17 Powerful Ways to Dramatically Cut Costs in Your Warehouse

Efficient warehouse management is essential for supply chain operations, yet it comes with substantial costs. Optimising expenditures while maintaining high service levels poses an ongoing challenge. This article explores 17 impactful ways that warehouses can dramatically reduce costs across inventory, storage, labour, transportation, equipment, and procedures to improve profitability.

Key Takeaways	Details
Strategic Cost Reduction	Warehouses face pressures like thin profit margins, seasonal fluctuations, labour challenges, customer demands, and competitive pressures.
Efficient Slotting Practices	Optimising warehouse slotting reduces pickers’ travel distance and time, enhancing picking efficiency.
Lean Inventory Model	Reducing excess inventory saves on holding costs and optimises order fulfilment costs.
Warehouse Management System (WMS)	A WMS digitises operations, optimises staff and equipment utilisation, and provides analytics for improvement.
Optimised Storage Solutions	Using dynamic storage solutions like carton flow racks and mobile racking maximises space usage.
Process Automation	Automating repetitive tasks like storage, retrieval, and transportation improves consistency and reduces errors.
Energy-Efficient Equipment	Implementing energy-saving solutions reduces utility costs over time.
Regular Maintenance	Preventative maintenance avoids disruptions and costly emergency repairs.
Continuous Improvement Culture	Adopting programs like Lean Manufacturing and Kaizen eliminates waste and enhances operations.
Reduced Errors and Damages	Minimising picking mistakes and damages reduces rework costs.
Invest in Workforce Skills	A skilled workforce improves consistency and quality, directly impacting costs.
Optimise Transportation Management	Efficient management of inbound and outbound deliveries reduces shipping costs.
Streamlined Returns Processing	Efficient handling of returns reduces associated costs and improves customer experience.
Regular Audits	Periodic reviews identify cost-saving opportunities across inventory, equipment, and procedures.
Reduce Packaging Costs	Smart packaging tactics reduce materials use and decrease fulfilment costs.
Outsource Non-Core Activities	Outsourcing secondary functions like janitorial services saves on non-strategic overhead.
Negotiate Supplier Contracts	Effective negotiations with suppliers reduce purchasing costs.
Track Performance Metrics	Monitoring key metrics illuminates high-cost areas needing improvement.

The Importance of Strategic Cost Reduction

Warehouses face constant pressure to cut costs. Key factors driving the need for thriftiness include:

• Razor-thin profit margins – warehouses survive on very slim margins, so small savings have an outsized impact.
• Seasonal fluctuations – peak seasons lead to inefficiencies, while off-peak periods incur excess capacity costs.
• Labour challenges – rising wages and staffing difficulties make labour the #1 cost centre.
• Customer demands – customers want lower logistics costs, fast fulfilment, and free shipping.
• Competitive pressures – rivals aim to undercut pricing while still delivering premium service.

Achieving even fractional reductions in storage, labour, transportation, inventory and equipment costs directly benefits the bottom line. Cost optimisation and efficiency allows warehouses to offer competitive pricing while remaining sustainably profitable.

While cutting costs, warehouses must still meet customer demands, service level agreements, safety standards and quality bars. Striking the right balance is key. This article explores 17 high-impact ways distribution centres and 3PLs can dramatically lower costs through optimisation.

1. Implement Efficient Slotting Practices

Optimising warehouse slotting to properly segregate and locate items is critical to minimise pickers’ travel distance and time. Well-considered slotting enhances picking efficiency and reduces congestion. Key steps include:

• Fast-movers slotted in easily accessible, prime locations near shipping points to reduce pick-walk distances.
• Similar SKUs slotted together in dedicated zones based on product characteristics, demand velocity, and relationships.
• Proper case and inner pack quantities used to optimise full pallet positions and avoid stranding leftover product.
• Frequent slotting analyses to adjust layouts for evolving inventory needs.
• Leveraging data from the WMS and warehouse analytics to inform ongoing slotting decisions.

Proper slotting saves cumulative hours of picker travel time and enables meeting orders with less labour.

