So much has been written on the subject of warehouse productivity improvement that one is tempted to believe nothing else needs to be said. Yet in our constantly-changing environment, we must look at new ideas from the present decade, as well as recycled ideas from the past. Certain things about warehousing do not change, at least not rapidly.

The peculiarities of the service sector

Most warehousing is a service industry. Those who provide third-party services are a pure service industry. Private warehouses may have a mixed role, partially as a device to support production, to support marketing, or both. However, even in the support function, the warehouse has all of the peculiarities of a service industry.

In the United States, the number of jobs in the service sector has grown significantly, while the number of jobs in manufacturing has not. A more disturbing trend is the fact that while the service sector's size has grown, its productivity has not.

As we look at all economic activity, the most remarkable gain in productivity has been in agriculture, where a diminished workforce and smaller land utilization still produces more product than ever before. Manufacturing in the U.S. has enjoyed a revival that puts American manufacturing productivity in a favorable position compared to foreign competitors.

The unique factors

Consider the unique aspects of a service business, features that may be ignored by management in its habitual focus on manufacturing and selling. Service industries have these characteristics that are not found in other types of business activity:

  • The level of capacity is set to anticipate demand
  • Workforce planning is more critical, and planning failures are more convulsive
  • Competition is predominately local, and services are usually not transportable
  • Job responsibilities are not defined

Level of capacity

Manufacturing capacity can be adjusted with inventory. When the factory is producing goods faster than they are sold, management builds a stockpile that is depleted when sales exceed capacity.

In a warehousing service, capacity is fixed. For example, warehouses have no elastic in their walls, so storage is a finite item limited by the cubic capacity of the building. While steps can be taken to improve space utilization, a point is reached where further improvement is no longer possible. When the building is full, it cannot be stretched.

Workforce planning

The skilled workforce in a warehouse can be stretched through overtime, but this has its limitations as many workers would rather have free time than premium pay. Shipping and receiving capacities can be extended through additional shifts, but once four shifts are in place, there is no room for further time expansion.

The warehouse requires labor planning. No operator can keep a high-quality workforce if a significant number of hourly people are frequently laid off. In a full labor market, the best workers will look for another job that offers steady pay.

However, if the warehouse operator does not respond to lulls in demand by reducing labor cost, then the handling cost per unit will increase. Some operators use a combination of full-time people and relatively permanent part-timers who include students, second-job moonlighters from the military, police and fire departments, or others whose work schedule permits them to consider a second part-time job.

The challenge of labor planning in warehousing is clearly more intricate than in manufacturing.

Local competition

Manufacturing is more portable than warehousing. A production operation with a high percentage of touch labor may move to a developing nation in order to achieve a lower labor cost.

In contrast, warehouse locations are usually fixed by transportation requirements, tax advantages or simply the availability of warehouse space. While warehouses can and are occasionally relocated, they usually cannot be moved as easily as manufacturing.

Job responsibilities

Job responsibilities in warehousing are more diverse, harder to define and harder to inspect and supervise. Manufacturing operations using an assembly line achieve a high level of supervision by placing inspection functions at different points in the line to examine the quality of the work flowing down the line.

The more recent practice of establishing manufacturing cells creates a greater sense of responsibility and promotes more awareness of quality. The cell system has seldom, if ever, been applied in a warehousing environment, and the warehouse worker is not in a static position on an assembly line. Because the warehouse worker is moving all over the plant, close supervision is virtually impossible.

Measuring effectiveness

These differences make warehousing and other service jobs tougher to control. Consider another service business, such as a restaurant.

If you go into a restaurant and receive slow service, you will not be made happier if you understand that the problem stems from several of the waitstaff being unexpectedly absent, or that the workload suddenly became far greater than management's expectations.

You may remember the poor service long after you have forgotten the high quality of the food. And in the extreme, you are not likely to return even though the reason for the poor service is understood. Like the restaurant, the user of warehousing is unlikely to forgive an extreme failure, regardless of the reason.

Just as the restaurant customer is impressed by both the quality of food and service, the user of warehouse services is primarily concerned with the results rather than the internal details. Therefore, the most important measures of warehouse effectiveness deal with customer service issues.

Here is a checklist to measure warehouse effectiveness:

  1. What percentage of deliveries last week were delivered to the customer precisely on schedule.
  2. What percentage of deliveries last week arrived damage-free?
  3. What percentage of deliveries last week arrived with no discrepancies in quantity?
  4. How do each of these percentages compare with preceding weeks or the same week of last year?
  5. What explanation is given for the increase or decrease in any of the percentages shown above?

How efficient is your warehouse?

Some have described efficiency and effectiveness as the difference between doing things right and doing the right things. If you do not do things right in customer service, your efficiency in doing the right things becomes unimportant because customers will not use your warehouse.

Today, as much as ever before, management is concerned with maximizing the effectiveness of every branch or division of the business, including warehousing. Unfortunately, warehousing may be less clearly understood than manufacturing, sales and other traditional activities.

The challenge for the warehouse manager is to be sure that the significance of the function and effective measures of progress are communicated to management.