At distribution centers, managers are tasked with finding ways to keep distribution center costs low and production high. Many DCs have already implemented new technologies to improve productivity, but these efforts have often been rolled out as isolated systems or have been in place so long that they have become outdated.
Implementation of new processes improves efficiency and can reduce distribution center costs, but will require managers to take a hard look at existing processes. Incrementally improving productivity will require companies to evaluate existing systems and effectively address any problems they find.
What is Unproductive Time?
At most DCs, the culprit when it comes to lost efficiency is the unproductive time that is spread out in small increments among hundreds of employees.
According to a study by Honeywell (Unlocking Hidden Cost in the Distribution Center), the average amount of unproductive time has increased from 15 minutes to 22 minutes per 8-hour shift. This can cost hundreds of thousands of dollars annually spread across and organization. Unproductive time can include time spent fixing mistakes (mis-picks or incorrect shipments) or time lost due to bad processes or methodologies. This can include performing tasks inefficiently. When evaluating employee productivity, include both direct job-related tasks (like picking, packing, etc.) and indirect tasks like cleaning, moving pallets, and other activities that can eat up time during a shift.
How much is that time costing you? According to this study performed by Intermec (part of Honeywell), on average organizations could find nearly 3,000 hours’ worth of direct labor hour reductions by improving efficiency. According to the Honeywell report, the annual cost of mis-picks alone is nearly $400,000.
Improve Productivity Through Continuous Improvement
So how can you address this potentially costly productivity issue while reducing distribution center costs? There are a number of different approaches, depending on your existing technology. If you currently rely on manual or paper-based processes, make the shift to a “paperless” DC using a mix of mobile computing, advanced inventory management or order management software, and barcode scanning. The potential improvements in speed and accuracy are well documented. Honeywell estimates an average 20 percent productivity boost.
If you’ve already implemented this type of technology, evaluate whether or not it’s time for an upgrade. If the solution is more than five years old, it’s likely that an update can provide efficiency improvements via better connectivity, better user interfaces, and new software features.
More importantly, though, you need to study every process in the DC to ensure that employees are working as efficiently as possible. Technology alone will just make a bad process produce poor results more quickly. Retrain your staff to work smarter and faster and eliminate unnecessary tasks or movements. Something as simple as shifting the location of faster-moving inventory, for example, can create significant gains.
This is not a process that ever really concludes. Processes should be regularly evaluated and tweaked. Companies that engage in this type of continuous improvement program can see a 5% to 10% improvement. (For more on continuous improvement approaches and how they tie into applying Lean principles in the DC, see our previous blog.) Analytics can provide the needed insight for that continuous improvement, both for management and the worker wanting to increase daily efficiency.
You may also want to evaluate new or different types of emerging technology. Robotic picking systems, mobile printers, RFID tracking, IoT (Internet of things) process tracking, voice-directed picking, and other solutions can also help reduce distribution center costs. These technologies should be part of an evolutionary approach to DC cost reduction. Process improvements have to be in place first, and the right software and use of barcoding provide a solid foundation on which to build. RFID can further optimize some, but not all, operations.
A Better Way Forward
Distribution center operations can become entrenched and overly complicated, with new steps added as circumstances change over time. Without taking a critical look at how and why those processes have evolved, continuing to do things “the way we always did it” could cost you money and make you less competitive.
Stripping away the inefficiencies in your DC won’t be easy. It helps to have a third-party expert conduct a thorough assessment. Contact Quest Solution for help evaluating your processes and devising a plan for next steps to improve productivity and profitability.