2. Adopt a Lean Inventory Model

Carrying excess inventory leads to substantial holding costs in taxes, interest, insurance, obsolescence and storage space. Lean inventory management focuses on:

• Reducing average on-hand quantities through continuous monitoring of true demand.
• Minimising inventory discrepancies through rigorous cycle counting procedures.
• Streamlining replenishments based on daily sales and perpetual inventory records.
• Sourcing and stocking to actual demand vs bulk orders or inflated projections.
• Dedicating warehouse space to active picking inventory vs reserve stock.
• Returning or liquidating obsolete, slow-moving items consuming space and capital.

Keeping optimally lean inventory reduces variable order fulfilment costs while freeing up valuable warehouse capacity.

3. Utilise a Warehouse Management System

A robust warehouse management system (WMS) digitises and optimises distribution centre operations:

• Records real-time inventory in a single source of truth for high accuracy.
• Automates data collection through mobile scanning and workflows.
• Optimises staff and equipment utilisation through wave planning and tasking.
• Informs performance metrics to identify issues and improvement areas.
• Provides analytics-based slotting optimisation suggestions.

By orchestrating complex fulfilment processes, a WMS enables lean, productive operations essential for cost efficiency.

4. Optimise Storage Solutions

Traditional static pallet racking or old shelving units waste available cube space. Dynamic storage solutions like:

• The Pallite PIX System offers adaptable modular racking solutions that evolve with your inventory requirements, promoting efficient space utilisation and reducing the need for costly warehousing expansions.
• Carton flow racks continuously feed boxes on a first-in, first out basis using gravity, reducing replenishment labour.
• Drive-in pallet racks take advantage of warehouse height for very dense storage.
• Mobile racking doubles storage capacity within a footprint.
• Multi-level pick modules slash travel distances for frequent items.
• Automated storage and retrieval systems maximise density.

As every square foot is precious, optimising storage equipment is imperative.

5. Automate Repetitive Processes

Automating repetitive, predictable warehouse tasks improves consistency and eliminates costly errors:

• Automated storage and retrieval systems replace forklift put-away and retrieval processes.
• Conveyors and sorters streamline material transport and routing decisions.
• Autonomous mobile robots automate internal material movement.
• Pick to light systems guide fast, accurate order picking.
• Automatic guided vehicles (AGVs) take over horizontal transport.
• Robotic depalletising and palletising automate these intensive manual processes.

Automation yields 24/7 consistent output with minimal direct labour costs. AI-powered software enhances the capabilities.

6. Invest in Energy-Efficient Equipment

Utility costs are a major expenditure for the 24/7 operations of warehouses. Solutions like:

• Energy-efficient LED lighting systems reduce electricity consumption.
• Insulated building materials minimise heat loss.
• Variable frequency drives on conveyors and motors reduce power draw.
• Natural lighting designs take advantage of sunshine.
• Radiant in-floor heating cuts gas usage.
• Renewable energy installations help curb expenses.
• Software-driven pump and compressor controls optimise energy usage.

The upfront investment in energy-efficient equipment pays back through many years of utility savings.

7. Perform Regular Maintenance

Unexpected downtime of material handling equipment like conveyors, forklifts, and automated systems leads to substantial disruptions and expensive emergency repairs. Preventative maintenance helps avoid these costs through:

• Established maintenance schedules and checklists for each equipment class.
• Replacing worn parts like bearings and belts before outright failure.
• Performing routine lubrication, calibration, cleaning and visual inspections.
• Tracking equipment utilisation and parts lifespan.
• Training maintenance technicians and providing necessary resources.
• Documenting all maintenance procedures and histories.

An ounce of prevention saves pounds in replacement parts and downtime costs.

8. Instil a Continuous Improvement Culture

Continuous improvement programs like Lean Manufacturing, Kaizen and Six Sigma focus on incrementally eliminating all forms of waste within warehouse processes. Common approaches include:

• Evaluating workflows to remove unnecessary movement and streamline flow.
• 5S methodology for organisation, standardisation, and visual controls.
• Small daily improvements vs sporadic major changes.
• Fostering an engaged, empowered workforce that actively refines procedures.
• Tracking key performance metrics to quantify progress.
• Addressing the root causes of problems to prevent recurrence.

Continuous enhancement of operations, layouts, and inventory processes sustains long-term cost competitiveness.

