When I speak with distribution executives nowadays, they all say the same thing: “We are struggling to keep our heads above water because of the economy.” However, before the economy took a turn for the worse, they talked about low profit margins, high inventory levels with low turns, and an erosion of their profitability because of their warehouses. I am often forced to ask, “Is the economy really that bad? Or, is your inability to deliver what your customers want, when they want it, and at a competitive price making it seem worse to your organization?”
Your organization is currently under a microscope. Every order you deliver to your customers is magnified 1,000 times. When there is a mistake, you wonder if they will order from you again. Your sales people are working harder than they have probably ever had to work for orders. But they are not competing against other sales people. Your warehouse is competing against other warehouses. So, if you really want to know how to survive in “any” economy, all you have to do is look in your warehouse.
Your warehouse, like every other warehouse, is comprised of two main elements: people and inventory! Most distribution organizations do a horrible job at managing both of these fundamentals.
To prove it, here’s an example. The value of your inventory ranges between 6 and 20 percent of your top-line sales. That means a company with 100 million dollars in sales will generally have between 6 and 20 million dollars of inventory on hand. Let me ask you this question: When was the last time your warehouse supervisor took a course on managing inventory?
Assuming you are generating a 4 percent return, that would mean for every $100 of lost inventory, your hard-working sales staff must generate $2,500 in new sales to make up for the $100 of inventory your warehouse lost. If your warehouse was to lose $100 a week (equating to $5,200 a year), your sales staff would have to generate $130,000 to make up for the $5,200 of inventory the warehouse lost. I guarantee your warehouse loses more than $5,200 of inventory a year—which means a good portion of your sales staff’s effort goes straight to purchasing to make up for your warehouse’s inability to accurately control your inventory! This is a simple example that proves most distributors do a horrible job at managing their inventory.
Scott Hess, a principal with Redhawk Advisors, a mergers and acquisitions firm, had this to say: “In the due diligence phase of an acquisition, the inventory is often overstated and usually reassessed at a much lower value, due to antiquated accounting statements on the balance sheets.”
Your customer service personnel spend a portion of their day performing warehouse tasks. They often place a customer on hold—walking by two warehouse personnel talking instead of working—so they can verify that the inventory in the bin matches the quantity displayed on the screen. Your outside sales personnel often have to pick their own orders because your counter is so busy. And the inventory in the trunks of their cars is probably more accurate than the inventory in your warehouse.
Your picking and put-away personnel spend a good portion of their day—55 to 60 percent of their time—traveling to and from your locations. And when the product is not there for the pickers or the location is full during put-away, which happens quite frequently, they spend approximately an hour a day searching for it in other locations. I have another question for you: When was the last time your warehouse supervisor took a course on how to slot and profile your product?
Because most companies are in “dumbsizing” mode, it appears the staff is more productive. We even see that national numbers are stating productivity is on the rise. However, you have product from vendors that does not get received for days. Therefore, your purchasing department spends its time reviewing proof of deliveries from your vendors. You have returns, which take a backseat to every other process in your warehouse; and for distributors between 3 to 8 percent of your orders are returned. And on average, a customer will call four times to inquire about a return. Again, because it takes so long to process, while the cost of handling a return can be two to three times that of an outbound shipment. When was the last time your warehouse supervisor took a course on improving productivity and reducing picking errors?
Right now you have someone controlling 20 percent of your revenue and hiring and firing key personnel, and they have probably never taken a course, attended a seminar, or read a book on inventory control, or how to efficiently lay out your warehouse or improve employee productivity. I have to ask, “Is the economy really that bad? Or, is your inability to deliver what your customers want, when they want it, and at a competitive price making it worse for your organization?”
Your warehouse was a problem prior to the economy’s taking a turn for the worse. Your warehouse was a problem prior to the housing slowdown. Your warehouse was a problem and you have known about the problems your warehouse creates for some time now—but you have chosen to ignore them. So I say, “Don’t blame the economy for the problems your organization is experiencing right now, blame your warehouse!” By addressing your warehouse problems, your organization will be able to survive in any economy. But if you continue to overlook them, this economy will consume your organization along with the many others it has already devoured.
