Factors affecting warehousing efficiency: How to improve your warehouse

As the field of logistics changes, many organizations need to address the factors affecting warehousing efficiency in order to prepare for the future. Supply Chain reports that UK warehouses lose nearly three thousand hours every year, thanks to inefficient processes—especially when it comes to inventory control, packing, unloading, and picking. In the US, inventory management challenges like stockpiles of unsold goods hinder warehouse efficiency. And global organizations with underperforming supply chains struggle to achieve profitability, calling for a need to optimize everything from distribution to warehousing. The good news: according to Deloitte, 79 percent of companies with superior supply chains attain revenue growth that’s far above average.

Why is warehouse efficiency more important than ever? Because the increased demands of e-commerce are currently straining warehouse operations. According to eMarketer, retail e-commerce sales grew 27.6 percent in 2020, and they’re set to grow another 14.3 percent in 2021. That leaves warehouses scrambling to keep up, and boosting efficiency is a critical way to gain some ground. As a leader in supply chain optimization, Agility offers warehousing solutions designed to reduce costs and improve efficiency. In this article, we’ll delve into the most common factors that lead to warehouse inefficiency and how to solve them.

How warehouse layout affects efficiency

Logistics Management notes that just 11 percent of the total warehouse space in the US appeared in the last decade, meaning many warehouses are out of date. In fact, warehouses typically become obsolete within thirty-four years—a problem, considering that nearly one billion square feet of warehouse space is more than half a century old. These challenges mean many warehouses aren’t properly equipped to handle the increased demands of e-commerce. Common problems include low ceilings, not enough loading docks, or uneven floors that slow down warehouse staff.

Fortunately, it’s possible to modernize and expand warehouses to accommodate changing needs. And just as importantly, you can and should regularly update your warehouse layout to increase efficiency. Even if it’s not possible to invest in raising your warehouse roof or adding more square footage, making the best use of the space you do have can address workflow problems.

How can layout impact performance?

Flaws in your warehouse layout can lead to efficiency and performance problems, such as the following:

• This is when delays in one small area of your warehouse lead to a much larger holdup down the line. For instance, warehouses that do not organize goods efficiently often experience shipping bottlenecks, since picking ends up taking too long to keep up with the flow of incoming orders. Warehouses with inefficiently located receiving bays may see bottlenecks when it comes to stocking goods. Sure, a variety of factors can cause bottlenecking, but making changes to your layout often helps get things moving.
• Redundant movements and activities. When warehouse layout isn’t optimal, workers can waste hours of time over the course of a week. For instance, they may need to move pallets from a receiving dock on one side of the warehouse to a storage location on the other side of the facility: not the most efficient arrangement. In some cases, workers may end up making repeat trips or moving goods to one area, only to have to move them to another area, later. Optimizing worker paths—and changing your warehouse layout to support that—can help reduce wasted effort.
• Low picking metrics. Suboptimal warehouse layout tends to make it hard for workers to pick a high number of units per hour (UPH). This leads to wasted time and money, not to mention shipping bottlenecks and ultimately, customer dissatisfaction. Redesigning your warehouse to enable the most efficient picking paths can address this issue, improving both worker performance and customer satisfaction.
• Heating and cooling inefficiency. Some products in your warehouse may need refrigeration or have other temperature control needs. Storing these goods can result in high energy costs, which could have an impact on your bottom line. Fortunately, it’s possible to optimize your warehouse in order to house refrigerated goods in a separate, preferably insulated storage area. This ensures you aren’t cooling the rest of the warehouse unnecessarily or making refrigerators work too hard.
• Safety and security concerns. If the flow of workers and goods through your warehouse isn’t efficient, or there isn’t enough space to maneuver equipment safely, accidents, injuries, and product breakage can occur. These issues aren’t just detrimental to warehouse efficiency and profit. They could cause serious harm to your workers. In addition, not having secure areas of the warehouse to store high-value goods like jewelry and electronics can lead to theft.

