Warehouse Management Challenges and Resolution
Warehouse Management Challenges
Like many other sectors of the UK economy, warehouse operations have their share of challenges:
Below we will explore these issues in more detail and look at potential solutions.
1. Labour and Labour Substitution
Labour management and labour churn is a key issue for Operations Management as mentioned above. But what can retailers do about it? There are two prongs to this, one is to create a better environment for the people you have, to slow the churn down, the other is to replace people with automation.
The Staff Environment
Pay is important to people and needs to be addressed, but people leave for many more reasons than pay. For example:
2. Mechanisation and Automation
The very large retailers are implementing various forms of robot technology to help with pallet movement through warehouses, moving tote bins to static pickers, scanning warehouse locations for empty slots, identifying picking faces almost depleted, checking that the pallet in a location is the right pallet, etc.
Medium size retailers are often implementing less expensive technology such as conveyor systems with fixed location scanners, which can read QR codes and route cartons appropriately. More advanced implementations can read RFID tags if the cost is justifiable. Different sophistication levels of conveyor systems can be used in goods receiving and despatch, verses goods movement inside the warehouse. These approaches save labour hours and also improve the accuracy of stock records. Wireless technology is often used in warehouses to help pickers and stock checkers use handheld or wrist worn devices to improve picking productivity.
3. Managing Inventory
The primary functions of a warehouse are to receive stock, store it for as long as necessary, keeping it fit to sell, and then pick and ship it somewhere.
Typical inventory related challenges in the warehouse include:
Obviously, manufacturers and retailers need very good warehouse management systems to provide all the core functionality to manage the relevant processes, and to integrate to the purchase order management system, product file system, accounting systems, etc.
In addition, it may need software to control conveyor and sortation systems, be capable of supporting QR codes or RFID tags for trailer, pallet and carton tracking, and also high value item tracking, or tracking items with unique serial numbers, such as washing machines.
Handheld mobile terminals and forklift truck mounted screens with wireless access can also make key tasks faster and more accurate, reducing some of the pressure on warehouse labour.
Product Lifecycle Management (PLM) is normally the responsibility of the Buying Department. However, the warehouse management does have a small role in that periodic inventory counts should highlight the age of individual pallets and cartons of stock in the warehouse, especially for product that has been discontinued or is old season and will not be used when that season is next repeated.
Having a report that highlights all products that have not been picked in the last one, two and three months is a good aid to identifying old items that may have been forgotten.
Improving Import Performance and Containing Cost Increases
Most retailers import goods from overseas for a percentage of their product range. For years now, this has generally been a high percentage and much of it has come from the Far East. China has the biggest share, but as China has become more expensive, the shares taken by India, Pakistan, and Vietnam have grown. In this article, we will review some of these problems in more detail and provide recommendations on how to address and, at least, reduce some of these challenges.
4. Analytics
Analytics also has a role to play as mentioned before. In accounting terms, buildings, trucks, pallets, etc are classified as fixed assets. The way you get value for the investment in fixed assets is to measure their yield.
For example, what percentage of storage locations are used each month of the year, and what are the shares of storage used for new season merchandise arrived early, current season goods and old season merchandise still in stock? What percent of truck load capacity is used each month and how does that correlate with the money spent on hiring external resources to provide extra capacity at peak times?
Labour statistics are another area. For example, how productive are the goods in teams, put away teams, pickers, despatchers, and drivers? This can lead to re-balancing the teams to get better productivity.
Another area where analytics can help the entire business is in lost sales analysis. Lost sales are typically around 5% of sales in grocery, but mushroom to 20% sales in fashion. Most retailers do not estimate lost sales, and this inhibits demand forecasting and future planning.
5. Demand = Sales + Lost Sales
Most retailers plan and forecast using sales history, not demand history. This almost guarantees that they will continue to underperform next season or year too. The remedy is to estimate lost sales realistically and add estimated lost sales to actual sales to get estimated demand. Then use estimated past demand as the basis for all forecasting.
At store-SKU level, if you can measure how many days a SKU was out of stock in a single period, you can calculate the average sales you would have expected had you been able to stay in stock and this is your estimate of lost sales. As the chart on the left suggests, with continuity or year-round items (also referred to a category management items), it is easy.
It gets harder with fashion items, because shoppers often assume that if a fashion item is out of stock, it has gone for good. So, when it comes back into stock, sales often do not recover to the original level of demand. Hence it is easy to make an estimate of the lost sales up to the point where the item is back in stock, but it is harder to estimate the loss once it is back in stock until the season is over. However, doing the easier part is a great start.
If you can’t make this latter correction, you will reduce the lost sales on the lines that went out of stock, which will improve replenishment in the rest of the season, and then contribute improvement through future seasons. The lines that never went out of stock but where some of the sales were substitutes will be overstocked when you correct for lost sales. However, some of this can be corrected by replenishment in the rest of the season, depending on how much time is left.
The worst case is that you may have to incur some markdown from the now apparent overstocks, but the markdown percent will be smaller than the gross margin from the recovered lost sales, so you still finish ahead.
When you plan this season again, you can adjust the estimated demand on lines that did not go out of stock by examining the clearance markdowns, and planning demand downwards when clearance markdowns were too high.
Not all lost sales are lost revenue because of substitution. Some advanced retailers are using their online retail systems to record what the customer asked for and what they did if the item they wanted was out of stock. Did they cancel the order or order a substitute, which you can now identify.
Online sales are now a large enough sample in many cases to use the online data to make an estimate of the impact of substitution and use it to adjust the calculated demand. Depending on your retail segment, the benefit of doing this well could be worth a 5% sales increase.
Summary
In this article, we have reviewed the problems and challenges that many warehouse operations face and also reviewed a range of potential solutions to be considered. You can review our recommendations and see which ones might be relevant to your specific company.
If you would like further input or any of the above points clarified, please contact us and our professional staff will be pleased to respond. Alternatively, please look out for upcoming blog articles in this series.
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