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Rene’ Jones is widely known in the supply chain and logistics industry as the founder of Total Logistics Solutions, Inc. (www.logisticsociety.com). TLS is a warehouse efficiency company which was recently named “One of the top 100 Supply Chain and Logistics Providers in the world.” Rene’ is a sought-after keynote speaker who has been published, referenced, and quoted in industry magazines throughout the United States, Central America, Canada, Australia, and Europe. He is the author of several books, including the critically acclaimed “This Place Sucks (What your warehouse employees think about your company and how to change their perceptions!).” Rene’ has more than 18 years of experience in consulting, training, warehousing, and logistics. He has used his industry knowledge to assist small and large multinational organizations alike, making them more efficient, more profitable, and more prepared.
Want to know how to survive in a down economy? Look in the Warehouse!
FREE Webinar…….Wednesday, June 17
1pm CT / 11am PT
In this “FREE” webinar, Rene’ Jones can show you the financial impact of your warehouse on your organization. No matter what the current economic situation! The ultimate success or failure of your organization is dependent on your warehouse. Your warehouse must be able to deliver what your customers want, when they want it and at a competitive price. Your warehouses ability or inability to do that, wins and losses more business than your sales people could ever imagine.
However, it is management’s failure to understand the financial impact of the warehouse, on the organization as a whole, which causes the sales staff to overpromise and the warehouse to underperform. And because of this lack of appreciation your warehouse is eating your customers, while your profit and market share are being eroded. Specifically, Jones can show your company how to:
- Identify inefficiencies in your picking process,
- Successfully challenge your outdated stocking methodologies that limit warehousing success,
- Uncover the “Real” reasons product is lost hours after it is received,
- Understand the “True” capabilities of your warehouse.
Join us NOW! The insights from this seminar can have a dramatic impact on your future performance.The first 50 people to register will receive a “Free” copy of the popular book…. “This Place Sucks! What your warehouse employees think about your company and how to change their perceptions!”
Register by clicking the following link….
https://www311.livemeeting.com/lrs/0000012644/Registration.aspx?pageName=x0v1ddh7d8575btn
At a time when many wholesale distributors are cutting costs, instituting layoffs, freezing wages and just not spending any money, Bardon Supplies Ltd. decided that if it is to survive the current economic downturn it must focus on two key areas in its supply chain: its customers and its warehouse.
To talk about investing in your warehouse during times like these, many distributors will tell you that’s crazy. But in 2005 after being purchased by Group Deschenes, Barry Raycroft the vice president and general manager of Bardon Supplies picked up where his now retired father, Don Raycroft, left off. Don founded Bardon in 1969 in Belleville, Ontario, with a small building and a desire to provide the industry what it desperately needed, “Unmatched Customer Service.” Forty years later with his son Barry Raycroft at the helm, his motto and vision are similar to that of his father. Therefore, it was not out of character to address the one area that has such a dramatic impact on service levels and customer satisfaction, “The Warehouse!”
In 2007, Bardon commissioned Total Logistics Solutions Inc. (TLS) to assist with the implementation of an industry leading Warehouse Management System (WMS) in their Barrie location. Rene’ Jones, founder of TLS, was already familiar with Bardon. He was the project manager during two previous WMS implementations at the company’s Belleville and Kingston locations.
The Barrie branch which is approximately 30,000 square feet has 13 warehouse employees and five delivery drivers. According to Wayne Buck, the branch manager in Barrie, “It was not a question of whether we were meeting our customers’ needs, it was a question of could we meet them more efficiently while simultaneously reducing our warehouse operating costs?” The implementation of the system was completed in February 2009 with a wall-to-wall Physical Inventory. “We have always taken our annual physical inventory seriously, but this was one of the most in-depth inventories I have ever been involved with.” said, Mike Brymer, the warehouse’s inventory control specialist.