Knowing what changes to make to your warehouse layout

Look for common warehouse design problems, such as the following:

• Insufficient space for deliveries. Using the same docks for loading and unloading goods—or docks located too close together—can lead to inefficiencies and hold up your shipping schedule. For instance, if deliveries overlap with loading and dispatching a truck, workers will struggle to share the space. This can lead to lost time, at best, and accidents or injuries, at worst.
• No clear picking paths. A big goal of warehouse design is to optimize pickers’ work. That means storing products in such a way that pickers can take the shortest possible paths. In general, picking paths should minimize backtracking, and products should be clearly labeled so they’re easy to find. Additionally, picking paths should wrap up near the packing area. After all, it doesn’t make sense for pickers to make their way across the warehouse, only to have to walk back to where they started after picking the order.
• Too many dead-end aisles. Good warehouse design optimizes the flow of goods and workers. Dead-end aisles require pickers—and forklifts—to execute turns and go back the way they came, leading to wasted movements and even traffic jams. This is not only inefficient but can violate safety codes.
• Not enough maneuverability. Moving large objects requires ample space, whereas tighter areas may be fine for storing smaller, lighter objects. When planning your warehouse layout, it’s critical to consider the handling needs for each type of product you stock. Remember that if a forklift has difficulty accessing larger or heavier objects, or if it has problems turning, it could collide with racks or stacks. This could lead to breakage and injuries.
• A shortage of overflow space. When unexpected needs and opportunities arise, it’s important to have some extra space. For instance, maybe your organization got a bulk discount on a product and ordered more than usual. Or maybe you’re piloting a new product that requires assembly at the warehouse. Whatever it is, overflow space will ensure you have room to get it done. And sometimes, warehouses have more room than they think. Cleaning out clutter or getting rid of obsolete inventory may free up the overflow space you’re looking for—whether you need a staging area or temporary storage.
• Insufficient waymarks. Helping warehouse workers safely navigate your facility is a critical consideration. After all, even the best layout isn’t always intuitive. Color-coding the warehouse floor helps with orientation, and clearly marking each aisle with a number can improve efficiency at every step. Keep in mind that sometimes it’s not possible to remove an obstruction to traffic flow. Structural columns are one such example. In this case, using brightly colored column protectors is key to preventing collisions and protecting columns from damage.

How do you lay out a warehouse efficiently?

Designing an efficient warehouse layout requires you to understand your inventory: it’s size, weight, popularity, and storage needs. This way, you can store products in configurations that make the most sense for your business. And if you’re redesigning the layout of your existing warehouse, it’s also helpful to know how your staff works. Do they tend to experience traffic jams in certain parts of the warehouse? Are they taking longer than they should to pick an order? From there, use the following considerations to lay out your warehouse for optimal efficiency:

• Establish proper zoning. Zoning enables warehouse workers to store and pick products via the most efficient routes. As an example, storing bulky goods together in extra-wide aisles makes more sense than storing large and small items in the same aisles. For one, larger or heavier goods may have different logistical considerations. For two, these goods may need reinforced shelving, which tends to be costlier than standard shelving. Why waste those units on lightweight goods?
• Store popular items in the same place. This helps workers pick orders in less time—especially if most orders tend to contain several different popular products. Of course, your best sellers may change over time. It’s important to keep tabs on what these items are and rotate products in and out of your designated prime real estate zone. To achieve this, keep track of stock keeping unit (SKU) velocity. SKU velocity refers to the quantity and frequency of each SKU picked over a certain period of time, and it can help you determine how to sort products for the fastest order fulfillment.
• Maximize traffic flow. When workers can move quickly and easily through the warehouse, they save thousands of hours every year. In addition, your warehouse should see fewer bottlenecks, injuries, and broken equipment or products. To achieve this, plan your warehouse to maximize one-way traffic, avoid sharp turns and narrow aisles, and keep the floor clear and uncluttered.

Design for flexibility. An open warehouse layout enables you to make changes easily. In contrast, a warehouse that features too many fixed spaces can make it hard to switch up the layout as your inventory changes. If you have the option, make use of temporary, moveable partitions to divide up space. A key principle of warehouse layout design is that needs change fast. Keeping your space as flexible as possible is a great way to future-proof your warehouse.

