Viewing Warehouse Efficiency from a Unit Cost Perspective
While warehouse forklift efficiency is a well-covered topic, we recently came across a new perspective that we’d like to share with our readers – that is, looking at warehouse efficiency from a unit cost standpoint.
Most warehouse managers take a “top down” approach when measuring efficiency, comparing standard monthly or annual performance metrics to the business’ net profit. While this traditional method is certainly standard practice, what if we inverted the view and looked “bottom up” from the standpoint of unit costs?
What might be learned about warehouse efficiency when we consider the cost and effort associated not with the overall operation, but with the individual packages or products stored in a warehouse?
And what might this all tell us about a forklift fleet’s relationship to these unit costs?
Let’s find out below.
Understanding Warehouse Unit Cost Accounting
Unit cost accounting is a concept that translates all of a business’ costs into values applied to each individual unit of good or service that the business provides. In this way, businesses can directly understand how each unit sold contributes to the company’s expenses. Unit costs typically include:
- Real Estate Costs, such as warehouse lease costs
- Infrastructure Costs, such as equipment and racking
- Energy and Utility Costs, such as electricity and water
- Administrative Costs, such as office staff wages and general business expenses
- Direct Material Costs, such as packaging and labeling
- Direct Labor Costs, such as warehouse staff wages
If we imagine holding a single widget from our warehouse in our hand, we will see that to simply possess this unit, we must spend a small amount on its share of our real estate costs, energy costs, labor costs, and so on.
We might also then realize that this single unit contributes to some cost types more than others – for example, a frozen product might bear disproportionally on our energy and infrastructure costs due to needing a large refrigeration system.
With this realization, we can start to see how each unit influences our overall cost profile, and subsequently, how we can improve those costs.
The beauty of unit cost analysis is that it allows managers to plainly see the connection between their stored products and their warehouse’s profitability. Now let’s introduce forklifts into the unit cost equation and see all the ways we can improve warehouse efficiency.
How Forklifts Contribute to a Warehouse’s Efficiency
Forklifts directly influence warehouse efficiency in many ways, from promoting higher throughput to larger load handling capacities and much more. With a unit cost perspective in mind, let’s discuss specific ways that forklifts can be used to reach even greater warehouse efficiency levels.
- Space Maximization – in a unit cost calculation, the lowest per-unit storage cost is obtained by squeezing the highest density of products into the smallest functional amount of space. To achieve this space maximization, warehouse designers examine forklift options to cut down non-storage spaces and increase rack heights. Selecting narrow-aisle, high-reach lifts is a direct way that forklifts drive up storage density and in turn, lower unit costs.
- Largest Possible Handling Volume – every warehouse will have an ideal handling volume for their products. For example, handling full pallet volumes for products that ultimately have to be broken down into many smaller packages can result in excess pick-and-return trips, where it would be better to break down and store individual cases to eliminate re-handling costs (and thus minimize unit costs). Once the largest reasonable handling volume for a warehouse’s product mix is identified, forklifts can be selected specifically for that size, often cutting the need for slower oversized lifts and wide aisles.
- Minimum Necessary Handling Time – most warehouse managers equate “fastest” with “cheapest”, referring to the notion that handling materials as fast as possible directly cuts costs. While this is true to an extent, going fast for its own sake usually brings along additional risks and more costly lost-time events when an accident or mistake eventually occurs. Instead of simply going fast, we suggest going “only as fast as necessary”. Establishing a warehouse’s minimum necessary handling times provides a different way of quantifying mission and route speeds, which can be worked into forklift telemetry systems to reinforce as well.
- Full-Shift Uptime – since labor expenses center around an employee’s standard work shift duration, the main way to drive down labor-related unit costs would be to maximize how many units a forklift operator can handle during their shift. For this reason, forklift uptime acts as the direct link between lowest unit costs and maximum productivity. In this context, minimizing unit costs requires selecting forklifts with battery capacities and charging methods that ensure they will carry through a complete shift without interruption.
- Touch Points – every time a product is handled or “touched”, its unit cost goes up. As such, minimizing a product’s unit costs requires that the fewest amount of touch points exist as it makes its way through the warehouse. Forklifts are often related to touch points, as many warehouses utilize different lift types, routes, missions, and zones that a product must cross as a matter of traffic control. If we think instead in terms of unit costs, forklift routes and zones can frequently be remapped to minimize touch points.
- Operational Risk Aversion – the concept of minimizing unit costs typically parallels a general operational management sense of risk aversion. This is to say that risk-averse warehouses often invest in redundant backup forklifts, more conservative mission profiles, extra staffing, and various contingency plans that altogether result in fewer lost time events and order errors. From a total budget standpoint, risk aversion is usually viewed as an added cost driver, but when this risk aversion results in very positive productivity levels, lower unit costs naturally follow.
Going Beyond Unit Costs – The Connection Between Forklifts and Total Value
As managers get into the mindset of finding per-unit efficiency gains through strategic use of their forklifts, they will start to see how increasing warehouse efficiency directly increases total value for the organization and its customers.
Improved forklift operations organically bring along safety improvements, work culture benefits, opportunities for automation and integrated storage solutions, and much more.