9. Reduce Errors and Damages

Order picking mistakes, inventory record inaccuracies, product breakage and damages drive substantial rework costs. Strategies to minimise errors include:

• Hands-free voice or vision-guided picking enable high accuracy.
• Regular workforce training on processes and best practices.
• Using quality equipment like dock plates for material handling.
• Package testing and optimising box specs to minimise damages.
• Installing guard rails, bumpers, and warning indicators on all equipment.
• Consistent inspection and auditing of orders before shipment.
• Encouraging quality assurance ownership at all levels of staff.

Driving for zero-defect performance eliminates wasteful recourse activities that add no value.

10. Invest in Workforce Skills

Labour is most warehouses’ highest fixed cost, so developing a skilled, productive workforce helps control expenses. Tactics for building human capital include:

• Competitive wages and benefits to attract and retain top talent.
• Robust onboarding training on all processes, technologies and equipment.
• Regular skills refreshers and continuing education programs.
• Tuition reimbursement incentives for advanced credentials.
• Comprehensive safety protocols and training.
• Managerial coaching on leadership, communication and problem-solving.
• Culture of respect, empowerment and engagement.

Capable staff drive consistent, high-quality execution that directly impacts costs and customer service.

11. Optimise Transportation Management

Inbound shipping from suppliers and outbound delivery costs eat into margins. Better transportation management through:

• Consolidating orders and optimising routes to reduce mileage.
• Volume-based negotiations with carriers for lower rates.
• Avoiding unnecessary rush shipments through planning.
• Comparing parcel, LTL, and FTL rates for most economical transport.
• Considering in-house delivery fleets for high density areas.
• Driver training on fuel-efficient practices.
• Benchmarking against industry shipping key performance indicators.

Every percentage saved on logistics costs has a meaningful bottom line impact due to tight margins.

12. Streamline Returns Processing

Handling returns can present sizable costs in labour, processing, transportation and inspections. Boosting efficiency helps minimise expenses:

• Automating parts of intake, reconciliation, and crediting processes.
• Fast inspection and turnaround times to promptly restore sellable returns to inventory.
• Route returned stock directly back to active pick locations when possible.
• Using predictive analytics to identify problem products or customers driving excessive returns.
• Assessing root causes like damages to prevent future returns proactively.
• Negotiating return rate caps or restocking fees from chronic sources.

Smooth returns handling provides superior customer experience while controlling associated costs.

13. Perform Regular Audits

Periodic physical inventory counts, slotting audits, equipment inspections and procedural reviews help identify cost-saving opportunities:

• Cycle counting measures location and inventory accuracy to improve slotting, documentation and inventory-related expenses.
• Storage audits assess capacity utilisation to optimise space and equipment needs.
• Maintenance reviews verify equipment preventative upkeep and leverage diagnostics data.
• Analysing workflows highlights process bottlenecks adding hidden costs.
• Energy audits pinpoint efficiency upgrades providing rapid ROI.

Regular quantitative assessment of warehouse metrics uncovers areas for enhancement. Audits motivate staff through positive accountability.

14. Reduce Packaging Costs

Packaging materials are a major cost factor given fulfilment volumes. Smart savings tactics include:

• Optimised box and envelope sizes to avoid overpackaging and wasted void fill.
• Buying standard corrugated sizes in bulk for volume discounts.
• Lightweighting packaging through tests ensuring protection still meets specs.
• Negotiating reduced packaging costs from suppliers.
• Recycling programs to reuse shipping materials.
• Using returnable totes, dunnage and pallets where possible.
• Evaluating consumables like tape and stretch wrap for opportunities to decrease usage.

Since packaging is a variable cost, reducing materials use drops total fulfilment cost per order.

15. Outsource Non-Core Activities

Focusing internal resources on value-adding distribution activities while outsourcing secondary functions is prudent. Candidates include:

• Janitorial, landscaping and facilities maintenance activities to outside specialists.
• Security services instead of an in-house team.
• Shared off-site warehouse space during peak seasons vs temporary workers.
• External quality and safety auditing.
• IT infrastructure, hardware and software support vs specialised in-house roles.
• Public cloud hosting rather than on-premise servers.

