Technology and improved inventory management translate into better customer service and lower costs.
M any furniture store warehouses that were built in the 1960’s and 1970’s place stores operating them at a distinct competitive disadvantage. That’s because the name of the “game” at retail has changed from “bulk buying and storage” to “flow and turns.
Retail operations that have recently invested in warehouse assets with this new philosophy in mind have been able to take advantage of changes in technology and inventory management. They are, therefore, able to drive more dollars to the bottom line than stores doing the same volume at the same price points with older warehouses.
What is it about newer warehouses that give the stores a competitive edge? Warehouses designed to maximize storage capacity are not often designed for high volume merchandise flow. The best way to explain this is to look at a “before and after” warehouse case study.
The “before” was a warehouse designed in the 1960’s. It had a 60,000 square foot floor and 20-foot high ceiling. There were three dock level doors as well as three at floor level. The small number of dock doors forced the warehouse staff to use lift trucks to load trucks through the floor level doors when delivery demand ran high. This was deemed a more efficient solution than the alternative, which was to load trucks in shifts, requiring additional staffing and or overtime.
Because dock doors did not have an awning, extra work and expense was incurred to keep the dock area clean. A lack of door seals caused the warehouse to be very cold in the winter and hot in the summer. During winter months, productivity suffered as the staff bundled up to the point where their movements were restricted. Operational expenses increased as heated air escaped through dock doors.
In the months of July and August, productivity suffered as temperatures regularly exceeded ninety degrees. Operational expeses soared as dust and debris blowing in through gaps around trucks required frequent removal.
Initially, this store’s owner felt that the expense of retrofitting doors with seals was too expensive, however, this cost was found to be nowhere as great as the wasted heating and loss of effective manpower during winter and summer.
Racks in this old style warehouse were designed to maximize capacity by taking full advantage of the peak high in the center. This configuration forced lift truck operators to make long runs parallel to the doors and to maneuver around racks to enter the prep area.
Because this warehouse was overstocked, lift trucks were forced to move slowly around merchandise stacked on floors and in the aisles. In many cases operators were not able to pull inventory out of the racks until stacked up goods were cleared. Under these conditions, pulling stock for delivery was slowed and the resulting merchandise damage drained the bottom line.
To relieve warehouse congestion, a second warehouse was leased seven miles away. Since this decision was based on expanding stock merchandise and not on sales, the cost of equipping and staffing this additional facility provided little real benefit.
Although the prep area had been an efficient workspace when the warehouse was built, at three times the volume, it was inadequate to handle the merchandise flow. The small prep area forced inventory to be picked twice a day. Once pulled, inventory was on the floor no more than eight hours before being loaded onto a truck. It was often carried from rack to truck with barely enough time in prep to complete assembly.
Insufficient prep and staging floor space caused a large number of merchandise returns. Almost half of these were wrong items or incomplete items delivered; a situation due in part, to the old computer system. Pulling wrong items or delivering incomplete orders are the leading cause of second and third deliveries for the same sale.
To deal with the large number of customer service cases caused by substandard merchandise delivered to customers, the store had four shop repairmen and three field service technicians in an operation that, based on volume, should have employed two shop repairman and two field service technicians.
Contributing to delivered furniture quality problems was an antiquated computer system designed in the 1980’s. Management had not purchased service and feature upgrades or moved to a new system. The situation was tolerated because the computer was paid for. The software was so limited in function that six more employees were needed than in similar sized businesses running newer furniture industry specific software. Hanging on to this old technology had another additional cost. The warehouse had two more people on staff than needed based on the amount of time personnel spent running around doing inventory checks for salespeople.
THE NEW WAREHOUSE
The replacement warehouse has a 40,000 square foot floor and a 40-foot high ceiling. Racks are designed to take full advantage of the height, which gives the new warehouse 40% more linear shelf space. The racks open up to the doors giving lift trucks a short run to the prep and assembly area allowing the picking team to pick more inventory in less time and providing more time for assembly and prep.
The prep area has been increased three fold, allowing the store to pull and prep merchandise two days before delivery. Having time to prep and inspect merchandise stops many mistakes, in a cost effective manner, on the dock!
With enough time and space to properly prepare inventory for delivery the number of customer service issues has dropped by 60%. A concurrent reduction in customer service calls allowed this retailer to cut customer service staff by half.
The improvement in prep and assembly permitted the repair shop staff to be reduced from four to three, and the number of field service technicians to be halved from four to two.
The warehouse now uses the latest version of a furniture industry specific computer system that has enabled the store to reduce the office headcount by three people. This staff reduction was accomplished even though sales volume has doubled since the installation of the system.
With accurate inventory, two people who spent their days doing inventory checks for sales staff and researching “not in location” items now do quality control work on the dock.
The new computer and quality control efforts have reduced the number of merchandise items returned as wrong or incomplete by 80%, resulting in more successful first time deliveries and more satisfied customers.
The new building has six dock level doors and two floor level doors. The store has six trucks and because they now use routing software, they rarely run more than four trucks at a time. Two trucks are kept in reserve for emergency delivery situations. The store rotates two trucks from delivery to be cleaned and serviced or assigned to shuttle service, every other week. This keeps mileage down and maintenance on schedule.
Using state of the art material handling technology permits employees to handle geometric increases in flow with only incremental increases in staffing and operational expense. Since the new warehouse was put into operation, volume has doubled but the warehouse staff headcount has only increased by three.
The “next generation warehouse” is a building designed and equipped to support an operation for the next 10 to 15 years of growth. Retailers interested in improving operational efficiency can either investigate building a new warehouse or upgrade existing operations to take advantage of new labor saving technologies that have been developed over the last couple of years.
With interest rates at historically low levels, many retailers are deciding that now is a good time to upgrade.
John McCloskey, President Of Operations for Profitability Consulting Group works with storeowners and managers to make sure the back end operations are properly set up to support high grow/high profit operations. Inquires can be sent to John care of FURNITURE WORLD at firstname.lastname@example.org.