August 28th, 2023
Building a Leaner, Meaner Warehouse: 15 Techniques to Drive Profits Up and Costs Down
Table of Contents
Finding the Most Efficient Route to Warehouse Efficiency
To secure any measurable success in the current economic climate of minimal stability and maximum competition, it’s imperative that warehouse productivity is increased and operational costs are decreased.
Profit maximisation is an approach that can enable efficient and sustained business growth. It is paramount to employ profit maximisation techniques in attaining a lean, mean and green warehouse.
A well-run lean warehouse can reduce total operational costs by up to 40%. Companies that run successful lean programs not only save money in their operations but enjoy more flexibility and much better service, without significant capital investment. Logistics providers stand to gain as well.
With contract logistics margins under pressure, developing truly lean and mean warehouse operating systems dramatically reduces costs. Even more important, it serves as a powerful value proposition to customers in a market where providers struggle to differentiate their offerings.
Are you still entangled by the old-age business paradox of how to reduce expenses while maintaining product quality? Well, there are cost-cutting methods companies can lean on that don’t require a compromise in product quality.
This guide offers a deep dive into how to do that, but first, let’s take a sneak peek at the importance of cutting costs to attain a lean and mean warehouse. Let’s get started!
Steps Towards Building a More Efficient Warehouse
Lean and mean warehousing is a warehouse management approach that limits resource consumption without sacrificing quality or productivity. Simply put, lean and mean warehousing strives to do more with less, thereby streamlining warehouse operations.
It’s a custom that seeks to eliminate processes or activities that use resources but which do not create additional value.
However, to be successful in a lean and mean implementation, the company must have a cultural transformation. Top management ought to commit and focus on efficiency and people’s beliefs, habits and ways of working have to change as well.
Why? Lean is a new way of doing business.
How to Drive Profits Up
There are 3 main ways to improve a company’s profitability: Sell more, price higher and reduce costs.
Some organisations focus mainly on selling and on delivering great service to customers. That is great, but profits can also be increased by focusing on cost efficiency.
Importance of Cost-Cutting in Warehousing
Here are some reasons why cost reduction is essential in warehouses:
- Increases Profitability: Cost reduction directly impacts a manufacturer’s bottom line. By reducing costs, warehouses can increase their profitability, which is essential for long-term success.
- Improves Competitiveness: In today’s competitive market, warehouses must be able to offer high-quality products at competitive prices. By reducing costs, manufacturers can lower their prices without sacrificing quality, making them more competitive in the market.
- Enhances Customer Value: Customers are always looking for the best value for their money. By reducing costs, businesses can offer high-quality products at lower prices, providing better value to their customers.
- Enables Investment in Innovation: By reducing costs, businesses can free up funds to invest in research and development, allowing them to stay ahead of the competition and develop new and innovative products.
- Increases Operational Efficiency: Cost reduction initiatives often involve streamlining operations and improving efficiency, which can lead to a more productive and profitable manufacturing process.
15 Techniques To Drive Profits Up and Costs Down
Of course, you’re here because you want to learn more about how to foster a more efficient working environment for your team and improve results for all stakeholders.
Let’s elaborate on how a variety of different techniques can be incorporated to boost profits and reduce costs, with the aim of making your firm a well-oiled profit-making machine!
1. Optimise Supply Chain Management
Supply chain management refers to the coordination of activities involved in the production and delivery of goods and services from raw materials to the end user. This includes sourcing raw materials, manufacturing, transportation, warehousing, and delivery.
One of the key ways that supply chain management affects costs is through inventory management. Maintaining excessive inventory levels can tie up capital and increase storage and handling costs. On the other hand, insufficient inventory levels can lead to stockouts, lost sales, and dissatisfied customers. Effective supply chain management via tried and trusted methodologies such as REACH can help to balance inventory levels and reduce costs associated with excess inventory and stockouts.
Another way that supply chain management affects costs is through logistics. By optimising transportation routes, consolidating shipments, and reducing transit times, businesses can reduce transportation costs and improve delivery times and there’s some excellent SaaS solutions that can help with a lot of the grunt-work in this regard.
Additionally, effective supply chain management can help to reduce costs associated with warehouse storage and handling.