How work methodology affects warehouse efficiency

When warehouse workers don’t use optimal methods for moving, storing, or picking goods, this tends to result in low key performance indicators (KPIs) throughout your operations:

• Receiving efficiency. This is the volume of goods each warehouse worker receives per hour. When warehouse operators use inefficient work methodology, expect receiving efficiency to be lower than your target, leading to higher costs.
• Put-away productivity. This KPI looks at the volume of goods each worker puts away per hour. You can also look at put-away accuracy, which could reveal inefficiencies when it comes to handling new inventory. Tracking this metric by individual worker can help you get to the root of the issue.
• Picking productivity. This is the number of order lines picked per hour. In addition, you should look at picking accuracy. Problems with these KPIs could indicate quality control issues, suboptimal picking paths, and the need to retrain workers.
• Perfect order rate. This is the total number of orders delivered without issues. Needless to say, problems with picking accuracy or efficiency issues that cause shipping delays can prevent your perfect order rate from hitting target.

Work methodologies that improve warehouse efficiency

The following methods could help your staff work smarter and boost overall warehouse efficiency:

• Pick to light. Pick-to-light systems and put-to-light systems use indicator lights to help workers find or correctly place items. This speeds up the process of picking or putting away, since workers don’t have to search for the right location. And when synced with your warehouse management system (WMS) and enterprise resource planning tool, this solution makes it easy to keep tabs on your inventory.
• Cross docking. How fast do incoming products move out the door? If some goods are especially fast moving, shelving them upon arrival may not be efficient. Instead, move them to a staging area for pickers to find easily. Known as cross docking, this method enables quick retrieval, so workers don’t have to waste time shelving popular items only to have to pick them minutes or hours later.
• Achieving quicker travel times. Pickers may need coaching on the fastest way to move from point A to point B. For instance, you could challenge workers to avoid backtracking by mapping the most efficient route through the warehouse before starting each order. In addition, it helps to inform everybody of any new changes to the warehouse layout, to minimize time spent wandering.
• Improving pick list accuracy. If out-of-stock items make it to pick lists, pickers could waste time searching for unavailable inventory. That’s why it’s so important to use an inventory management system and ensure all available data is as accurate as possible.
• Batch and cluster order picking. Batch order picking is when workers pick the same SKUs for several orders at the same time. This reduces travel time, since pickers can grab multiples of the same item at once. Cluster order picking is when pickers work on several orders at the same time—even if they don’t share SKUs in common. Why? Because it cuts down on overall travel time and prevents pickers from having to retrace their steps to and from the packing area with every order.
• Pick and pass. Also known as zone order picking, this method assigns workers to designated zones. They then pick SKUs from their zones, place them in bins, and pass them on to the next zone. With this strategy, picking the order is a true team effort. Plus, picking and passing is ideal for warehouses that have problems with worker congestion.
• Keeping SKUs together. If you have many similar items—like different-colored T-shirts in the same style—it makes sense to shelve these products next to each other. But avoid mixing SKUs. This creates confusion, wastes time during picking, and can lead to accuracy issues.
• Know your fastest pickers. Not every worker can pick at the same speed, and that’s OK. But acknowledging, rewarding, and studying your fastest pickers to learn their techniques is a great strategy. You can even have new or slower workers shadow your top performers to pick up tips.
• Active management. If worker productivity is low, this could be due to insufficient structure in the workday or unclear expectations, overall. It’s critical to allocate tasks and measure performance to keep workers on track. During downtime, assign tasks that can promote overall warehouse efficiency, like removing dead inventory or tidying staging areas.

How to evaluate the efficacy of your work methodology

To know if changes to your work methodology are getting results, you need to set benchmarks for your team and measure their performance against your expectations. It’s as simple as that. Using a WMS with radio frequency (RF) that can capture data makes it easy to track worker metrics, such as UPH, or organizational KPIs, such as perfect order rate. When making major changes to your team’s work methodology, try introducing one change at a time and tracking the results to see if there’s an improvement before introducing another change. If you overhaul everything at once, it’s hard to tell what’s working and what’s not.

How inventory affects warehouse efficiency

Warehouse inventory management is the system and set of processes used to organize and track the goods in your warehouse. Proper inventory management uses principles of facility and process engineering along with technology to improve inventory accuracy and visibility. Without a clear picture of your inventory, it’s difficult for staff to find and access stock, pick orders efficiently, and achieve a high perfect order rate. With a sound inventory management strategy, you’ll not only enable your team to improve their productivity, but you’ll save on the costs of labor, reduce error, and ultimately, increase customer satisfaction.

