Just how much is that pallet racking REALLY costing you?

I’m not talking about the initial outlay incurred of purchase, shipping, installation or maintenance.

What is the cost over its lifetime? Accountants factor in depreciation and replacement costs, but these are ‘actual’ figures. What about the non-tangible or hidden effects it will incur?

Measuring all your business costs and getting a firm grip on outgoings can increase your bottom line, but how many companies pay close attention to that? How many let these hidden costs end up crippling their business? Sadly, the fact is many businesses go bankrupt simply they are spending more money than they are making.

This article will show you 6 of the most common hidden costs in the warehousing industry. Knowing these costs and addressing them before they escalate will dramatically improve your company’s profit margins.

1. Opportunity Cost of Space.

What is the opportunity cost of the space your racking takes up? What else could have been done in that area? More offices? More production? Could it have been leased out? Calculating the cost of using the space for storage versus other potential uses, can help you spot ‘waste scenarios’.

If most of the goods you handle are seasonal, this will leave your shelves empty for a good portion of the year. You can recoup some of your investment by leasing out a fraction of the space taken up by racking.

2. Goods Handling and Transportation.

Ease of accessibility and transfer of goods are a major determinant in the effectiveness of your warehousing business process. Accessibility requirements are determined by the rate of stock turnover, batch size, and the number of store keeping units (SKUs)

Depending on the size of your operation, your storage capacity may need to be regularly expanded. Examining how your racking system meshes with the flow of the warehouse can reveal interesting scenarios. How efficiently planned is the warehouse layout? Are loading bays far from the sorting carousels? Do forklifts have to travel to pull out pallets?

With expansion, and more freight being moved comes increased more forklift journeys, foot traffic etc. The extra constraint of time taken and cost incurred make up the hidden cost of handling goods.

3. Relocating Stock and Equipment.

No two warehouse systems are the same. Where some warehouses have all stations fixed in place, others are more fluid in their operations. For example, in many warehouses that use the drive-in racking system, pallets are usually moved around a lot to maximise floor space and change the racking system.

The hidden cost of this is increased energy bills and staffing costs. Warehouses have been known to spend a whole night shift simply relocating the pallets in preparation for the next days work. This increased expense is often bundled with other expenses and hidden away by accountants keen to present ‘balanced’ books.

Analysis of how the design of the racking system and warehouse flow will help you reduce undue costs and still maintain performance levels.

The saying says, ‘a few ounces of prevention is worth a pound of cure’, yet many businesses barely do the minimum required to rein in their expenses. Join us next week for the concluding part of the hidden costs of running a warehouse business.