2. Focus on customer retention, not acquisition
As much as customer acquisition is one of the biggest marketing goals, more efforts should lean on customer retention simply because it can reap more financial rewards and, more importantly, be a more cost-efficient means of increasing profits.
It costs businesses five times more to acquire a new customer than to re-engage an existing one.
But that’s not the only monetary benefit. Repeat customers are likely to spend more, too, and that amount is likely to increase over time. Profits increase and operating costs decrease with this additional spending.
3. Storage Optimisation
With disruptions in warehousing supply chains, stockpiling is an essential consideration. The what and where pose serious challenges to flexibility, affordability, and access. It is essential to save time, space, and resources whilst simultaneously reducing errors and improving flexibility.
Warehouse storage optimisation considerations include:
- Physical Structure
- Warehouse Flow
- Product Placement
- Retrieval Methods
The above are all important considerations to ensure a cost-effective storage optimisation plan, streamlining your warehouse inventory management to achieve increased efficiencies which in turn results in reduced costs.
4. Optimise the Warehousing Picking and Packing Fulfilment Process
Picking and packing is the process of selecting customers’ orders as indicated in the inventory and the orders placed and preparing them for shipping from a warehouse. Pick and pack is cost-effective when adequately optimised. Through reduced average order processing time, the process maximises asset utilisation and minimises operational and/or shipping costs and delivery times. Products like merchandise trolleys make the picking process more effective and efficient while key hardware such as our very own plastic pallet collars can play a key role in the stage of packaging.
5. Cutting on Transportation Costs:
Transport costs are one among several other costs (service, inventory, and warehouse) that influence the total landed cost of operating a logistics enterprise. Compared to the others, transport expenditure is often the most important. Thus, keeping it low while maintaining high product/service performance is essential to the profitability of your business. To optimise transportation costs, you should have in mind how much of your budget transport takes-to do this you will need the know-how in calculating your transportation costs.
6. Automation Investment
The adoption of robots in warehouses has been around for a while. They continue to perform multiple warehousing functions and automate processes such as moving and arranging boxes, lifting trucks, transporting goods, etc.
Modern businesses are already aligning warehouse automation with robotic systems to reduce the need for manual labour, improve performance, boost efficiency, and more.
Automation helps retailers save time and effort, which ultimately results in reduced costs.
7. Inventory Management
The importance of inventory management can never be undermined in supply chain management as it is the most efficient way to ensure a perfect balance of supply and demand and guarantee better customer service while avoiding problems such as:
- Overstock and Out of Stocks
- Theft and Spoiled Goods
Basically, inventory management works by providing you with better control of your inventory costs. Knowing which products are most valuable to your company and those that only eat up shelf space, will enable you to keep the right inventory levels.
This will ensure product availability across multiple channels without the risks of carrying less inventory or the burden of overstocking your warehouses. By so doing, you will be operating a lean and mean warehouse.
8. Audit and Cut Unnecessary Expenses
There are plenty of operational expenses businesses incur. While some of these are essential, some can be compromised. Take stock of these expenses and compare their cost to the value they provide to your warehouse. That includes, though isn’t limited to, the following general warehouse expenses and sundries:
- Internet, Phone and Cable Subscriptions
Do you use these services? If so, how important are they to your daily business interactions? Check for cheaper packages, including promotions or special rates for small businesses, and research whether the same services are more affordable with a different provider.
- Credit Card Fees
Fees are associated with accepting credit card payments from customers, and these fees can eat into your profits. But don’t ditch this payment method altogether—especially considering the global trend of moving to cashless consumer spending. Take stock of the number of cashless purchases and what you’re paying to process those payments, then see if there’s a more cost-efficient alternative.
- Electricity and Utilities
Businesses can find ways to reduce the costs of maintaining their physical business. Can you lower the A/C during the summer? Do you have energy-efficient light bulbs? Small steps can add up to big savings over time.
- Other Administrative Costs
Depending on your business, this could include payroll services, business travel expenses, benefits costs, etc. Determine which ones are essential and if there are ways to reduce them. And to further cut costs, consider going paperless
9. Implement Waste Reduction Techniques
Waste reduction in manufacturing refers to minimising the amount of waste generated in the production process and maximising the use of resources. This can include reducing scrap material, optimising inventory levels, and minimising energy consumption.
This technique is essential for improving a warehouse business’s bottom line by reducing costs associated with wasted materials, labour, and energy consumption.
