by Rene Jones

Most companies want a return on their investment (ROI). But ROI is an overused acronym. It should stand for “Real or Imagined” because you have to know the cost of your process now in order to recognize a return in the future.

If your company is like most distributors, your warehouse likely uses some sophisticated processes and some archaic ones.

But do you measure those processes? How often? And, who measures them? With the technology sweeping through distribution centers and the not-so-recent slow down in information technology (IT) spending, what should your company’s next move be?

Supposedly, technology wizards can get your warehouse into tip-top shape. They can reduce your cost and your personnel, make your inventory more accurate and — more important — provide a substantial return on your investment. But aren’t those the same wizards that brought us Y2K?

IT spending came to a screeching halt after the world, as we know it, was supposed to end. Companies updated their software, hardware and internal (front office) processes. But many forgot about the warehouse. Someone still must receive, put away, replenish, pick, pack and ship your product. And, they must do it at reduced cost, faster, more accurately and with fewer people.

So, what return do you receive on your warehouse investment?

Distributors often say, “People are our most important asset.” That statement is not correct, especially in your warehouse. If you have the wrong people doing the wrong things, how can that be an asset to your company? The correct statement should be, “The right people are our most important asset.”

What happens to those assets in difficult economic times? They are downsized, right-sized, dumb-sized, laid off, and so on. You are left with some of the wrong people trying to perform tasks they are not capable of performing, with very little training because your training department was right-sized as well. Then, you sit back and wait for your operating cost to decrease so you can begin seeing the ROI. What’s weird is that it doesn’t come. Or, at least not the return you expected.

Why is it difficult to comprehend ROI in the warehouse? Because companies do not measure warehouse processes or people. If you did, would your warehouse be as messy and as dirty as it is? Would days go by with receiving tasks left undone? Would customer service personnel continuously go to the warehouse to verify that the inventory in your system is the same as what’s physically in the bin? Last but not least, would you process the number of returns you currently process?

Experts constantly say that your warehouse is full of assets, not merely costs. But the reality is, as one CEO told me, “Why should I throw good money after bad? We have done everything possible to improve our warehouse operations and have not realized a return on our investment.”

My questions after hearing those statements were, “What did it cost you before the purchase?” and “What should it cost you?” We all have an idea of the costs associated with the warehouse but we do not know what they should be. 

When I ask, What does the average picker in your industry earn?, no one seems to know. When I ask, How many pickers should it take on average to handle the number of orders you process?, no one knows. When I ask, What is the average number of returns in comparison to the number of orders being processed in your industry?, no one knows. When I ask, How much training does the average receiver receive, and can I see a progressive flow chart through the warehouse?, that’s when the laughter starts.

How can someone legitimately evaluate new software, improvements to a process, or right-size without some knowledge of reality? Do you have a gut feeling about how many lives should be disrupted by this downturn? Not just with the layoffs but with the people who remained employed. They must complete the same amount of work with fewer people and minimal overtime. How stressful is that? Isn’t that why companies lose people in a down economy?

When you discuss ROI with a training company, third-party logistics (3PL) provider or a Warehouse Management System (WMS) bar-code vendor, is it real or imagined? You must begin by analyzing your current processes and creating realistic goals for your warehouse. Your sales personnel and accounting departments have them, why shouldn’t your warehouse have goals too?

One warehouse supervisor told me, “It is not realistic to expect returns to decrease by 50 percent.” His company always had the same number of returns before he was hired, so why should anyone expect them to decrease now? Do you think he would have said that during his job interview? No, but that is also part of the problem. We hire people to maintain the status quo and then are amazed when they do just that.

Your path toward goal setting and attaining a return on your investment must begin at the top. With no commitment from the top, how can you expect people below to do anything except what they are currently doing? Someone once said, “Insanity is doing the same thing over and over, but expecting a different result.”

The next time you are discussing ROI with a vendor, ask yourself and them, “Is that real or imagined?”

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