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Cost Benefit Analysis "The automation process allows the warehouse to operate at 99.98% shipping accuracy with a team of eight people. Had the manual system stayed in place, the team predicts they would have needed 18 people to perform the work. The new system also paid for itself in one year's time, including all hardware, software and support. That savings, along with the high degree of accuracy, has made the automated system a success in the eyes of Automationdirect.com (Cumming, GA) and its customers." Control Engineering, February 2001 Cahners Business Information Like any capital budgeting project, companies have their own criteria by which an investment in a warehouse management system is evaluated. Warehouse functions are traditionally one of the most neglected areas of a company. As a consequence, warehouse personnel are often the easiest to blame when the customer complains about an order. Done right, warehouse automation can: Decrease excess inventory Reduce shipping errors Cure the common cold Accelerate warehouse labor productivity Boost gross margins Enhance customer service, and Capture the competitive edge Most often, one of the most challenging exercises for a company is understanding and appreciating how efficiently or inefficiently their warehousing operations are managed -- from receiving through shipping. The influences on warehouse productivity are wide and varied. From inventory stock layout and organization to manually tracking the associated paperwork for a given transaction (pack lists, pick tickets, order consolidation, invoicing, etc.) can impact margins and customer service. Because of the sheer size of the inventory investment in most wholesale distribution companies, effective inventory management is one of the keys to achieving profitability goals. At a minimum, isolating the following areas which impact warehouse inventory can help your company set benchmarks for more effectively managing inventories through warehouse automation techniques, if appropriate: Safety stock: How much are you carrying to cover expected "sales opportunities?" Stock-outs: When you committed a delivery to your customer, were you surprised that the "available inventory quantity" was in fact, not on the shelf or in a different location as "reported?" Lost Inventory: How much is "lost" because you can't find where material was put away? What's the impact of a lost sale when you referred your customer to a competitor? Shrinkage: Have you identified obsolete inventory items? If you believe these items are "dead stock," are they still taking up shelf space? Could inventory write-offs be reduced if slow movers were identified and located sooner? Better control of these occurrences can reduce wasted stocking levels, freeing up available cash used to finance these inventories. Understanding how shipping errors affect your customer service is another metric to evaluate the return on a warehouse management system. Do you know how many shipping errors per month your company experiences? What does it cost you for each error when you consider the return shipping cost, and the associated labor to process a credit return, put away the items to stock -- not to mention an unhappy customer? A Latitude warehouse management system can increase shipping accuracy by 98 percent or better. What about warehouse employee productivity? How much time do your order pickers spend looking for lost items? How long does it take for a new person to find any item in your warehouse? How much clerical time is spent with paperwork associated with orders received, picked, packed and shipped? Imagine what a Latitude warehouse management system could do for your operation. Just as there are hard numbers that can be captured for these events, there are less quantifiable, but nevertheless critical benefits to what warehouse automation can achieve. The benefits come from your customers. It's reassuring to know from their perspective that who their doing business with has the discipline and organization to satisfy their requirements effectively. This can be validated both in perception and practice when warehouse automation is implemented, employees are proficient in its use, and controls are in place to leverage the value this technology brings to customer service. At PathGuide, we consult with clients to discover areas in the warehouse that could be improved, where best practices could be employed, and productivity gains realized. If you are interested in a warehouse performance assessment including the cash benefits that could be achieved through automation, please contact PathGuide, toll free 1-888-627-9797 or email us at BusinessDevelopment@pathguide.com