Implementing waste reduction techniques can have a significant impact on a manufacturing business’s profitability. By reducing waste, businesses can save money on materials and disposal costs, reduce labour costs associated with managing waste, and minimise energy consumption, leading to lower utility bills.
Additionally, reducing waste can improve efficiency by streamlining production processes and minimising downtime associated with waste management.
10. Just-in-Time Production (JIT)
Just-in-time is a production strategy that involves producing only what is needed and when it is needed. By reducing inventory levels and producing in smaller batches, warehouses can reduce the amount of inventory they need to hold, which can free up space, reduce the cost of storage, and minimise the risk of stock obsolescence.
In addition, by producing only what is needed, businesses can avoid overproduction, which can result in excess inventory, wasted resources, and increased costs.
JIT production can also help improve quality by allowing warehouses to focus on producing high-quality products in smaller quantities, rather than focusing on mass production at the expense of quality. This can result in fewer defects, reduced rework, and lower costs associated with scrap and eventually maximise profits.
11. Energy Costs Reduction
Energy costs can be a significant expense for many businesses, as they require large amounts of energy to power machinery and equipment. Energy costs can account for up to 30% of a warehouse’s operating expenses, depending on its size.
By implementing energy-saving measures, manufacturing businesses can reduce energy costs, improve sustainability, and enhance their profitability.
12. Outsourcing Non-Core Functions
By delegating tasks to third-party providers, warehouses can focus on their core competencies while reducing expenses associated with non-essential activities such as IT support, customer service, or payroll.
Outsourcing can also provide access to specialised expertise and technology that may not be available in-house, leading to improved efficiency and overall cost savings. However, careful consideration should be given to outsourcing decisions to ensure that quality, security, and other critical factors are not compromised.
13. Incorporating 5S and Lean Six Sigma
5S is a technique for organising the workplace to increase efficiency and reduce waste. The five S’s stand for sort, set in order, shine, standardise, and sustain.
Lean Six Sigma, on the other hand, is a process improvement approach that uses a collaborative team effort to improve performance by systematically removing operational waste and reducing process variation.
By implementing these principles, warehouses can improve organisation, cleanliness, and safety, leading to increased efficiency and reduced costs.
14. Providing More Stakeholder Value
This entails using the Voice of the Customer (VoC) and Voice of the Employee (VoE) feedback to address the progress of your business through a primary stakeholder lens.
Through VoC, companies can engage and connect with customers in a personalised manner. It also helps businesses spot crises at its birth, evaluate new ideas and solutions, customise add-ons/products/services, increase customer retention and serve the customers with the solutions they need.
Naturally, if implemented diligently, each of these eventually lead to cost reductions, a happier workforce and and improved customer experience.
15. Optimise Supply Chain Management
Optimising supply chain management is critical for businesses to improve efficiency, reduce costs, and enhance customer satisfaction through the timely delivery of high-quality products and warehouse supplies. This can be achieved through effective inventory management, streamlined logistics, and strategic supplier partnerships.
By using as many of these guiding principles to improve the overall efficiency of your warehousing operations, you’ll undoubtedly reap the longer-term benefits and become a more efficient enterprise and a net positive member of your local, national and – in many cases – the international business community.
How RollPallet UK Can Help You Run a Tighter Ship
Profitability comes from a combination of commitment to existing clientele, disciplined strategy, and effective resource allocation in the form of automation, labour allocation, and accurate pricing for storage. It’s easy to get caught up in a frenzied market in which conditions change rapidly, hence warehouses will need to focus on their future direction and commit time and resources to ensure lasting profitability.
In addition, the opportunities to cut costs vary depending on the size of the business, type of product, sales model, and other characteristics. For instance, some retail stores have space to rent out to reduce operational costs; others see greater savings by automating the repetitive tasks their sales associates deal with daily and so on.
Identify the gap and analyse where your costs are generating the least value so you have more capital to focus on growing your business. It’s the best way to cut costs and run a profitable business.
At RollPallet UK, we price in manufacturing the best price guaranteed sustainable products that your business needs to run operations effectively and eventually reduce unnecessary operational costs.
For a better understanding of profit maximisation and cost-cutting techniques, don’t hesitate to contact our expert team today and we’d be more than happy to come through and offer some practical solutions for you and your warehouse team.