Guest Column: No One Wants to Hear They Have an "Ugly Baby"

Gas is up over $4.50 a gallon, transportation costs are going through the roof, your employees are struggling to keep their homes and your customers are scrutinizing every cost on their invoices. I think it is safe to assume our economy is in trouble. This means your supply chain, which you have been neglecting, is crucial to your organization's success or its imminent failure. Actually, it is even more basic than that: Your warehouse is about to make you or break you!

I am not an economist, but the signs look bleak for those organizations that have not addressed the issues related to the distribution of their product. In other words, their Warehouse Operations. Your inability to provide the customer what they want, when they want it, on a consistent basis and at a reasonable price will affect the livelihood of your organization during this down cycle.

Wolseley announced plans to close 75 locations and said their profit was down by 23 percent. Many other distributors are feeling the crunch and will ultimately begin "right-sizing." "These are tough times," one CEO said, and I was told by a warehouse supervisor, "It doesn't take a Ph.D. to chop heads."

It's time to admit you have an "ugly baby," or, in distribution terminology, admit your warehouse is in shambles. If your warehouse has returns that sit around for days without being processed, your warehouse is in shambles. If your warehouse has receiving that does not get received for days, then once it is received it sits again before it is put away, your warehouse is in shambles. If your customer service personnel spend more time in the warehouse checking stock because your inventory is so inaccurate, your warehouse is in shambles. If your warehouse appears to be bursting at the seams, which causes your pickers to spend twice as much time searching for product to fill orders and your receivers twice as much time to find put-away locations, your warehouse is in shambles. Now will you admit that you have an "ugly baby?"

Being in the distribution business, your organization is dependent on two things: your people and your inventory. Which is more important to your personal as well as your organization's success?

The value of your inventory can be as high as 20 percent of your top-line sales. That means a $100 million company will have approximately $20 million of inventory on hand. You pay between 20 to 35 percent of its value to stock that product in your warehouse. Now answer this question: How accurate is your inventory? Seventy percent, 90 percent, 95 percent? Ninety-five percent accuracy means your personnel lose 1 million dollars of inventory every year. Is that acceptable?

The value of your people is calculated differently but is just as crucial. Labor accounts for 65 percent of the cost associated with distribution. How much turnover do you experience in your warehouse? Do you have a training program for new hires? How do you motivate your employees? Seventy-five percent of employees polled are searching for a new job, while 20 percent of employees said they are disengaged. Disengagement is costing American organizations over $300 billion annually and to prove it, 66 percent of your lost customers can be traced back to employee disengagement or indifference. Again which is more important, your people or your inventory?