Supply chain disruptions brought on by the pandemic and macroeconomic headwinds have placed newfound emphasis on the important of warehouse management. Vacancies in U.S. commercial real-estate reached a multi-decade low of 3.1% in Q4 of 2022 (Prologis Research). In 2023, new construction will bring significant additional space; however, outside a few markets, the pipeline is drying up, meaning the supply will fall short of the level needed to offer relief to inflated rental prices.
Additionally, materials and financing costs remain elevated, meaning scarcity will likely persist through 2024. A tight labor market of just over 4% unemployment continues contributing to wage inflation (now 2$18.39/hour on a verage) and retention challenges, further impacting companies’ bottom lines (U.S. Bureau of Labor Statistics). Inside the warehouse, space utilization has climbed to 86.3% (Prologis Research), a critical level posing its own efficiency challenges, while the rise of e-commerce has increased customer expectations for service levels and speed. This scenario underlines the important of effective warehouse management.
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Many companies successfully anticipated these challenges by simply expanding overall footprint and ‘urbanizing’ their warehouse network, decreasing proximity to their final customers. For most others, making the most of current infrastructure is critical.
These companies have used some combination three strategies:
- Better space utilization vertical space, updating equipment (racking and forklifts), and reviewing material flows and picking strategies;
- Deploying technologies like Warehouse Management Systems (WMS), data and process mining and robotics;
- Relaying on third-party logistics providers (3PLs) to help maintain performance levels and support growth.
Project generates significant improvements
Falconi has helped hundreds of companies improve productivity through daily work routine management and process redesign and standardization. One such case involved a global food and beverage manufacturer struggling with warehouse productivity. Through process benchmarking of lighthouse facilities, best practice process standards were designed covering three functions: Inventory Management, Warehousing and Transportation. Upon proving the value of best practice, a national rollout of the full warehouse network, generated significant improvement within the first year.
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About 80% of warehouse KPIs improved within the first year. T1 utilization exceeded 95% while simultaneously reducing overtime manhours by 10%. Perhaps the best example was a reduction of 7,700 manhours for a single warehouse’s truck loading process, saving more than $150,000 for this facility within the first two months (Falconi intelligence data).
Another consumer goods manufacturer called on Falconi to get costs under control. Through an intensive pilot of one region’s warehouse operations, focused on process productivity and rationalization of own vs outsourced road freight selection, warehouse productivity increased by 27%, while saving 20% in road freight costs.
Important steps towards sustainable growth
Looking forward, there are important steps companies must take to enable sustainable growth. Understanding the current state of material flows, optimizing layout to maximize space utilization, and warehouse productivity through better measurement, process standards and policies, and governance will provide a clear roadmap for when more ambitious plans must be set in motion. We often find that companies underestimate the growth potential within their existing infrastructure.
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Next, defining a clear automation and technology roadmap to reduce reliance on manual tasks (especially during peak demand season) will increase stability and flexibility, future-proofing the warehouse for further disruptions. In fact, the business case to implement new technologies in the short-term is usually more compelling than expected. Using the same case presented, why not establish a lighthouse facility to begin building the future?
Falconi’s experience in operational efficiency over the past 40 years, including two decades of building supply chain expertise, and our technology ecosystem of more than 400 partners can support you to diagnose, design, and implement transformative plans.
Matt McCabe
13+ years of global experience.
Expertise: Management by objectives, management system implementation, process transformation, and workforce optimization, in food & beverage, agribusiness, steel & metals, construction & Real-Estate, and financial services sectors.
Education: Bachelors of International Business & Spanish from Loyola University, MBA from IESE Business School in Barcelona.