Third parties gain efficiencies of scale while warehouses avoid carrying non-strategic overhead.

16. Negotiate Supplier Contracts

Purchasing inventory, equipment, services and supplies represents a major outflow. Better supplier negotiations yield:

• Volume discounts for bulk purchases and guaranteed minimum orders.
• Payment term extensions boosting cash flow flexibility.
• Service level agreements ensure proper order accuracy and delivery.
• Favourable return policies on defective or expired materials.
• Future cost stability through longer-term contracts.
• Preferred partnership pricing based on loyalty and history.
• Free value-added services like drop shipping to end customers.

Strong supplier relationships and tactical negotiations reduce upstream costs.

17. Rigorously Track Performance Metrics

By closely monitoring key warehouse metrics, inefficiencies and excessive costs bubble to the surface:

• Inventory accuracy identifies documentation discrepancies adding labour.
• Peak inventory levels point to excess stock tying up capital.
• Returns as a percentage of sales highlights costly problem areas.
• Pick rates help set staffing requirements and boost productivity.
• Slotting analysis pinpoints layout inefficiencies adding travel distance.
• Outbound shipping costs per order benchmarks cost competitiveness.

-Energy consumption per sq. ft diagnoses potential equipment upgrades.

The numbers don’t lie – analytics illuminate high-cost areas needing improvement.

Achieving Impactful Warehouse Cost Reductions

With tight margins, every penny saved matters. Minor efficiency gains and reductions in variable costs add up to create a sustainably low-cost operation. Areas like inventory, slotting, transportation, labour, storage, equipment and packaging all present opportunities to dramatically cut costs.

Warehouse managers should analyse their operations with a keen eye toward optimisation and thriftiness. Small incremental improvements from adopting these impactful cost reduction practices lead to major savings over the long-term. Efficient cost management allows warehouses to thrive on narrow margins in a highly competitive industry.

Discover Cost-Efficiency with The Pallite PIX System

The journey to cutting costs in your warehouse dramatically can be made smoother with the right tools at your disposal. 

One such tool is the Pallite PIX System. This innovative storage solution is designed to maximise your warehouse space, enabling better organisation and accessibility of items. With its lightweight yet sturdy design, the Pallite PIX System aids in reducing the time and effort required in handling materials, thus lowering operational costs significantly. 

Its flexible configurations can be tailored to meet the unique needs of your warehouse, ensuring you get the most out of your available space without the need for a costly expansion. 

By optimising your storage setup, you not only cut costs but also enhance operational efficiency which, in turn, boosts your bottom line. Explore how the Pallite PIX System can be the cornerstone of your cost reduction strategy. 

Embrace a solution that grows with your needs, and witness a remarkable reduction in your warehouse operational costs. Contact us today to discuss how PIX can improve your business.

 

Written by David Rose.

 

FAQ About Reducing Warehouse Costs

1. What is the role of technology in warehouse cost reduction?
   • Advanced technological tools, such as Warehouse Management Systems (WMS) and automation solutions, play a pivotal role in enhancing efficiency, reducing manual errors, and streamlining processes, all of which contribute to significant cost savings.
2. How can warehouse design and layout contribute to cost savings?
   • A well-designed warehouse layout optimises storage space, reduces the distance workers need to travel to pick items, and improves the flow of goods. This results in faster processing times, reduced labour costs, and better space utilisation.
3. How do environmental and sustainability measures impact warehouse costs?
   • Implementing sustainable practices, like energy-efficient lighting or renewable energy sources, may have an upfront cost but lead to long-term savings. Additionally, green practices can result in tax incentives, reduced energy bills, and a positive brand image.
4. What is the impact of inventory management on warehouse costs?
   • Effective inventory management ensures that there’s neither too much stock (leading to holding costs) nor too little (leading to stockouts and potential lost sales). It helps in reducing storage costs, wastage from expired or obsolete items, and costs associated with emergency procurement.
5. How can cross-training employees help in cost reduction?
   • Cross-training allows employees to perform multiple tasks. In peak times or during staff shortages, cross-trained employees can fill in different roles, reducing the need for temporary hires or overtime, leading to labour cost savings.