Cabinet dealers across the country are scrutinizing their income statements looking for creative new ways to slash costs. Payroll expenses are often targeted first, with business owners right-sizing their staffs in what amounts to a short-term solution. Smart business owners are not just cutting costs. They are looking at every phase of their cabinet dealer operation for ways to improve efficiency. One often-overlooked area is the warehouse.
Measure Warehouse Efficiency
- Boxes (pieces) per hour: Take the total number of pieces handled (received and delivered) and divide by the total number of hours invested. The most effective box (piece) count is the number of individual cabinets plus accessories and other items in groups. For example, three sticks of crown molding would be one piece, as would 30 identical knobs.
- Payroll Dollars per Box: Divide total warehouse payroll expense by the number of pieces handled. Again, count pieces received and delivered.
- Defects per piece: If you aren’t already doing so, track the number of mistakes (broken pieces, missed delivery items, etc.). Then, track the defect rate by dividing the defects by the number of pieces handled.
These measures of warehouse efficiency are most effective when viewed over time. They can be used to establish benchmarks, demonstrate trends, and get a more accurate understanding of the actual costs involved with your overall warehouse operation.
Communicate the Results
Once you begin tracking your warehouse efficiency, you need to share the results with your team. Post the weekly results in a highly-visible area of your warehouse. It is most effective to graph the boxes-per-hour and defects-per-piece results week-by-week. Take 10 minutes at the beginning of each week to talk about the prior results with your staff. Make efficiency a high priority, and your staff will likely follow your lead.
Offer bonuses for zero-defect jobs
Put together a weekly bonus pool for your warehouse team. Add $25 to the pool for every perfect delivery, but subtract $25 for every delivery that has missing or defective items for any reason (yes, even manufacturer issues). Split the bonus up weekly among the delivery team. You’ll be shocked to find that over time, your expenses will actually go DOWN by paying this bonus. $25 for a perfect delivery is far less than you will spend to have a replacement cabinet delivered to a job days after the original installation.
Outsource your warehousing operations
Once you begin measuring your warehouse efficiency, you may be amazed at what you discover. Some dealers have actually been able to use this information to find more cost-effective methods for managing their warehousing operations. In some parts of the country, you might be able to outsource your receiving and delivery functions to freight-handling companies. For a specific charge per piece, these companies receive the product and deliver it on your schedule – in some cases using their warehouse space. For some dealers, this option actually saves money, particularly when you factor in the cost of trucks and maintenance.
Although saving money in the short-term is critical, take advantage of these lean economic times to look for ways to improve your operation for the long haul as well.