Recent studies have shown that among the challenges frustrating warehouse and distribution centre managers this year, rising energy and labour costs are two of the most often cited.
Of course, there is no quick and easy way to curb increases in the cost of energy and labour, but now is an excellent time to start thinking about practical ways to reduce energy usage and increase labour productivity and efficiency.
We hope the tips and ideas in this article will help you make inroads into warehouse energy and labour cost reduction. Some you will find reasonably affordable and fast to implement, while others require significant investment and planning, but if nothing else, they should provide you with some food for thought.
Part One: How to Reduce Your Warehouse Energy Costs
By taking steps to reduce your warehouse energy costs, you can enjoy the added benefit of improving the sustainability of your business, which, as we mentioned in our previous blog post on the topic of distribution network design, can, in turn, help you to raise your CSR profile and contribute to a better future for our planet.
However, in this article, we’ll focus exclusively on the cost factor, drawing your attention to some questions you might ask yourself (and your team) about your facility’s energy usage.
Do We Understand Our Warehouse Energy Consumption Profile?
It’s a good idea to begin by gathering knowledge about the areas of high energy consumption in your warehouse or distribution centre. You’ll find no better way to gain that knowledge than with an energy audit to highlight where you can benefit from improvements.
But don’t worry too much if that’s not practical for your enterprise. You can always move straight on to consider the following questions, targeting factors that typically impact warehouse energy costs.
Is Our Warehouse Lighting Energy Efficient?
Does your company use incandescent, halogen, or HID lighting in its warehouses? If so, you’re missing out on substantial energy savings from more energy-efficient options such as LED or induction lights.
Of course, switching to more efficient lighting requires significant investment, especially if you choose induction lights, which are particularly expensive to procure.
However, the payback can be substantial because LED and induction lights offer significant energy consumption reductions and last much longer than their outdated alternatives. LED warehouse lights can last up to 50,000 hours (about 5 and a half years), with induction lights often effective for twice that duration.
Are We Lighting Our Warehouse Spaces Unnecessarily?
While reviewing the energy use of lighting in your warehouse, consider whether there are ways to reduce energy consumption through better lighting control. That can be a much faster method of reducing lighting costs than changing the type of lighting used and will require less investment to put into effect. It also offers benefits regardless of whether you are already using energy-efficient light sources.
How to Improve Lighting Control
It’s common for warehouse spaces to sit under artificial lighting even when or where it’s not strictly necessary. There are several possible ways to eliminate this form of energy wastage.
One of the most effective approaches is to install motion sensors and timers for areas of the warehouse not in continuous use, ensuring that energy is only used for lighting when required.
Another option, which might cost slightly more to implement and may only be viable to a limited degree, is to add skylights to increase the amount of natural light entering the warehouse and perhaps to seek changes in the warehouse layout that could similarly allow more daylight into the facility.
Again, before writing such measures off as too expensive, it’s worth considering how much they can reduce the requirement for artificial lighting because once these changes are made, they will return on your investment for the entire remaining life of the warehouse, which could be a long time, and equate to substantial savings.
Look at the Warehouse Layout
Incidentally, while you evaluate the warehouse layout from a lighting perspective, it’s worth considering, in parallel, whether it’s also optimal for operational efficiency and productivity. It’s worth looking at every aspect of the layout, including the efficiency of racking and shelving.
For example, could some areas of your warehouse be adapted via racking optimisation to store higher inventory volumes? If so, other areas might house less inventory (perhaps slow-moving SKUs only) or be assigned as bulk storage, requiring less use of artificial light and other costly energy resources.
Here at Logistics Bureau, we’ve been helping warehouse operators with layout optimisation for decades. We’d be pleased to work alongside your team or appointed energy consulting partner to determine changes in your layout for maximum operational and energy efficiency.
Are our Heating, Ventilation, and Air Conditioning Systems Energy-Efficient?
For your heating, air conditioning, and ventilation systems to operate at maximum efficiency, it’s vital to have all equipment maintained according to the manufacturers’ recommended regimens, and to adhere to their service schedules.
