In order to calculate a return on investment (ROI) on technology to improve your warehouse operations, it is critical to evaluate your work flow process – from receiving to quality control and inventory counts to the picking and shipping. Is there a process that results in frequent errors or causes slow downs in the follow on processes? Identify and correcting these conditions first as automation will only increase the size of these issues, which could have significant impact on your business operations. The goal here is to determine if the warehouse automation technology will be an effective and efficient warehouse solution.
In the receiving area, you should determine:
- How many receivers do you have?
- How many hours per week are spent on receiving?
- How many clerks are entering receiving data into a system or processing this information manually?
- How many documents are processed or produced per week?
- How many workers or hours would be eliminated having a warehouse automation solution?
In the area of quality control:
- How many workers are performing cycle counting? How often?
- How many searches are done for missing inventory?
- How many clerks enter warehouse transactions, such as the cycle counts, or perform putaway?
- How much time can be eliminated after the implementation of a warehousing solution?
- How many workers are picking shipments and for how many hours?
- How many errors occur per week in the picking process and how many hours does it take to correct one error?
- Determine the savings for this process improvement.
Total the savings by applying the weighted cost of labor (including benefits & taxes) for each of the various worker multiplied by the hours saved per week. Total the savings per year and apply it against the cost of the warehousing solution.
I know this can feel a little overbearing for someone conducting an ROI analysis on efficient warehouse solutions for the first time. Feel free to contact me at rich.reidman[at]l-tron[dot]com for more help on this ROI calculation.
Photo used under Creative Commons from toolstop.