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ROI In Your Warehouse! (REAL or IMAGINED)

Written By: Rene Jones
Published On: July 19 2003

Introduction

I learned some time ago that, "People do what you inspect and not what you expect". I also learned that the cost of an item is much more important than the price of an item. And I learned that most companies want a return on their investment. ROI in your warehouse! Ask yourself this question, do you agree that ROI is an overused acronym. The reason it is used so generously is because it forces the seller to focus on the benefits the buyer will receive and how long after the purchase those benefits will be recognized. The reason I say it truly stands for, "Real or Imagined", is because you have to know what the process is costing you now in order to recognize a return.

Your warehouse does a lot to support your company. It has some sophisticated processes and more realistically some archaic ones. How are those processes measured? How often are they measured? And who measures them? With the technology that has been sweeping through distribution centers and the not so recent slow down in IT spending, what will be your company's next move?

Supposedly there are wizards out there that can get your warehouse into tiptop shape. They can reduce your cost, they can reduce your personnel, they can make your inventory more accurate and more importantly the return on your investment will be substantial. But think for a minute, aren't those the same wizards that brought us Y2K? IT spending came to a screeching halt right after the world, as we know it, was supposed to come to an end as well. Company's updated all of their software, hardware and some internal (front office) processes. "But we forgot about the warehouse!" Someone still has to: receive, putaway, replenish, pick, pack and ship your product. And they have to now do it: at a reduced cost, faster, more accurately and more likely with less people. So what's the return you are receiving on your warehouse investment?

So What Is The Problem?

I heard someone say, "People are our most important asset!" You see that statement on the walls of company's in every industry. Well, I am here to tell you that statement is not correct. Especially in your warehouse! Because if you have the wrong people, doing the wrong things, how is that considered an asset to your company? The correct statement should be, "The RIGHT people are our most important asset(s)!" What happens to those assets in times like we are experiencing now? They are downsized, right-sized, dumb-sized, laid off, and so on. And what are you left with, some of the wrong people trying to perform tasks they are not capable of performing, with very little training. More then likely the training department has been right-sized as well. Then we sit back and wait for our operating cost to decrease so we can begin seeing the ROI. What's weird is that it doesn't come. Or at least not the return we were expecting. Why is that? Why is it so difficult for us to comprehend ROI when we are discussing the warehouse? It is difficult to comprehend ROI in the warehouse because; we do not measure the processes or the people in the warehouse. If we did, would your warehouse be as messy and as dirty as it is? Would days go by with receiving not being completed? Would customer service personnel have to continuously go out to the warehouse to verify that the system inventory is the same as what is physically in the bin? Last but not least, would you be processing the number of returns you are currently processing? Probably not!

All we know is people are constantly telling us that the warehouse is full of assets and not merely costs. But the reality of it is, as one CEO told me, "Why should I throw good money after bad?" Next he said, "We have done everything possible to improve our warehouse operations and we have not realized a return on our investment yet"! As always, my questions after hearing those statements are, "What was it costing you before the purchase" and "What should it be costing you?" We all have an idea of what, the costs associated with the warehouse are, but we do not know what they should be. Even when I ask, "What does the average picker make in your industry", no one seems to know. When I ask, "How many pickers should it take on average to handle the number of orders you are processing", no one seems to know. When I ask, "What is the average number of returns in comparison to the number of orders being processed in your industry", no one seems to know. And when I ask, "How much training does the average receiver receive, and can I see a progressive flow chart through the warehouse", that is when the laughter starts.

Think about this, how can someone legitimately evaluate new software, improvements to a process, or "RIGHT-SIZE" without some knowledge of what is reality? Do we have a gut feeling about how many lives should be disrupted this downturn? Not just with the layoffs but with the so-called, "Fortunate" people who remained employed as well. They are now tasked to complete the same amount of work, they were not completing before, with less people and minimal overtime. How stressful is that? Isn't that why we seem to lose people in a down economy? With all of the companies that have layoffs why do we still lose people when everyone is affected by the economic downturn and laying people off? It seems ironic that individuals find jobs elsewhere.

The First Step In the Solution

So, what do we do? How do we know whether ROI when being discussed with a training company, a 3PL or a WMS (Barcode) vendor is "Real or Imagined". You must begin by analyzing your current processes and creating realistic goals for your warehouse. Your sales personnel have them; your accounting department has them, why shouldn't your warehouse have goals too? This is the key; they have to be achievable even if it takes a lot work and some heartache.

As one Warehouse Supervisor told me, "It is not realistic to expect returns to decrease by 50%". He felt they always had the same number of returns even before he was hired so why should anyone expect them to decrease now. Do you think he would have said that during his interview for the position? No, but that is also part of the problem! We hire people to maintain the status quo. Then we are amazed when they do just that. Therefore, your true path towards goal setting and attaining a return on your investment must begin at the top. If there is no commitment there, how can the people below be expected to do anything except what they are currently doing. I don't not know who said it but it is true, "Insanity is doing the same thing over and over, but expecting a different result". I am not going to tell you that your warehouse is important to your Supply Chain because if you do not already know that then you are probably asking, "What is a Supply Chain?" But I am going to tell you the next time you are discussing ROI with a vendor, ask yourself and them. "Is that REAL OR IMAGINED?"


About the Author

Rene' Jones was the founder and President of Total Logistics Solutions, Inc. (www.logisticsociety.com). He is now President and CEO of AHN Corporation (www.ahninc.com). With over 18 years of experience in training, warehousing and logistics he has used his knowledge to assist and turnaround small and large companies alike, making them more efficient and profitable. He has been published in several industry magazines and is the author of, "This Place Sucks" (What Your Warehouse People Think About Your Company) and "Warehouse 101" (A Complete Guide to Operating Your Warehouse)". Rene' can be reached by phone at (818) 353-2962 or by email at rene.jones@ahninc.com rene.jones@ahninc.com

 
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