10 Strategies For Reducing Your Warehouse’s Labor Costs
For businesses that rely on warehousing, managing labor costs is crucial for maintaining profitability. In order to reduce labor costs, it’s often necessary to balance the need for efficient operations and a skilled workforce. Labor costs can account for a significant portion of the expenses incurred by warehouses, distribution centers, and order fulfillment operations. In order to solve this challenge, it is imperative to implement strategies that will reduce labor costs without compromising productivity or quality. By implementing the following strategies, your warehouses can gain a competitive edge and achieve long-term success.
Strategies for Reducing Warehouse Labor Costs
1. Utilize Technology and Automation
By leveraging automation to handle routine tasks, businesses can reduce the need for additional labor and allow their existing workforce to focus on high-value activities. This approach can help businesses remain competitive by reducing costs and increasing productivity. Moreover, replacing labor is an expensive and time-consuming process that requires finding, training, and retaining new employees. By reducing the need for labor, businesses can avoid these additional costs. Employing a combination of technology can optimize your warehouse operations and generate numerous benefits. Various types of automation are available, but every distribution center works differently, which is why RightFIT automation can help you create a design for automating your business and creating efficiency with technologies such as:
- Goods-to-person (G2P): Optimizes the picking process by minimizing the distance traveled by employees filling orders, which provides a more efficient and cost-effective solution than relying on manual labor
- Automated storage and retrieval (AS/RS): Provides buffer storage between different stages in the workflow and staging orders for shipping to effectively automate product movements within a warehouse
- Autonomous mobile robot (AMR): Understands and moves through a warehouse without being manually operated through the use of advanced sensors and cameras to optimize routes in real-time
With these technologies’ ability to perform a wide range of tasks, automation can help your business reduce a reliance on human labor, transport inventory or products, assist in the picking and returns processes, increase throughput, and provide flexible sortation solutions.
2. Optimize Current Processes and Workflows
Another strategy for reducing labor costs is to optimize current processes and workflows. By analyzing data on warehouse operations, you can identify bottlenecks and inefficiencies to help implement changes to streamline processes. This can include reorganizing your warehouse layout, improving inventory management practices, and optimizing your picking and packing processes. These improvements can lead to significant reductions in labor costs while also improving overall warehouse performance.
3. Implement an Effective Training Program
Effective employee training is a critical component of reducing labor costs in your warehouse. According to ABI Research, training in advanced picking software can provide massive gains. For example, implementing advanced picking creates a 30% efficiency gain and up to 60% in time savings. Additionally, 54% of organizations are increasing supply chain and technical training to retain laborers and develop a career path for valued employees. When employees are well-trained, they are more productive and efficient, which leads to faster and more accurate work—and less turnover. This can reduce the need for additional labor, saving your business time and money.
4. Update Warehouse Slotting Programs
Warehouse slotting is the method of arranging inventory within a warehouse or distribution center in an efficient manner. Good slotting practices ensure inventory is stored based on its order velocity, commonality of “other parts,” and ergonomics. By utilizing storage with an effective picking process, warehouse slotting can enhance storage capacity and decrease handling expenses. Efficient slotting methods not only save space within a facility, but also enable fewer workers to pick more orders, ultimately reducing labor costs. Today, slotting can be done with independent slotting software, or automatically with new types of systems that integrate with slotting algorithms. In fact, utilizing these systems makes slotting possible without any additional human labor, saving you both time and effort. Every pick and every put-away improves the system slotting. These kinds of hardware systems make warehouse management much easier and more efficient. By consistently making these movements and ensuring that products are placed in their optimum locations, your warehouse is easier to manage.
