Counting the High Cost of Doing Nothing

Frank Cavallaro

8 years ago

Increasing operational expenses to avoid capital expenditures that would boost warehouse capacity and functionality might end up costing you more in the long run.

Consider this scenario: Demand is up and projected to grow for your products. But you are running out of space in your distribution center. Although you realize modernizing your distribution center to increase productivity would make sense, you resort to the seemingly more affordable solution — hiring more workers.

While many companies may balk at the upfront cost of investing in, for example, warehouse automation technology, holding off on upgrading in the name of saving money can become a costly long-term strategy.

Don’t get me wrong. Automation is not always the answer to tackling issues that stem from rapid growth, but companies need to be aware that doing nothing also comes at a cost. Increasing operational expenses to avoid capital expenditures that would boost warehouse capacity and functionality is generally not a good idea. More workers on the floor mean more congestion and delays, in addition to increasing the risk of higher turnover rates, as new employees are more likely to move on than longer-term associates.

In the end, if your productivity and order fulfillment suffer as a result of your inaction, so will your customer relationships.

FORTE, a Swisslog Company, made the following observation in SupplyChain 24/7:

Businesses routinely choose to not invest in distribution without giving careful consideration to the impact on operational costs and missed business opportunities. They thoroughly evaluate whether to purchase material handling equipment, warehouse software and distribution buildings. The same scrutiny should be applied to real and often hidden expenses and the opportunity costs of the option to do nothing.

In FORTE’s case, the company came to the “rescue” of a retailer who had planned to respond to a significant increase in demand and SKUs by hiring more workers to the tune of $900,000 to $3 million per year. Although labor costs would more than double, the retailer would still struggle to fulfill and deliver new orders on time. After much debate, senior management decided to spend $5 million on new material handling equipment and software to meet current and future demand.

So what issues can arise from the do-nothing strategy?

Well, take your pick among unwanted scenarios: Bottlenecks in pick zones; safety concerns as a result of increased congestion; double-handling due to an inability to confirm picks; discrepancies in putaway, replenishment, and picking stemming from the lack of automatic data capture and real-time tracking; and dropping productivity as employees, among other things, have to travel further to retrieve items.

If you have reached a point where you miss or ship incorrect orders, and adding labor seems to only compound the challenges, it is time to take a serious look at your priorities. Perhaps, investing in automation is finally justified?

This post originally appeared in EBN Online.

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