Knowing how to reduce warehouse costs is essential to run any successful company that relies on the import and export of goods. This is because storing merchandise in a warehouse can be expensive if you don’t take certain precautions. This guide outlines warehouse costs and how to reduce them, so your company can be as profitable as possible.
What Are Warehouse Costs?
Warehouse costs vary based on the facility, amount of storage space and services you require. The most common costs are associated with handling (receipt and dispatch), storage space, operations administration and general administrative expenses.
Storage space, leased for one year, can average anywhere from $4 to $7 per square foot. Administrative and management expenses for employees range from $30 to $40 per hour. Operational expenses, which can include everything from utilities and insurance to taxes, can cost between $2 and $3 per square foot of storage space. If you require forklift leasing, it can cost anywhere between $750 and $1,000 per month.
How to Reduce Warehouse Costs
There are several things you can do to reduce warehouse costs. Most important among them is to reduce your required space by optimizing storage. To begin, it is essential to learn the dimensions of the forklifts you’ll need for every type of product. Organize your storage by the aisle dimension required for forklift access. Choose a narrow and tall rack build to lower your required square footage.
Another important step is to protect your inventory. Billions of dollars are lost in warehousing costs every year because of damaged goods, theft and misplacements. Use proper inventory control and storage systems to minimize these problems.
Cross docking is another way to cut warehousing costs. Cross docks allow you to transfer products directly from the supplier to the customer with little to no long-term storage. In some cases, a product might be put on a truck for delivery, or it might be transferred to another link in the supply chain, such as a last-mile facility or a brick-and-mortar retailer. This process saves time and money.
Other ways to cut costs include:
Set up internal benchmarks to help reduce your cost per order or hold the cost in line as volumes increase. You can translate these benchmarks down to department and individual work standards.
Recycle and reuse
Purchase used containers for product storage.
Focus on employee retention
Keep existing employees. It’s less expensive than hiring new ones.
Create an incentive pay program to maximize productivity among your pick and pack employees (but don’t overpay for work that should be a normal part of operations).
Reduce energy costs
Look into improvements, such as upgraded warehouse insulation and automated lighting, to cut down on energy use. Where possible, maximize natural light from windows to further cut costs.
Manage your labor force
Labor is the largest controllable expense in your distribution center. Successful practices to improve performance can lower your overall labor cost.
Use the same equipment for more than one task instead of purchasing or renting two separate pieces.
Add voice-enabling technology
Improve inventory control and augment productivity through the use of advanced technology. In many cases, extensive training is not required to see a relatively quick ROI.
Enable cross docking
Save time on production management, storage and other associated costs. By cutting out the middleman, you transfer products directly to the customer and reduce costs.
Protect your inventory at all times
Stock damage, misplaced items and theft all wreak havoc on inventory. Control access points, install security systems and train all employees properly to ensure minimal damage to inventory.
Trends in Warehouse Cost Reduction
Technology is key to controlling warehousing costs. Today, there are several options that improve efficiency, reduce mistakes and save money. RFID (radio frequency identification) portals automatically identify and track containers as they enter and exit the warehouse, so you always know where your product is located, thus reducing costs caused by lost or misplaced goods.
Voice-directed picking systems are becoming popular because they enhance productivity, efficiency and safety by requiring only a user’s voice—unlike paper or mobile computer-based picking systems that require both hands.
Looking to reduce your warehousing costs without sacrificing quality? Learn how you can run a more efficient and sustainable warehouse. Prologis offers affordable warehousing services in the Americas, Europe and Asia.