as:

• Reduced inventory

• Reduced space

• Maximized inventory investment

• Minimized stock outs

• Reduced schedule changes

• Minimized expediting

• Increase flexibility and responsiveness

• Reduce lead time

• Reduce errors and extra processing

• Improve utilization of personnel

• Reduce transactions

• Simplify processes

Deliverables

The re-design of key business processes and the implementation of new processes and systems that will improve overall performance of the business which may include:

• Lean Opportunity Assessment – Identify Lean opportunities in the Supply Chain & Logistics function.

• Lean workshop(s) – Introduction to Lean and other specific training such as needed such as Setup Reduction, Batch Size Reduction, 5S – Workplace Organization, Kanban/Pull System,, Total Productive Maintenance, etc.

• Value Stream Mapping (VSM) – A map of the current state for key value streams is developed that serves as a basis for re-designing the various business processes. A future state map is then developed that serves as a “to be” vision.

• Kaizen Events – Process improvement events based upon priorities set in VSM future state map(s).

• Lean Project Management – Start to finish Lean project management including facilitation, training and advice.

Logistics as an Investment Guide

Can companies’ activities in logistics be a good indicator of investment opportunities?

Many investors are looking for companies that that grow very fast while being profitable. Fast track firms selling physical products likely outgrow their existing distribution network and need to expand to satisfy the demand for their products. If they can finance such an expansion with their own money, they are likely to also be profitable.

I know from experience that companies expanding their logistics networks or their warehouse capacities often have very good finances and that they in many cases would be good targets for investments. Though it is not a fully scientific way of proving a theory, I have structured the unsolicited inquiries that Establish received last year about new warehouse designs or expansions of distribution networks. Companies that we knew from previous years are exclude to remove that bias.

The resulting list of fast growing profitable companies says a lot about which industries are expanding and the age we live in:

• Developers of equipment for virtual reality experiences.

• Manufacturers of 3D printers.

• Pharmaceutical companies, in general but with an over-representation of vaccine and natural products.

• Suppliers of guns and ammunition. These companies are not primarily catering to the military or the hunters…

• High quality, very specialized products that have previously been imported from Germany and Scandinavia, but where the production is gradually moving to the US.

• Companies in different industries that are using the concept for Delayed Differentiation or Postponement by importing generic pieces from low-cost countries and assembling and customizing the products in the USA. Few SKUs in and many different items out.

• Suppliers of equipment for greenhouses. From Oregon and Colorado…

• Sports goods; highly specialized Cross-fit and Lacrosse equipment

• Suppliers of merchandise around movie franchises

• Makers of craft beer and whiskey

• Specialized logistics solutions for target industries such as expensive art to frozen food

• Companies that handle “The Long Tail” of low frequent products for companies that want to focus on their best sellers but need to provide availability of the other items in their assortment

What do you think?