Strengthening your supply chain one link at a time.
Many companies are consolidating warehouse locations for various reasons, such as combining sites after an acquisition, reducing inventory to create space for network consolidation, or lowering warehouse operating costs. The primary goal is to reduce total costs without impacting, or perhaps even improving, customer service. When consolidating operations, it’s crucial to avoid losing inventory, affecting customer service, or overspending.
Inventory
The cost of moving is significantly influenced by the amount of inventory on hand. Proper planning allows more time to reduce inventory by disposing of obsolete items, selling through existing stock, and transitioning supplier receipts to the new location. It’s important to consider how many new items are being introduced into the consolidated location versus existing inventory. Safety stock levels for the same items should be lower when consolidating into a single location, while new SKUs will have no inventory in the building.
Effective inventory management during the move is essential to prevent inventory loss and maintain (or improve) accuracy at the consolidated location. If inventory accuracy is questionable, a physical inventory might be required before the move. During the move, using pallet ID labels and scanning to track inventory from storage to trailers is crucial. Upon unloading at the consolidated facility, scanning and directed put-away ensure accurate stocking. Strategies for retrieving and stocking inventory include:
Customer Service
The most important consideration when moving inventory is to avoid disrupting customer service levels. The timing of transferring inbound receipts and fulfilling customer orders from the facility being moved to the new consolidated location is critical. Start receiving new items at the consolidated facility and increase inventory levels of existing items to prepare for increased customer demand. Once sufficient inventory levels are in place, customer orders from the closing facility can be fulfilled from the consolidated facility. It is also important to notify customers they will be receiving shipments from a new location.
Freight Cost
Primary move costs include freight and labor for loading and unloading inventory, with freight being the bigger cost factor. Lowering inventory levels in the weeks leading up to the move can minimize costs. A simple model can be built to calculate these costs and evaluate the impact of current inventory levels and savings from reducing the amount to move. Freight costs are determined by estimating the amount of inventory, load type, trailer utilization and transportation costs.
In general, the load type is either loose cases or pallet loads, and the decision greatly impacts the number of trailers and labor cost. Floor loading cases maximizes trailer cube but requires the most handling labor. Handling pallet loads minimizes trailer cube but requires less labor. A hybrid approach involves rebuilding taller pallets and even mixed-SKU pallets to increase trailer utilization while maintaining the efficiency of handling pallet loads.
With the amount of inventory calculated, you can start to estimate the freight costs for the move. Determine the trailer size (e.g., 53 ft x 8.5 ft x 9 ft) and the load capacity options to reduce the number of trailer shipments. Example loading options include the following (assuming 3.5 ft x 4.0 ft x pallet heights shown):
Research the cost per full trailer between the two locations. For example, a full truckload over 1,200 miles may cost $3,400 per trailer. Companies also consider intermodal shipments to reduce total transportation costs.
Labor Costs
Labor costs are another factor, but don’t typically drive the move strategy. Handling options include full pallets, pallet rebuilding on the dock, and case handling, with a hybrid approach often required. Based on facility layout and storage environment, determine required pallet loads, pallet rebuilding, loose cases, and inventory cubic feet to move per method. It should be assumed that pallet wrapping is required during the move if handling pallet loads.
Estimate reasonable expected labor rates based on your strategy and apply them to the volume to calculate the labor required for loading and unloading. The following labor tasks may be required depending on the approach used for the move:
Closing
There are many reasons to close warehouses and consolidate inventory into a single location. It’s important to determine the best move strategy, including how inventory is handled and the timing to ensure customer service is not disturbed. If you have a big move coming, gather the facts, build a strategy, and calculate the move costs to make it a success. And remember to only move what you need, minimize freight costs, and don’t lose your inventory in the process.
Are you prepared for your next move?
Move Cost Example
The example below represents calculating the freight and labor costs to move approximately 3,900 pallet loads (or 500,000 cubic feet of inventory). In this example, the customer is pulling pallets from storage, rebuilding into taller pallets if required, and loading pallets for shipment to the consolidation facility. The labor rates were blended to associate a single pallets/hour rate.
FREIGHT:
LABOR – LOAD:
LABOR – UNLOAD:
TOTAL – MOVE COST:
—Norm Saenz, St. Onge Company
