Warehouse Operation & Back Office Cost Savings Model

Warehouse Cost Savings: Attaining £157,500 in operational cost-savings has the same impact as adding £4.2m in new revenue!

 
Here’s the maths:

• A study by Armstrong & Associates* has found that the average warehousing operation net margin is 3.7%
• Therefore, to generate an additional £37,000 net margin you need to generate new sales of £1,000,000 (£1,000,000 X .037 = £37,000)
• A study by Intermec** found that annual losses are averaging almost £315,000 due to mis-picks alone. (There are many more cost savings to be found in a warehouse environment other than mis-picks)
• Conservatively, let’s assume a 50% reduction in the mis-pick figure above could be attained so £157,500 (£315,000 ÷ 2 = £157,500)
• Adding this to your net margin would have the same impact as adding over £4.2 million in new sales (£157,500 ÷ .037 = £4,256,757)

Warehouse operations typically work on low single-digit margins. Consequently, directing your efforts at cost reductions (error reduction, or operational efficiencies, etc.) will have a dramatic effect on your net margin.

Also remember that if you were to add £4.2m of new revenue, you would have direct costs of additional resources, premises, staff and equipment to service this additional business.
 
Principal Logistics Technologies are the experts in identifying operational and back-office cost savings

When we engage with prospective clients, we ask their team to identify savings and to quantify these. Essentially, this is to build a business case, or justification, for the WMS purchase from a hard savings standpoint only. This is where difficulties arise.

Instinctively they know errors occur, but these are not counted or measured. Most often they do not have the required information on pick rates, or operative inactivity times. Frequently they are not even aware of events caused by sub-optimal process flows, absence of real-time data, lack of real-time system verification – and how these impact on their operation.

We step through each element of the operation including the back-office functions and show participants where to look. They are then encouraged to put their own monetary values on labour, cost of errors etc., to make the business case their own. Implementing systems does have a cost implication for organisations, however, ROI is usually short, meaning some can recognise this in just 3 to 6 months, most in 12 to 18 months.
 
 
Interested in assessing your potential Operational and Back-office Savings?

Do you know your Net Margin and Annual Cost of Errors?
If you know, and are able to share these, then please forward to us and we will generate and provide you with a graphical illustrated model.
Don’t know your level of Annual Errors and Average Cost per Error?
If you don’t know these then please contact us and we can assist by arranging a no-obligation onsite Quantitative Review.

Ask Joe how: Joe O’Shea, Director, Principal Logistics Technologies.
 
 
*Armstrong & Associates, 2015
**An Intermec study surveying 250 senior Supply Chain and Distribution managers in the US, UK, France and Germany and spanning industries including Retail, Manufacturing, Distribution, Transport, Chemicals, Logistics, Pharmaceuticals, Wholesale and FMCG.