Now is the most opportune time to do what you can to take care of your existing customers, acquire new ones and gain a market share advantage to address the potential for profit erosion.
Expert investors will tell you that wealth generation and accumulation are most often achieved slowly over time. Conversely, the same can often be said for the erosion of business profits. The Corporate Finance Institute notes that “[p]rofit erosion occurs when there is a steady, long-term downwards trend of income for a company.” It’s important to identify the root cause of profit erosion because it could be occurring even though sales or revenue remain steady or are increasing.
Is it the result of little things, like subtle changes in customer preferences or customers believing they’re not receiving the value they expect or service they deserve? Or will you be shocked into an unexpected downturn because markets have evaporated steadily but seemingly overnight? Have some customers gone to “nuclear winter,” aka Chapter 7 bankruptcy, or maybe they’ve found themselves needing to rapidly accelerate their supply chains to meet crushing demands for their products?
Whether it’s a global pandemic that has endangered entire industries and resulted in levels of unemployment not seen in our lifetime, perhaps the most contentious presidential election our nation has ever seen, or the arrival of murder hornets, 2020 is testing our collective mettle. Despite all of the societal and economic chaos swirling around, now is the most opportune time to do what you can to take care of your existing customers, acquire new ones and gain a market share advantage to address the potential for profit erosion.
While it may seem counterintuitive, the question is not “why now” but instead “why not now?” We often hear that distributors are understandably reluctant to introduce change in their “busy seasons,” much less in the midst of a once in a generation global pandemic. The good news is you can solve for this. And, chances are, something you’re doing right now could profoundly address this risk.
Many companies will use the next two months to engage in a budgeting exercise for the upcoming year and beyond. While often thought of as a necessary evil to guide operations for the next year, it’s really about planning for success. From getting the most out of your warehouse management system (WMS) and material handling equipment to establishing the most efficient processes within your warehouse operations, there are a number of steps you can take.
For those new to the process or just getting started, how does one go about budgeting a WMS project? Typically, there are three areas to consider: the software, the supporting hardware, and professional services to make it all work. But, let’s not get ahead of ourselves.
Before you spin your wheels, it’s critical to understand the situation you’re in. What do your warehouse processes look like? What’s holding you back? What don’t you know that you should? Some might call this a “discovery” process. Whether it’s DIY or guided by a professional, discovery will help provide context so you can prioritize where the biggest improvement opportunities exist.
With this is in mind, step back and ask yourself how efficient your warehouse operation is compared to your closest competitors carrying the same lines of business? For example, how many pickers do you have? How many lines are they picking per hour? If you can do a side-by-side competitive comparison, based on the number of warehouse workers doing the same thing, you’ll know very quickly whether you’re overstaffed.
The best WMS solutions excel at simplifying tasks and boosting order and shipping accuracy, which directly reduce labor costs by improving warehouse throughput. These WMSs can also be used to establish employee performance metrics and incentive programs that help control labor costs. After all, warehouse employees do their best work when they are engaged and have the right tools at their disposal. As the last point of contact to ensure shipments are perfect, they deserve the best tools you can afford.
Not only can they prove their value in the day-to-day operations of the warehouse, but they can also shine some much-needed light on practices that will bring greater efficiency and profit to the business. Tapping into their knowledge and rewarding their efforts is an excellent place to start. But, it’s also a recipe for long-term success. These changes not only directly lead to higher profitability, they also contribute to improved customer service – a real win-win.
Any warehouse upgrade involves a number of necessary changes to work processes, and a WMS is no exception. Perhaps it’s not well known exactly what is involved in setting up a WMS. Understandably, it’s easy to get caught up in worrying about the implementation and assuming that the required changes will be difficult. But, that’s simply not the case. With proper training and staff buy-in, a WMS install doesn’t need to be an arduous process. In fact, once implemented, a WMS can put your distribution on the path to a more profitable operation within a matter of weeks.
If you find, for example, that you are overstaffed, you’ll see the financial drag on your bottom line as increasing labor costs can result in profit erosion. To combat such threats, we have found that making several smaller changes to a warehouse operation gets better buy in from warehouse workers. This, too, leads to bigger productivity changes, happier customers and a healthier bottom line.
This article first appeared in Supply & Demand Chain Executive, found here.
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