The day after the Saturday inventory was completed, the warehouse began receiving, picking, packing and loading orders with the new system. There were the usual reservations from customers and employees, but the implementation went flawlessly. Customers at the Will Call counter immediately began asking, “How would their order get picked without a Pick Ticket?” The warehouse now uses RF (Radio Frequency) devices to process all transactions.
As product arrives on the dock, an ASN (Advance Shipment Notification) is generated, which selects the most appropriate locations for the product prior to it being touched by the receiving department. “It is great!” said Warren Symes, the lead receiver. He went on to say, “I am amazed at the accuracy, it has virtually eliminated receiving errors especially with serial numbered product. Before we had to read the tiny numbers on the packing slip and then verify those numbers to the number on the box. Now we just scan the product and the system knows if that is the serial number it was expecting. If it is not, we cannot proceed.”
The picking process has been streamlined as well. The order pickers no longer pick an order from start to finish. The orders are now broken down into smaller more efficient chunks based on the type of product to be picked. In other words, an order with fittings, a heating coil and pipe can be picked by three different people simultaneously and merged during the loading process.
You no longer see pickers walking up and down aisles looking for lost product either. The system now directs the pickers where to pick an item from, based on a predetermined picking sequence. Should they choose not to pick the item from the system suggested location, because say the product was damaged, it forces the picker to enter a traceable “Reason Code” why they are not following the directive? Upon the completion of entering a “Reason Code” it then displays additional locations where the product is stored.
But the best part of the system is the Command Center functionality. Before if a customer wanted to make a change to an order that was already printed, the warehouse supervisor would have to find every picker to see who had that customer’s order. “It was a nightmare with order changes,” said James Walsh, the new command center specialist. “Now Gary, our supervisor, simply comes to me and I can tell him who is picking the order, which line of the order they are on, and we can even delete items off of the order without the picker ever knowing the deleted item was there. It is much more efficient!” The Command Center also has the ability to monitor orders, review the receiving process and keep track of the daily workload to change resources depending on the time of day and the amount of transactions to be processed.
The overall goal was to be more efficient, reduce the branches operating costs and provide an unmatched level of service to Bardon’s customers. With the implementation of the system and warehouse layout changes instituted by Total Logistics Solutions, the Barrie branch has achieved the following:
- Less than two errors per 450 orders shipped.
- Inventory Accuracy, which is normally in the mid 80s with most distributors, is now in the high 90s with Bardon Supplies and improving.
- Receiving errors have dropped by 80% and continuing to fall as the receivers become more comfortable with the system.
- The same amount of work is being processed with two less people. They were not laid off, but merely transitioned into other areas of the business.
- Returns, because of shipment errors, have decreased by over 90%. Which is a major improvement considering most distributors have between 3% to 8% of their outbound orders returned.
“Most distribution organizations have forgotten how vital their warehouse operation is to their overall success or failure in good and bad times. Less than 30% of warehouses are efficient, 65% of the cost associated with distribution is directly related to labor and inventory values range between 6% to 20% of the organization’s annual revenue,” said Rene’ Jones. He went on to say, “Many distributors find themselves in a crunch, not because of the economy. But because they often fall short of their customers’ expectations and are not able to deliver (1) What the customer wants, (2) When they want it and (3) At a competitive price.”
Total Logistics Solutions, Inc. is a privately held Supply Chain and Logistics consulting organization. TLS was established in 1997 in Burbank, CA. TLS is focuses on improving the warehouse operations of manufacturers and distributors. Their customers include: Home Depot, Ryan Herco Products, Builders Plumbing Supplies, Kitchen Distributors of America, Westburne and many others. Visit the company’s Web site at www.logisticsociety.com or send an email to info@logisticsociety.com.
Bardon Supplies Limited is a division of Groupe Deschenes Inc., a privately held, family managed corporation. Bardon Supplies was established in Belleville in 1969. Groupe Deschenes acquired the Company in June of 2005, bringing the total number of branch locations in the network to sixty-nine in Ontario and Quebec. Visit the company’s Web site at www.bardonsupplies.com. Source: Total Logistics Solutions Inc.
