Excellence in Warehouse Operations through Best Practices

Posted in Operations & IT Articles, Total Reads: 653 , Published on 29 October 2015

Warehousing can be defined as “the part of the logistics system that stores product at and between the point of origin and point of consumption and provides information to management on the status, condition and disposition of items being stored.” Warehouses are typically viewed by some as simply a place to store finished goods and incurring huge costs. An effective supply chain is essential to achieve operational excellence for an organization. Warehousing forms an integral part of supply chain and thus optimizing operations inside a warehouse is important to sustain an entire supply chain. Regardless of what some might say, business leaders know how much the organization’s success depends on having an effective and comprehensive warehouse management strategies.

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Efficient warehouse operations ensure that a company receives the right stocks from suppliers to replenish and ship stocks to the distributors or customers in time.

Organizations are constantly trying to improve performance in these sub-areas which in turn would drive overall productivity and performance of a supply chain. Efficient operations do not happen by chance, but through implementing a series of best practices. Every warehouse should have a best practices program. It is through these practices, companies could achieve reduced labor, costs, error, and cycle time while increasing accuracy and service levels. What might be right for a facility is not necessarily a best practice for other facility, but a number of best practices can be applied to most warehouses and distribution centers. Following are some of the best practices which are being implemented across the globe for efficient warehouse operations:

1. Use of Advance Shipment Notification (ASN)

ASN are generally used by suppliers to notify the receivers in advance about the shipping of a specific purchase order with an expected date of arrival at receiver’s facility. The ASN can be electronically sent to the receiver through email or specific vendor portals. Without ASN, receiver won’t be able to prioritize receipts for the day. Knowing what will be received in advance helps in planning for the expected load and required resources (manpower, machines, etc.)

ASN has been used by automotive manufacturers to communicate with suppliers. For other industries, like retailing e.g. Tesco, HUL, PepsiCo, Nestle use ASN to manage physical flow within their supply chains in order to ease the customer receiving process. Also a research by GS1 UK suggests that the grocery sector in UK could save a further £200 million each year from the automation of one single business document- the ASN.

2. Preplanned Picking waves

While considering the level of efforts involved in warehouse operations, greatest amount of efforts is in the picking process i.e. taking out the products from the pallets or shelves.

Picking waves can be prepared based on type of products or type of customer. This helps in reducing the time by eliminating the need for picking same product multiple times for different customers in case of product based pick waves. This also helps in improving productivity of labor as multiple trips to a storage location is reduced. Depending on the type of industry/product lines, picks can be prepared.

3. Fixed storage location

Normally the product is being put away at a random location in a warehouse when it is received from a supplier. The storage location might have an identification code but still finding it could be a task and would involve lots of efforts while picking. Fixing storage locations for certain products could offer greater advantage in terms of reducing picking time and labor. For example, product A, B and C are one of the fast selling SKUs for the company and gets picked in large quantities daily. By fixing storage locations for these SKUs close to shipping area could improve picking efficiency.

Various grocery retailers’ use fixed slotting to organize their pick lines because of the diverse range of case weights and sizes that needs to be concurrently picked and then palletized.

4. Cross docking

Cross docking refers to the movement of product within warehouse where the product once received from the suppliers is directly transferred to shipping area for delivery to customer. Cross docking is advantageous in cases where the company deals with much greater variety of products but have limited space in storage. Cross docking can be done for products which are normally fast moving or generally delivered to customer in cases. Cross docking also plays an important role in reverse logistics where products returned by the customers due to various issues such as product recall needs to be sent to supplier. Retailers today are putting great emphasis on increasing the portion of products handled via cross docking rather than storage.

The world's biggest retailer, Wal-Mart, delivers about 85% of its merchandises using a cross-docking system. A survey conducted by The Cross-Docking Trends Reports- 2012 shows an increase of 16.5 percent in the last three years with 68.5 percent of the companies surveyed currently using cross-docking within their supply chains.

5. Cycle Count Program

Physical inventory count is a critical process in warehouse wherein the entire inventory is counted physically. This exercise though quite useful is a painful exercise especially when you have a huge inventory. The exercise involves a lot of labor and is a time consuming exercise. The regular operations needs to be stopped while doing a physical count which is not desirable. Doing a daily cycle count enables a business to eliminate taking a physical inventory count. A daily cycle count program can be structured after taking into account several considerations. There are many methods available to cover entire inventory efficiently but the most popular method is ABC method. Under this method, the inventory items are designated as A items, B items or C items based on value or number of inventory turns. The most critical items are classified as A items with a high number of inventory turns which needs to be counted frequently. On the other hand, C items are generally items with less movement and can be counted only once or twice in a cycle. Thus an inventory count generally includes a large number of A items, some B items and very few C items.

The figure below shows comparison between physical inventory count and cycle count.

The above figure cites benefits of using a cycle count program.

Large retailers such as Wal-Mart, Future Group, Reliance today run regular cycle count programs to reduce errors and cost thereby increasing accuracy.

6. Key Performance Indicators (KPIs)

W. Edwards Deming is often misquoted with the maxim that what can’t be measured can’t be improved. What he actually said was that managers must know the unknown and the unknowable (such as the cost of a dissatisfied customer). He acknowledges that you can’t measure everything of importance, but you must still manage those important things. For the things that are quantifiable, the quote still stands. The Key Performance Indicator (KPI) is a measure of performance of the business in order to benchmark against the competition and industry standards in order to gain a competitive advantage. Since warehousing is critical to a supply chain, it is necessary to drive the performance through these KPIs. These are also necessary tool for continuous improvement environment. People. Cost, Space and Systems drive the performance inside the warehouse. Hence, generally warehouse KPIs are based on the above mentioned drivers and focused on activity in order to micromanage the performance. Most common activities inside any warehouse are Receiving, Put-away, Storage, Picking and Shipping.

KPIs could be identified for above mentioned activities. These KPIs empowers the business to identify the best and worst performing areas and gives an overview of performance of processes and systems. This helps in focusing areas of improvement and take necessary precautions and process changes.

These may not be an exhaustive list of best practices to optimize warehouse operations but sure are widely regarded as assisting in efficient operations. Best practices like these enable companies large and small to achieve results in their distribution centers and warehouses.

This article has been authored by Jeetendra Ahirwar from IIFT Delhi


1. http://www.bastiansolutions.com/blog

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3. https://legacyscs.com

4. Global Logistics Management, Craig Voortman


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