How does inventory turnover affect your warehouse efficiencies?

Not having enough inventory on hand can lead to order fulfillment delays and dissatisfied customers. On the other hand, having too much inventory that doesn’t turn over can lead to an excess of dead inventory, such as seasonal or expired goods you can’t sell. That can take a bite out of your profits—and take up valuable space in your warehouse. The following techniques can help you stay on top of your inventory and boost efficiency:

• Use ABC analysis. This technique breaks goods down into three categories: A, B, and C. Category A includes the top 20 percent of your inventory, consisting of the best sellers that account for 80 percent of your revenue. Category B features the middle 30 percent of your inventory, which represents 15 percent of your revenue. And Category C consists of the bottom 50 percent of your inventory, or 5 percent of your revenue. By accurately sorting your inventory, you can store products more strategically, forecast demand, and ensure you never run out of your top products.
• Maintain economic order quantity (EOQ). This is the ideal number of units your warehouse should order to minimize overall inventory costs related to factors such as order costs, holding, and shortage. You can calculate this by multiplying total order cost by annual demand, multiplying by two, and dividing by holding costs. Then, find the square root of that number to arrive at your EOQ. Keep in mind that this approach isn’t ideal for every business. If you typically see dramatic seasonal fluctuations in demand, you’ll need a more flexible ordering strategy.
• Try the just-in-time (JIT) inventory method. The JIT technique involves manufacturing or acquiring items right before you need them. Inventory moves quickly and doesn’t require as much warehouse space. Plus, this method eliminates the risk of overordering, which can leave companies with dead stock on hand.

How can you evaluate your current method of tracking warehouse inventory?

Many methods exist for tracking warehouse inventory—from sophisticated WMS with RF identification to universal product code scanning to a pencil and paper. To find out if your method is working for you, consider the following KPIs:

• Inventory turnover. The higher the turnover, the better. If inventory sits too long in your warehouse, you’re losing money.
• Stock outs. Poor demand forecasting and inventory planning can lead you to run out of stock at inconvenient times.
• Lost sales. This is the number of opportunities lost during a stock out.
• Order cycle time. This is the amount of time starting when a customer places an order and ending when they receive the order. Inventory management issues could lead to a longer order cycle time and dissatisfied customers.

Today, warehouse automation can take a lot of the guesswork out of inventory management and demand forecasting. This technology also reduces the need for manual labor, eliminates human error, and can help you optimize your inventory to avoid waste or lost opportunities.

How to evaluate your warehouse’s efficiency

These tips can help you measure the efficiency of your warehouse operation and identify areas that need improvement:

• Use tracking technology. A good WMS offers insights into your operations and team, including the health of your inventory, worker performance, and overall warehouse productivity. A WMS can also help with labor forecasting and inventory demand forecasting. It’s a great way to identify and fix inefficiencies throughout your warehouse.
• Talk to your workers. They’ll be able to tell you what pain points hold them back, and the answers may surprise you. For example, warehouses that feature conveyor belts designed to make certain tasks easier often find that workers get impatient with their slow speed. And if your warehouse layout needs reconfiguring, your pickers can likely tell you what needs to change.
• Observe your warehouse in action. Shadowing an employee will give you a chance to see whether your warehouse runs like a well-oiled machine. It’s the easiest way to find out if problems such as congested areas of the warehouse, receiving bottlenecks, or improperly slotted inventory are holding up your operations.
• Conduct regular warehouse audits. During an audit, you’ll look at everything from your warehouse’s capacity, layout, and storage systems to safety protocols and customer service performance metrics. By proactively and regularly auditing your operations, you’ll be able to identify and fix problems before they have a chance to get serious.

What is the best way to start improving warehouse efficiency?

To boost warehouse efficiency, you first need to isolate which factors need improvement. And that calls for some detective work. For instance, say your pickers’ average UPH is too low. This could be due to warehouse layout issues causing workers to retrace their steps or walk too far to complete an order. It could be because some of your pickers need coaching on the right techniques. Or maybe your warehouse could benefit from rezoning to make the most popular inventory easier to find. Accurately identifying the problem is half the battle, and it’s that much easier to improve your KPIs when you know what processes need fixing.