Warehouse Christmas Carol
It was the night before Christmas, when all through the warehouse, Not a forklift was stirring, not even a mouse;
There were no stockings hung, only safety signs that read, Pedestrians beware, or you could end up dead;
As I looked around I noticed, the inventory was not nestled where it was supposed to be, The warehouse was out of space and all the world could see;
The supervisor in his ‘kerchief, and I in my cap,Had just settled down and told me, the consultant, “he was sick of this crap;”
Inaccurate inventory, not enough space, Constant employee turnover, a pile of returns, He took a deep breath, and then put his hands on his face;
How did we get here, he asked, what are we doing wrong,How will we catch up with receiving, I thought to myself, “This is the same tired song;”
Next comes the dreams of a Warehouse Management System, to save us next year, But it never comes, because a lack of ROI is what the executives fear;
I tell him the lack of ROI is not because of the software, But because few organizations address their problems,Before implementing a solution that big, They merely end up putting clean clothes on dirty kid;
He says, nothing ever changes and wonders if we will be able to keep our sanity, How many more customers will we lose and blame on the economy;
What will we do when the customer on the phone asks, “Are you sure you have that in stock,”Smile like always and say, “Can you hold while I check my receiving dock;”
Just then the CEO enters and asks how is it going, The supervisor smiles and says, “Its going, as you can see its going;”
The CEO then tells of a simpler time when customers weren’t so demanding, When inventory levels were low and all he thought about was expanding;
Well expand we have done, with a warehouse bursting at the seams, But is the warehouse too small he asks, or do I need to speak with the Purchasing team;
The supervisor responds no I think we will be okay, We just need to catch up on the receiving that came in the other day;
Well we definitely need to get those receivers entered so we can close out this year, So do what you can, to make it disappear;
As he began to stroll away, down the aisle, he stepped over numerous piles of inventory, He then turned and said, “Merry Christmas you two,” and that is the end of Warehouse Christmas story.
And I hope you all have a Merry Christmas and a Happy (Prosperous) New Year.
Rene’ Jones is founder of Total Logistics Solutions, Inc., a national logistics and supply chain consulting organization that focuses on improving your warehouse operations. Rene’ is the author of the acclaimed book, “This Place Sucks (What your warehouse employees think about your company and how to change their perceptions!)” and the book “WMS 101 (Selecting, Implementing and Maintaining a Warehouse Management System”. To learn how TLS can help your organization send an email to info@logisticsociety.com or visit the company’s website www.logisticsociety.com
There once was a company who made a lot of shipping errors. Customers were beginning to get really upset and started threatening to take their business elsewhere. After thinking long and hard about what to do, the owner decided to give each department a bag of nails and he told the supervisor of each respective department, “Every time an order was shipped wrong, the person who made the error must hammer a nail into the back fence”. The first day, the warehouse had driven 16 nails into the fence, customer service had driven 20 nails into the fence and purchasing only had to drive 7 nails into the fence. Totaling 43 nails the first day alone, and after only a week they could not believe how many nails had been driven into the fence.
Over the next few months, as the company began to improve things got a lot better and the number of nails hammered daily gradually dwindled down. People began to discover it was easier to pay closer attention to the customer’s order than to make the dreaded walk to the back of the building and drive those nails into the fence.
Finally, the day came when there weren’t any mistakes at all. The respective managers told the owner and he suggested, “Wait a week and see how each of your departments continue to do.” By the end of the second week without a mistake, the owner suggested each department now pull out one nail for each mistake free day.
The days passed and managers were finally able to tell the owner that all the nails were gone. The owner then called an emergency meeting with the entire company in the back by the fence. He said, “You have done well, but look at the holes in the fence. The fence will never be the same. When we ship an order wrong, can’t find the inventory promised to a customer or don’t deliver their order when promised, it leaves a scar just like this one. And he pointed to the holes in the fence. You can put a knife in a man and draw it out. It eventually won’t matter how many times you say ‘I’m sorry,’ the wound will still be there. Our customers spend their hard earned money with us, because we have promised two simple things. That we will deliver what they want, when they need it. If we don’t do that it is like driving a nail into their account. And a customer will only take being hurt so many times until they begin giving their business to our competitors. And it is virtually impossible to get a customer back once they are gone.”
