The other way we mentioned in the previous post to calculate cost savings gained from improved warehouse management is to look at the gains from just a one percent improvement in picking accuracy.
(Recall that our data is derived from an Aberdeen Group research report on warehouse operations at over 200 companies, completed just last year. Their research report is available here.)
We looked in the prior post at Aberdeen’s calculation of the cost of a shipping error. Picking errors, while less costly, have their costs too. Aberdeen found that of the 205 surveyed companies, a picking error (a mistake caught before it incurs the downstream cost of mis-shipments to your customers) cost $11 per piece, $9 per carton, and $14 per pallet.
A 1% improvement in picking accuracy can be applied to the same examples we use in our prior post…
On a 4,000 piece per day ship rate, you eliminate 40 errors per day, or $440, for an annualized savings (5 day week) of $110,000. As we did earlier, let’s assume you ship only 1,000 pieces a day; this still results in annual savings in excess of $25,000. If you only ship 100 pieces a day, it’s a $2,500 savings – not likely worth the investment in WMS by itself.
Here, only at higher pick rates will you see substantial return. The gains are largely economic. However, reduce mistakes on shipping errors and you will see gains both economic and in terms of customer satisfaction.
Ultimately, saving on either picking-correction costs (in the higher volume environment) or in shipping error-corrections serves to mitigate what is largely regarded as the number one competitive pressure in the warehouse environment noted in our first post: the need to decrease operating expenses.
As observed in our examples, deployment of appropriate warehouse management automation solutions can recoup their costs within a year of implementation.
So… what do the best companies actually do to render warehouse improvements? Aberdeen looked for the answer through the lens of a “PACE” analysis, identifying Pressures, Actions, Capabilities and Enablers.
In our next post, we’ll look at their conclusions.