Managing a warehouse well is not child’s play and managing a profitable warehouse is even more demanding. This article covers the four major risks involved.


For Greatest Payback, Fix Internal Operations First
Trying to increase your income? It's tempting to focus on growing the sales team. But hiring multiple salespeople to increase sales, even with a 20% profit rate, doesn't make much sense if your internal operations are bleeding.


You can get better returns, faster, by investing in optimizing your warehouse operations. Over the years, we've calculated that problematic warehouse operations cost businesses millions in profits a year. Increasing the sales force will not recover these costs. Every dollar that can be saved by implementing quality improvements becomes a dollar that goes directly to your company's bottom line.


So we recommend that companies focus first, on solving profit-eroding warehouse problems. Here are the first two:


RISK I:
It's not uncommon for businesses to focus on "shipping orders" every day without tracking operational metrics in their store or industry. However, these parameters are essential in determining the profitable daily staffing needs in the warehouse.


Having extra staff to cover vacation, sick leave and training are important. But excessive staff costs add up quickly and reduce profitability.


What to do?
Make sure your supervisors have good team management skills but also understand the importance of tracking metrics. Assign some of your best people to warehouse operations to monitor and improve operational efficiency; you will be shocked at the positive impact it has on your business. Industry leaders establish and track inventory metrics as the key to maintaining profitability. They also provide C-suite mentorship, the tools and staff to be effective, and often assign young management talent for a three to five-year position in the warehouse.


Some of these young managers grow up to become presidents and vice presidents of operations at the same companies and lead them to great success.


RISK II:
One of the biggest frustrations on the part of senior management is PPR - Past Purchase Regret - for good reason. Money spent on unproductive warehouse equipment using inefficient process flows would shock most CEOs.


What to do?
Equally important, one or two faulty system purchases down the road can make management reluctant to purchase the technology that is truly needed for efficient operations. Conversely, a well-managed and successful project can provide the return needed to encourage and fund more successful purchases and projects.


When you buy something, you do the math to justify the costs of your investment and ensure the return on investment you can expect from a proposed solution. Choose vendors who can work with you in this analysis. Consider multiple vendors to determine which option will provide maximum ROI for specific operations and budgets.


Where to focus
Which new technologies will have the most impact on immediate and long-term profitability? There are many logistics management software out there, but my recommendation is to focus on a good warehouse management system first and invest in your warehouse inventory barcode.


When it's time to upgrade your WMS system, start by reviewing Gartner's Magic Quadrant for WMS systems used in your industry. Consider multiple vendors and choose the system that meets your needs and budget. Next, assess the implementation of the project realistically. Many suppliers are reluctant to offer a fixed price because larger projects often have too many unknowns. So plan for the additional costs of the project in your budget. For budgeting purposes, use 1.5 times the vendor estimate as a realistic cost, even on a well-managed project.


Once you have selected a WMS, make sure you have a strong management team sponsoring and overseeing the project - future business growth depends on the quality of the WMS implementation. Much of the day-to-day work of the WMS project can be overseen by middle and lower managers, but these will need access to senior management when critical resources or decisions need to be made and supported across the organization.


It is also important at this point to review the shipping process for domestic and international orders. Your shipping system should work hand-in-hand with the WMS to simplify shipping operations.


Plan for project success
The following are the most common reasons that system projects fail:


Poor or Minimal Testing:
Last-minute tests can ruin months of work and waste your money. I've seen cases where the project lasted nine months, yet 90% of the tests were done five days before the goal. This doesn’t make for a successful project.


High project staff turnover from the vendor or company side:
This will disrupt a project due to the loss of knowledge of the project and the time needed to update new staff.


Lack of acquisition, sponsorship, and supervision of the management team:

Inevitably, unexpected project needs and decisions emerge that require management support to keep it on track. Without this, the project may fail and also not achieve its true ROI.


Poor project requirements document and project plan:
Properly document your WMS project “BEFORE” signing on the dotted line. Prepaying for this part will give you time to document your project without the larger project's financial clock ticking.


Poor project management or unqualified project staff participation:
Often, after signing the agreement, only one project manager and one or two supplier employees are assigned to complete the entire project. It is a formula for failure. Make sure your team includes a project manager and has adequate human resources to do the job.


Conclusion
Focusing on these key areas will put your warehouse operations on a good path to optimal performance.

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