By Poul Breil-Hansen
Warehouse Management is the lay-by for paradoxes. The challenge is to balance conflicting parameters such as space utilisation, organisational flexibility, picking speed, picking precision, increased productivity and reduce payroll costs. At the same time, the requirements increase to lower inventory and improve ROI. Thus, the logistics manager faces a tough and apparently impossible task. In "Warehouse Operations: Increase Responsiveness through Automation", Aberdeen Group has studied 250 companies and of these, the top 20% have been found. The 20% with the best performances are the so-called best-in-class companies, which Aberdeen Group has studied closely in order to reveal how they achieve success with Warehouse Management.
And let us immediately disclose that the study reveals, among other things, that the best companies are characterised by:
- Paperless receipt of goods
- Order picking taking place with mobile IT solutions
- Advanced picking methods being used which are supported by WMS
- A high degree of visibility in warehouse data
- A high degree of IT integration
- Systematic measuring of warehouse operation in order to become wiser and improve
Pressure on the warehouse’s performance
The study concludes that the most significant sources of pressure on the warehouse include:
Motivation / driver |
Percentage of respondents (n=257) |
1. Increasing operating costs |
36 % |
2. Customer demands on order lead time |
36 % |
3. Support increased sales without increasing personnel or storage capacity |
35 % |
4. Increased demand / delivery fluctuation |
33 % |
5. Expansion / reproduction of product catalogue, product size variations, packaging, etc. |
25 % |
All five drivers complicate the warehouse manager’s work considerably and there are no easy and fast solutions to be had. 36% of the respondents demand faster order lead times. This would entail conversion from manual to an automated order process, which ensures stock precision and accessibility so the company avoids back orders. Another solution, which certainly does not exclude the first, is to increase the labour efficiency in the picking process. For example, this could take place by using voice technology. Increased fluctuation in both demand and supply can easily lead to greater emergency stock, which increases inventory and puts pressure on storage capacity. When the storage capacity is under pressure, this can quickly affect warehouse efficiency since the warehouse activities become more complicated and ineffective to execute. Expanding the product catalogue with more product items, more size variations and more types of packaging will just magnify the above mentioned challenges. It would also create a need for more storage capacity and slower marketable stock.
The best make almost no mistakes
Aberdeen Group has made use of three performance criteria for warehouse processes in order to separate the top 20% of the best-in-class companies from the number of average or poorly performing companies. Aberdeen Group has categorised the participating companies into three groups: Top 20%, a middle of 50% and a bottom group of the last 30%.
The three criteria include:
- At least 99.5% of orders are picked correctly
- At least 98.8% of orders are sent complete and on time
- At least 97.5% of the stock is correctly placed according to the latest stock-taking
The criteria reflects the performance level in key activities within the warehouse’s four walls and depends on, for example, delays in the transport chain out to the customer or other "external" factors.
Automation pays
The study concludes as well that the top 20% companies are characterised by the following common factors:
- 70% higher probability that the Top 20 receive products without using paper documents than the remaining 80% of the companies
- 55% higher probability that the Top 20 use mobile solutions to perform the picking process
- 46% higher probability that the Top 20 use advanced picking methods such as batch, zone or cluster-based picking.
This is how your company can join the Top 20
Aberdeen Group mentions a large number of specific recommendations as to how the Top 20, the middle group and the bottom group can achieve improvements. However, the consulting organisation emphasises, in particular, two recommendations, which they rank as the most important:
- Take a closer look at whether your current Warehouse Management System offers you the right level of transparency and ease when the system is to be integrated into other IT systems and tools. The system must be able to support future improvements.
- Measure the right KPIs systematically and persistently, which reflect the warehouse’s performance and contribution to the business strategy. Among other things, this must reveal what exactly drives the costs and form a factual basis in order to assess the value of the efficiency-promoting technologies.
The bottom group’s road to success
Aberdeen Group emphasises three specific recommendations for those companies in the bottom group that want to climb up the maturity ladder and achieve warehouse management which contributes to the company’s bottom line and competitive performance to a higher degree. They include:
- Implement a WMS: A WMS will give the bottom group companies a strong information platform. Almost half of the bottom group companies report that they use spreadsheets or manual systems to manage the stock. A WMS will also contribute with flexibility and scalability in the event of future improvements and expansions. Future improvements will depend, to a high degree, on the ability to utilise the possibilities in WMS and, not least, to integrate underlying systems and mobile solutions.
- Put advanced picking and replenishing methods to use: The Top 20 companies have 64% greater probability of using advanced replenishing methods and have a 135% greater probability of using advanced picking methods compared to the bottom group. Labour efficiency is not just a function of working speed. It is also a question of organising and tools.
- Implement automatic data capture: The bottom group companies have 36% less probability than the top group companies of using bar-code scanners, voice technology, RFID or similar technology that can confirm transactions in real time. Manual data capture creates more errors.
The middle group’s road to success
In the same way, the consulting organisation indicates a number of specific recommendations as to how the middle group companies can improve their warehouse management:
- Reinforce external communication and cooperation: There is 35% greater probability that the top group receives products without using paper documents. This strengthens supplier communication and transparency in the value chain across the customer/supplier relationship. ASN (Advanced Ship Notification) to customers is another example of digital-based communication with partners in the value chain, which creates added value. The top group is 53% better at ASN than the middle group.
- Remove manual data entry: The middle group can gain a great deal by becoming able to confirm transactions by using automatic data capture. Bar-codes, voice control or RFID-based solutions to confirm stock activities will improve the quality considerably.
- Implement event management functionality: The middle group has 68% less probability than the top group of having processes that can advise relevant staff when specific stock events occur (event management). Effective event management increases the organisation’s reaction ability and prevents that unforeseen events result in too much damage.
The top group’s road to success
The top group includes high-performance organisations, but there is always room for improvement.
Aberdeen Group’s recommendations to the top group companies are:
- Improve the mobile warehouse communication: While 56% of the top group pick via mobile units, only 42% are able to communicate wireless with the picking staff in real time. Delays in communication hamper the warehouse’s reaction ability. This is especially important in high-volume operations.
- Implement labour and task management: Only 37% of the top group are able to register actual task time for comparison with system calculated task time. This systematic approach provides a solid basis in order to analyse time consumption.
- Increase the use of cross-docking: Cross-docking reduces the volume of double work and the need for storage capacity while simultaneously it increases the velocity of circulation in store. 74% of the top group do not use cross-docking at all and it is also far from always possible to cross-dock. But there is reason for the 74% to take a closer look at whether it is possible to introduce cross-docking to some degree. This applies in particular to the companies with many consolidated orders or full pallet orders.