Understanding the costs of a beverage warehouse
Storage constitutes true warehousing
From an operations perspective, a warehouse is more than just bricks and mortar or metal siding; it’s a day-to-day activity that handles zillions of beverage cases. But what does it cost to do that?
Reviewing the historical concepts of warehouses and warehousing operations can result in various interpretations of what it really means.
Why is this important in today’s high-tech automated environment? The review will reveal some significant business cost questions:
- What are the current operating functions, conditions and costs associated with a pure or true physical warehouse facility?
- What do we mean by functions?
- How many and what are the functions performed in beverage facilities?
- What are the conditions under which the functions are performed and the actual costs incurred?
- Why is it important to dissect the “warehouse is a warehouse” age-old concept and pick out the functions and related costs?
- How have the functions changed and what impacts have they had on day-to-day operations?
- How have conditions changed and have they been significant enough in frequency and magnitude to re-evaluate functions and needs?
At this point, it becomes important to acknowledge the costs of performing functions under previous operating conditions and to determine whether they have increased or decreased with time. Analysis will determine whether comparisons can even be made.
Source of cost always is important; therefore, the warehouse and any breakdown of functions and operating conditions are necessary to properly conduct evaluations, make decisions and implement improvements of any consequence.
Accounting structures might be different, the terms used could be variable, even operating strategies can affect end results; however, the fact remains that a breakdown of functions to represent what actually occurs in that physical facility called a warehouse is absolutely required to properly pick out and assess the incremental cost in each identified area. Then, one can answer the question: where are the costs?
Whether the facility is manual, semi-automated or fully automated and, whether there is some sort of warehouse management system (WMS) in place, the basic functions in beverage warehouses are there and knowledge of their cost should be a basis for making current and future management decisions.
The most important questions must now rise to the occasion:
- What are the functions in your warehouse?
- Are you warehousing or doing something else? A very important distinction must be made.
Basically, warehousing is storing packaged goods in inventory (on pallets, in racks, etc.) The footprint of space used by each pallet is true warehousing (storing) cost. SKU volumes, inventory strategies and marketing promos play major roles in the formula for calculating the cost of carrying an inventory.
The true warehousing cost applies to two scenarios: the warehouse portion as part of a production/distribution center; or as a free-standing distribution or sales center.
In either case, merchandise is received for storing from a loading dock or a production line. Once on the floor, warehousing costs become a realistic figure. The movement of goods into storage might be manual or automated; therefore, including that function in warehouse cost may be acceptable. In real time, once stored, you are warehousing.
From a real-time viewpoint, operational and evaluation studies have indicated many of the functions performed in the warehouse are related to the preparation of merchandise for shipment. These functions have been grouped into what can be called pre-distribution. This might be a new term to many; however, most functions have been performed for many years and more adequately allow an identifiable breakdown of tasks for efficiency, productivity and control.
Order picking, staging, pallet makeup and loading route vehicles, are examples, so where does pre-distribution begin? Specifically, each and every function (or task) that removes merchandise from storage is a pre-distribution function.
Where WMS operations are installed or anticipated, the distinction between warehousing and pre-distribution must be clearly addressed. If not addressed, any system compiling warehouse cost as an overall metric or benchmark could result in an inaccurate base of data.
In working the warehouse, experience and projects have prompted beverage managements and outsourced agents to ensure that comprehensive task/function lists are established for the warehouse and the pre-distribution activities. Unless this step is accomplished, it is questionable whether any accounting structure will be able to identify and capture data to answer the question: Where are the costs?
Warehousing and inventory costs are a constant challenge in any industry; however, with constant change syndrome in the highly volatile and extremely compliance-oriented beverage industry, it is imperative that every effort be made in all operating areas to establish a system that will help identify and control the significant cost-incurring locations in real time. BI