Warehouse Strategy: How to Create a Strategy for Your Warehouse

What is a warehouse strategy? 15 warehouse optimization tips, and an incredible example of real-world warehousing strategy.

In this guide, we will learn about what a warehouse strategy is, how to create one, and a case study illustrating the power of a well-optimized plan for your warehousing operations. Following the information in this article can help reduce your costs and radically improve the efficiency of your warehouse!

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What is a warehouse strategy?

A warehouse strategy is a plan that outlines how you will manage your warehouse for optimal efficiency. It’s important to note that a warehouse plan is not the same thing as a strategy. A well-crafted warehouse strategy focuses on how well your warehouse operates within given benchmarks (e.g., storage density, fulfillment speed, inventory accuracy, etc.).

Why do you need a warehouse strategy?

Any warehouse needs a strategy to obtain the best possible inventory management and order fulfillment efficiency as possible. It’s just simply good warehouse management to have a solid strategy in place. Without it, you are missing out on ways to reduce cost or getting more done with less in your warehouse operation. A good warehousing strategy increases profit – that’s more money in the bank!

Additionally, a good strategy for your warehouse operations improves customer service. Think about all the areas involved in warehouse operations. There is receiving, storing, fulfillment, shipping, packing, organizing, kitting, assembly, inventorying… the list goes on! That’s a lot of areas where mistakes can happen! All of these areas impact your customer experience in some way. Good strategic thinking positively impacts your customer’s perception of your company.

Lastly, any business has a limited set of resources. A warehouse is no different. Warehousing strategies help you to better manage your limited resources. By using a warehouse strategy, you can make the most use of your warehouse space and improve productivity.

A Warehouse Plan vs. Warehouse Strategy

Warehouse planning is not the same thing as strategizing. A plan simply lays out an objective such as “increase our storage capacity” and the necessary elements to achieve that goal. For example, if your goal is to grow your business 3 times its current size, you will need a plan for how many employees that requires.

A strategy, on the other hand, focuses on how well-optimized a plan is suited to achieving the goal. In our example above, we could illustrate this by asking a different question question. For example, “could we grow our business 3 times its current size while only growing headcount by 30%?” A question like this focuses on the optimization of the plan rather than the core components.

Another strategic question could be, “how can we grow our headcount with less effort?” As you can see, strategy is how efficiently you capitalize on the plan you put in place. By their nature, strategies are also competitive. In other words, it is how you outperform your competition by employing optimization or emphasizing your strengths.

Key Takeaway

Strategy is how efficiently you capitalize on the plan you put in place.

Quick Example of Warehouse Strategy: Our Own!

When we built our warehouses here in Central Texas, it started out as a simple plan. That’s because we decided that we needed 100,000 square feet of space to grow, and that we would just simply build out that amount of space on our property.

However, we realized that simply building out that large of a warehouse might not be the best long-term plan for our business or our customers. Some customers may want to lease smaller portions of our business, and then other customers may have very specific needs for bulk storage or things like that.

Furthermore, we realized that it would cost less to build several smaller buildings and link them together rather than one large building.

This also allowed us to climate control only the buildings with customers goods that required it, rather than the entire 100,000 square feet. So the plan turned into a strategy when we decided to optimize our plan for the more effective use of each dollar we would spend on the buildings.

15 Warehouse Optimization Tips

Below is a list of steps a business can take to optimize its warehouse operations. Again, a strategic way of looking at these tips involves out-of-the-box thinking. In other words, answering the question: how can I use these tips to overhaul and optimize my warehousing plan?

Benchmarking: To keep your overhead costs low, consider implementing benchmarking in your company. This involves setting standards for departments and individuals to meet. When done correctly, it has the potential to reduce your cost per order or maintain cost stability as production volume goes up.
Planning & Scheduling: Implement a process that links production planning with inventory and shipping schedules, and make sure there is an adequate supply of materials on hand so you’re not forced into expediting orders at higher prices.
Workforce Management: Optimize the use of staff by matching workloads with skillsets, cross-training employees, and using temporary workers during busy periods.
Labor Retention: Attrition rates are generally high in labor-intensive industries. As employees move to other companies, it becomes costly and time-consuming to hire and train new employees. To reduce expenses, take a close look at your hiring, retention, and training practices. Your goal should be to keep good employees at your business as long as possible.
Materials Handling: Streamline the movement of materials by installing conveyor systems, shelving, and racks; using barcode scanners for receiving and putaway; employing automated storage/retrieval systems (ASRS); and utilizing reusable packaging materials whenever possible.
Transportation Management: Evaluate carrier rates regularly, optimize truck utilization through route planning and load consolidation, and consider using a third-party logistics provider (3PL) for outbound shipments
Inventory Management: Conduct regular inventory counts, establish minimum and maximum stock levels, and utilize just-in-time (JIT) inventory methods to improve turns and avoid costly obsolescence
Facility Maintenance: Keep the warehouse clean, organized, and well-lit; make sure racking is properly installed and in good repair; and schedule regular HVAC maintenance to avoid breakdowns
Security: Implement security measures such as video surveillance, intrusion detection systems, and access control to deter crime and protect your inventory
Technology: Use warehouse management systems (WMS) and warehouse control systems (WCS) to automate and optimize your operations, and RFID tags to track inventory
Environmental Sustainability: Consider “green” options such as energy-efficient lighting and HVAC systems, solar power, and using recycled materials in construction and packaging
Outsource: Sometimes it’s best to know when to “throw in the towel”. Outsourcing portions or all of your business can be practical and affordable for many reasons, such as accommodating increased demand, expanding into new product categories, or when another company is better suited to handle fulfillment.
Use Sales Forecasts: Warehouse businesses need to be prepared for the future. By using sales data to coordinate your team, you can improve warehouse operations and be better prepared for future growth. This information will allow you to schedule your employees more efficiently throughout the week. Doing this in advance of each quarter gives you time to see potential setbacks before they happen and formulate a plan.
Get Rid of Old Inventory: If you are strictly a warehouse business and sell storage space for rent, this doesn’t apply to you. However, if you are a product business and your storage space reduces your profitability every month, then it makes sense to get rid of old inventory that is costing you money each month.
Implement Lean Warehouse: In the “lean” world, there are several principles and processes that any warehouse can work toward. These lean warehousing processes help reduce repetitive tasks, and operations that continuously cost time and money to correct.