How many nails would your fence have?
Rene’ Jones is the founder of Total Logistics Solutions, Inc. (www.logisticsociety.com <http://www.logisticsociety.com/> ). Rene’ is a published author and industry speaker, his recent articles and workshops have focused on improving warehouse distribution operations. You may contact Mr. Jones at (888) 807-0958 ext. 709 or via email at rene.jones@logisticsociety.com.
Gas is more than $4.50 a gallon, transportation costs are going through the roof, your employees are struggling to keep their homes and your customers are scrutinizing every line item on their invoices.
As a result, your supply chain is now more crucial than ever to your organization’s success. If you don’t have the ability to provide your customers with what they want, when they want it, and at a reasonable price, the livelihood of your organization is at risk.
Distributor Woseley recently announced plans to close 75 locations and said its profit was down by 23%. Other distributors are feeling the crunch, too, and will ultimately begin “right-sizing.” Will your organization be the next one to shut down operations?
No one wants to hear that they have an “ugly baby.” But if your warehouse is in shambles, then you need to be told so, because it’s probably the only way you’ll end up doing something about it.
Do you have returns that sit around for days without being processed? Are your workers spending too much time in the warehouse checking stock because your inventory is so inaccurate? Is your warehouse bursting at the seams, causing your pickers to spend twice as long searching for products to fill orders, and your receivers twice as long to find put-away locations?
If your warehouse is in shambles, you will have no choice but to admit, you have an ugly baby.
Being in the distribution business, your organization depends on two things: Your people and your inventory. Which do you think is more important to your organization’s success?
The value of your inventory can be as high as 20% of your top-line sales. That means a $100 million company will have approximately $20 million of inventory on hand. And it costs between 20% and 35% of its value to stock that product.
How accurate is your inventory — 70%, 90%, 95%? If you’re a $100 million company, 95% accuracy means your personnel lose $1 million of inventory every year. Is that acceptable?
The value of your people is calculated differently, but is just as crucial. Labor accounts for 65% of the cost associated with distribution. How much turnover do you experience in your warehouse? Do you have a training program for new hires? How do you motivate your employees?
According to recent job polls, roughly 75% of employees are searching for a new job, while 20% say they are disengaged. Disengagement is costing U.S. organizations over $300 billion annually. That’s because 66% of lost customers can be traced back to employee disengagement or indifference.
Is it understandable that employees feel the way they do? Sure it is. Consider that a person making $10 per hour in your warehouse can spend as much as $100 per week for gas. That means they can spend as much as one week’s salary per month to make it to their job – a job where they feel underappreciated!
This cycle is about to come to a screeching halt. If you aim to attract and retain good employees, you will need to do something about it. Remember that your employees are the ones who control your inventory and communicate with your customers.
That said, what will you do differently to service your customers — internal and external — during this economic downturn? Will you evaluate your slow and dead moving inventory to free up much needed warehouse space? Will you evaluate your stocking methodology to create a more efficient picking and put-away process? Or will you bury your head in the sand and hope it all blows over?
I hate to say it, but the latter is what most organizations are doing. In this economy, they do not have the capital to invest in improving their warehouse or supply chain operations. And when business was good, they did not have the resources or the time.
The truth is, now is the best time to do the things you have been too busy to do. Address those inventory inaccuracies and picking errors. Improve the turnover you have been experiencing year after year. Motivate your workers, who are driving long distances to make it to a job they hate. Give them new incentives. Get them re-engaged with the business.
Now is the time to address your inefficient warehouse and get your people and processes into shape. It won’t be easy, but it’s a prime opportunity to turn your ugly baby into a beautiful thing.
Rene' Jones
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