5. Ensure Warehouse Execution Software Is Effective
Upgrading your software system, such as implementing a Warehouse Execution Systems software (WES), can significantly improve your ability to manage labor resources and equipment performance on a daily basis. With the implementation of a more sophisticated software system, you can effectively coordinate and streamline your labor needs to ensure maximum productivity. A great example of a modern WES is the Horizon WES created by New Dawn. Unlike other warehouse execution systems, its contemporary design provides:
- True modularity
- An integrated emulator
- Drag and a drop design studio to help assure rapid deployment
- Operational longevity
- Easy maintenance
6. Maintain Low Turnover Rates
Warehouse operators are struggling to find and retain skilled laborers. High turnover rates can be costly for businesses as it requires investing in the training of new employees, which can also disrupt facility workflow. As a result, reducing employee turnover has become a critical priority. Fortunately, there are several strategies that can help businesses minimize turnover rates and retain their skilled workers. One effective approach is to invest in proper training and development programs that help employees improve their skills, knowledge, and productivity. This can help employees feel more confident and engaged in their work, leading to higher rates of job satisfaction. Workplace safety also plays a key role in overall job satisfaction. By ensuring employees feel safe, comfortable, and well-supported in their roles, you can create a positive work environment that encourages employee loyalty, reduces turnover rates, and ultimately helps in reducing labor costs.
7. Keep Track of Key KPI Metrics
Labor costs typically constitute a significant portion of the total expenses associated with warehouse fulfillment—usually accounting for around 60 to 65% of the total cost. Finding ways to optimize labor productivity and efficiency can result in significant cost savings. One way to achieve this is by tracking key key performance indicators (KPI) metrics, such as:
- Total error rate: Identifying areas where errors are occurring, such as order picking or packing
- Fulfillment time: Helping to optimize labor resources since it provides insight into the speed and efficiency of warehouse operations
- Inventory accuracy: Reducing errors and minimizing the need for additional labor hour
By tracking these and other KPIs, as well as analyzing the data, you can gain valuable insights into your warehouse operations and identify areas where improvements can be made to optimize labor efficiency and reduce costs.
8. Identify Common Operational Inefficiencies
Identifying inefficiencies in warehouse operations is critical to optimizing the performance of a warehouse and cutting cost on labor. One common source of inefficiencies in warehouses is older equipment that can only perform at the level it was designed to operate at the time. Due to the recent fluctuations in consumer demand, systems and processes that were once effective may now be outdated and inefficient. By partnering with an integrator like Conveyco, you can review your operations and identify areas for improvement. Whether it’s implementing a WES to improve older equipment or replacing pieces of a system, these actions allow organizations to achieve better performance from their existing equipment, reducing the need for costly upgrades. By addressing inefficiencies in these areas, you can streamline your operations and increase labor productivity. This can ultimately lead to improved profitability and a more competitive position in the market.
9. Utilize Just-in-Time Inventory Management
As supply chains begin to normalize again post-pandemic, Just-In-Time (JIT)—an inventory management approach that involves a close collaboration between a company and its suppliers—works to minimize the amount of inventory that a company must maintain. This approach aims to reduce waste, optimize efficiency, and increase responsiveness to customer demands. Labor expenses can be reduced as the number of personnel hours to store inventory and fulfill orders decreases. With JIT, inventory levels are kept to a minimum, and production is closely aligned with demand. This allows for a more streamlined and efficient production process, minimizing the need for excess labor hours.
10. Eliminate Unnecessary Steps
Streamlining processes is an essential strategy for saving labor costs. By eliminating unnecessary steps and simplifying workflows, your warehouse can reduce the amount of time and effort required to complete tasks. One way to do this is by streamlining existing processes and workflows to eliminate any unnecessary steps, tasks, or inefficiencies. This can be accomplished by analyzing every step in the process and identifying areas where improvements can be made. Additionally, feedback from employees who are involved in the process can be valuable in identifying areas that need improvement. By involving employees in the process and listening to their suggestions, businesses can identify and address issues that may not be immediately apparent.
Start Reducing Your Costs
Reducing labor costs is a critical priority for most warehouses and distribution centers. The high cost of labor, combined with the current labor market’s challenges, makes it imperative for businesses to implement strategies that minimize labor needs and optimize their existing workforce. Embracing emerging technologies like G2P, AS/RS, and AMRs can help businesses maximize efficiency and productivity, minimize labor needs, and improve profitability.
