Critical Keys to Unlocking Warehouse Potential

Learn Critical Keys to Unlocking Warehouse Potential

PurchTips Edition #409

Warehouse Operations Management is a dynamic science and discipline that requires intense Systems Thinking Acumen. Systems Thinking is a methodology of Strategic Thinking in which one envisions the desired outcome, then works holistically backward, to create strategies to realize one’s vision.

Warehouse Systems are made up of:

  1. Processes and Methodologies
  2. People and Skill Sets
  3. Layouts
  4. Equipment
  5. Materials and Products
  6. Technology
  7. Information and Communication Plans
  8. Network Grids
  9. Risk Factors
  10. Culture and Change Management Strategies

Warehouse Operations are a critical subset of Supply Chain Mechanisms. Problems often arise from the interaction of these complex parts which significantly impacts a warehouse manager’s most sensitive performance measure, the Total Cost of Ownership (TCO).

Figure 1, The Alignment of Corporate Strategies to Various Business Units


The Synergistic Alignment of all available System Assets to an organization’s vision, mission, and core values is a profound summary of the Mandate of Warehouse Operations Management. Leadership must be effective in the Planning, Organization, Leading, and Control of the utilization of Warehouse Resources in a manner to earn maximum Return on Investment, Return on Assets with Minimization of Risk.

Synergistic Alignment can only be realized by the ability of warehouse managers to understand how Customer Requirements are translated into Corporate Strategic Plans. Upon arriving at a crystal-clear comprehension of corporate strategic plans, warehouse leadership must devise mechanisms and strategies that realize their corporate and business unit mandates. Figure 2 is such a mechanism to assure such strategic linkage.

Figure 2, The Alignment of Corporate Strategies to Procurement / Warehouse Management Functions


Important Warehouse Management Tips:

1.) Conduct Regular Risk and Root Cause Analysis- Failure Mode and Effects Analysis (FMEA) is a powerful methodology for business leaders to think through, understand, and prioritize sustainable responses to issues that negatively impact their businesses. It is prudent to conclude that not all business problems are equal. FMEA is under pinned by a problem’s Risk Priority Number (RPN).

The formula for RPN is:

RPN = S x O x D or Severity x Occurrence x Detection on a scale of 1 to 10

In Figure 3, The Problem concerning the “Information input into MRP System”, had the following situation: Severity =10 (Extreme), Occurrence =10 (Extreme), Detection = 10 (Impossible to Detect)

or 10 x 9 x 10 = 900 RPN or an utterly critical situation. The fact that the “Picking Operations” scored an RPN of 500, indicates that is cannot get “Priority” over “Information input into MRP System” for improvement.

Figure 3, Failure Mode and Effects Analysis


2.) Conduct Regular People, Material and Information Flow Analysis –

Spaghetti Analysis provides documentation of the physical movement, transportation, and flow of people, materials, and information.

Figure 3, Spaghetti Analysis for Picking Operations for 1 order


A careful study using a pencil and piece of paper often reveals a disturbing picture. Very often, our day to day workflows appears erratic, stressful, and wasteful. It is these very same patterns that business leaders must study and eliminate from their business processes, to gain Competitive Advantage. Managers must remove Stress, Strain, and Waste from all business processes.


Value Stream Mapping also provides a dynamic view warehouse and procurement systems. Procurement and warehouse leaders must understand their value streams. A carefully drafted value stream map provides profound insight on value add and non-value add components in a business.

Figure 4, Value Stream Analysis  


3.) Conduct Benchmarking Analysis – Study Best in Class Warehouse Operations

Figure 4, Benchmark Analysis


Be sure to conduct a feasibility assessment and pilot testing of any potential solutions.

Ensure that all initiatives are done in accordance with the highest ethical standards. Your suppliers can be great candidates to benchmark against. Leverage their technology and best practices to realize supply chain cost reductions.

4.) Consider Becoming a Certified Warehouse – Joining a Warehouse Certification and Assessment Program can yield tremendous benefits. A good program will provide at least the following benefits:

  • Third Party professional and out of the box assessment of your Warehouse Operations
  • Robust Performance Gap determination for Operations Improvement Initiatives
  • Provision of internal and external benchmarking tools to leverage against industry standards.

5.) Conduct Data Collection to understand Cost of Poor Quality and other issues – Critical Rule, Graph your Data! Deal with the bars one at a time starting with the bar in red (Tall Pole). Each of these issues can be an Improvement Project.  Figure 5, leverages Pareto Analysis.

Figure 5, Annualized Cost of Poor Quality Analysis


6.) Conduct Regular 5S Audits and Initiatives to ensure good ABC Stratification – ABC Classification.

  • A products should be about 80% of Inventory Space Allocation (Most Critical Products)
  • B products should be about 15% of Inventory Space Allocation (Important Products)
  • C products should be about 5% (Least Important, but must have Products)

 5S is a powerful methodology that organizes a warehouse or work-space in such a manner to realize awesome business process performance. This methodology helps to realize the ABC Stratification Goals.

The 5S process follows the following steps:

  1. Sort – Sort through all items in the immediate work-space, separate items that are used on a regular basis, items used occasionally, items hardly ever used, and items that will never be used again. Label all the items according to their classification.
  2. Set in Order – Position all useable items in locations that will reduce Motion, Transportation, Bending, Reaching, Harmful Handling. All locations are labeled, the new mindset is, a place for everything and everything in its place.
  3. Shine – The Entire Warehouse Team is to be involved in the super deep cleaning of the Warehouse. The idea was to re-invent the work space to a point that is can be considered as brand new
  4. Standardize – All locations, Work Methods, Metrics, Technology, Processes, and Training in the warehouse. All stakeholders are to be held accountable for the New Mandate, the “New Way”.
  5. Sustain – This phase of 5S involves effective leadership, accountability, and monitoring the new way to ensure the process improvement gains are sustained.

7.) Consider Professional Training for your Buying Group: –The benefits can yield an enormous ROI. Through experience, surveys, and working with purchasing leaders, we at Next Level Purchasing Association identified seven common skill areas that purchasing professionals need for success in the modern world:

  • Purchasing Fundamentals
  • Analysis & Spreadsheets
  • Contract Law
  • Project Management
  • Purchasing Best Practices
  • Sourcing
  • Negotiation

The Next Level Purchasing Body of Knowledge underpins, integrates and enhances the essential components of  Procurement and Warehouse operations Processes. Courses such as Profitable Inventory Management and Control, Improving Quality in the Supply Chain, Executing a Global Sourcing Strategy, 14 Purchasing Best Practices, Mastering Purchasing Fundamentals provide this knowledge base in simple how to do steps. This cutting-edge BOK is designed by practitioners for practitioners.

NLPA Library: Looking for authoritative procurement templates, tools, webinars, and more?  Stop trying to create resources from scratch and start taking advantage of having exactly what you need right at your fingertips in the NLPA Library.

Want a More Rewarding Procurement Career?

Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.

Earning your SPSM® Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential.
Download the SPSM® Certification Info pack today to learn how to get started on your journey to a more rewarding procurement career!


Learn More About Millennials in Procurement

Hiring for Potential, Training for Results

It is an exciting time!  A whole new breed of employee – the millennials – are entering the workplace. While millennials may bring many valuable business attributes to their employers, knowledge of and passion for procurement usually aren’t among them.

Explore how you can bring millennials onto your team and get great procurement results in this whitepaper.

To download a free copy of the Millennials in Procurement: Hiring for Potential, Training for Results, simply Click below Given Button. Once you have submitted the form a copy of the guide will be sent to you by email.


Copyright 2018. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)


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