Steps to Developing Warehousing Strategy

When creating a warehouse strategy, our experience in the industry suggests that it is important to consider the needs of your specific business first. Every business is different, and yours is no exception. You have unique requirements, processes, and values that must be accounted for when optimizing your warehouse plan. These are considerations such as the type of products, size of warehouse, and number of employees you have.

To create a warehouse strategy that meets the needs of your business, you may find following these steps helpful:

Build a Current Picture of Your Warehouse Operations

You cannot create a strategy until you have first assessed the current condition of your warehouse operations. This step involves outlining your building, equipment, and processes by physically analyzing how the warehouse layout is used.

Track all the equipment in your warehouse by writing down processes and staff responsibilities for each section.
Evaluate what is happening in the warehouse against procedures you would like to be followed, looking for discrepancies between the two.
Determine current inventory requirements and the usage of storage.
Interview your employees and observe their work. This will help you identify any areas where there may be potential improvements.

Build a Future Picture of Your Warehouse Operations

Once you have a clear picture of your current warehouse operation, you can determine the future needs of your business. This involves discussing with the company stakeholders such as sales, customer service, marketing, and other relevant teams. Ideally, the sales and marketing team has a sales forecast in place and an overall company goal to meet it.

If you’re having trouble painting the future picture, here are some examples of questions you may want to ask. You’ll want to make sure that these are in consideration of where you want to end up, not the status of your warehouse operation today:

Are our warehouse management systems doing what they needs to?
Do my warehouse managers understand continuous improvement?
How do I measure operational efficiency? Do I have any key performance indicators?
What do my labor costs look like?
How am I meeting customer demand?
How well am I managing inventory control?

Build the Strategy

Now that you have current and future pictures of your warehouse plan, it’s time to begin the real strategizing. Start by determining the basic needs to meet the company goal. What are the operational requirements (employees, space, equipment) to achieve the growth (or whatever other goal)?

Once you have the basic requirements nailed down, plug in the various optimization tips to increase the plan’s efficiency. For example, implementing a high-dense storage system instead of standard wide-aisle pallet racking reduces the need for warehouse space. This reduces the total cost and material handling requirements. Don’t leave any stone uncovered in this process!

During the strategy phase, consider your company’s specific strengths. You want to think about how you can utilize these strengths to increase productivity or reduce costs. Don’t be afraid to examine any alternative options, regardless of how crazy they are! Crazy ideas are the ones that stand to gain the most.

The Best Buy Case Study

We love this example of strategic thinking in warehousing. It might be one of the best out there. Best Buy is well known for its success in the retail electronics industry. But that wasn’t always the case! There was a time when Best Buy was on the fringe of disappearing from the market, as many other retail brands did.

Instead of falling by the wayside, Best Buy decided to think strategically about its warehouse operation. After analyzing the current warehouse situation (step 1 in the strategy above) they realized their current business model was lacking some serious optimization. Their warehousing system included large regional distribution centers which moved material to local stores as well as fulfilled online sales to customers.

After painting the current picture, Best Buy realized that each of its local retail stores could easily become warehouses and distribution centers. Online orders could process directly in each local store instead of from the former, regional distribution centers. This enabled 2-day lead times for online orders and removed the need for large regional distribution centers. As a result, Best Buy saw record growth, reduced operational costs, and continues to be one of the most popular retail electronics brands in America.

See, warehouse strategy is important!

Final Thoughts About Strategic Warehousing

We believe that effective warehouse strategies can help any business looking to improve its operations. By developing and implementing a strategy, you can optimize your warehouse layout and create an efficient process for receiving, storing, and shipping products. The benefit is quicker, more accurate operations and a more cost-effective process when meeting future company goals!

Best of luck in your strategy process. Remember, crazy ideas are the ones that stand to gain the most!