If you’re not confident that this is the case or are taking over a warehouse with used HVAC equipment, it’s a good idea to talk to the manufacturers or vendors of those systems to have the equipment assessed.
It may be sufficient to have everything serviced and then adhere to recommended schedules from that point on. In some cases, though, replacing the older equipment with more modern, energy-efficient alternatives could prove more economical.
HVAC manufacturers have made great strides in efficiency in recent years, so installation of the most up-to-date equipment might offer a path to substantial reductions in energy consumption.
You should also look into the zoning of heat and air conditioning solutions if these features are absent from your existing systems. As with warehouse lighting, it’s much more efficient to heat or cool only the areas that need it, according to occupancy or temperature requirements, than to try and control the temperature at one level throughout the facility.
Is Our Warehouse Insulated Sufficiently?
Regardless of how effective and efficient your warehouse heating and cooling systems may be, adequate insulation is necessary. Otherwise, you will consume excessive energy in keeping the internal temperature comfortable for your staff and perhaps essential for your products’ preservation.
With proper insulation, the warmth generated by your heating equipment and the coolness provided by air-con units is contained effectively within the confines of the warehouse.
In short, insulating your warehouse will inhibit the effects of external temperature variations and trap the warm or cool air generated by your HVAC equipment. That means those systems will run—and consume fuel—for fewer daily hours to maintain the internal temperatures you require.
Since even the latest types of heating and cooling units are costly to run, especially on an industrial scale, the savings gained from an insulated building should be considerable.
Even if your warehouse has been insulated, it’s worth checking what insulation material is in place. If the facility is insulated with fibreglass or mineral wool sheets, replacing that with more effective loose fill or even spray foam insulation could be another investment with a worthwhile payback.
How Energy-efficient is Our Operational Equipment?
Thus far, we have discussed warehouse energy cost reduction from the perspective of the warehouse environment, including the lighting, heating, and air conditioning systems. But what about the MHE and other equipment that plays a vital operational role in the warehouse?
Forklifts, conveyors, pallet trucks, packaging machinery, and other powered equipment consume energy, drawing either on the warehouse electricity supply or on some form of fuel that your company must purchase at ever-increasing prices.
Therefore, in assessing your options for energy cost reduction, it makes sense to look at all your warehouse equipment to establish if it provides the maximum energy efficiency. If not, the next step is to determine the feasibility of investing in new equipment that consumes less energy and evaluate the various options that might be available.
If you already operate with energy-efficient equipment, don’t underestimate the importance of regular servicing and preventative maintenance to ensure that efficiency does not degrade over time.
Are Our People Sufficiently Conscious of Energy Consumption?
Energy efficiency in the warehouse is influenced not only by the equipment and systems in use but also by the people who control and use them. A staff training program centred on energy-consciousness can help minimise costs.
Such a program can be simple and inexpensive to implement. It need only be sufficient to educate your workforce in basic energy-saving practices like turning off lights and equipment when not in use and reporting any issues that might be a source of excess energy consumption.
What Else Can We Do to Reduce Energy Consumption?
It’s often surprising what initiatives can arise from a healthy session of warehouse team brainstorming. After working through the questions we’ve recommended thus far in this article, it’s a great idea to seek your team’s opinions regarding any other practical measures that might reduce energy consumption.
From low-budget fixes such as the simple use of white paint wherever possible to increase natural light levels and removing a bulb or two from every multi-bulb lighting fixture, to more sophisticated measures like installing wind turbines and solar panels or implementing sophisticated energy management systems—in our work with clients, we’ve heard many great ideas generated (and adopted) as a result of team brainstorming.
Lastly, remember to investigate any possibilities offered by government organisations or energy suppliers, such as grants or incentive programs to help reduce the cost of energy-saving warehouse upgrades.
Part Two: How to Reduce Labour Costs in Your Warehouse
According to a 2023 benchmark report by AutoStore, 34% of business leaders in the Asia Pacific fulfilment sector, and 27% of those in North America, cite rising labour costs as a substantial challenge for warehousing operations.
If you concur with the opinion of these executives, you’ll doubtless be looking for ways to curb the impacts of labour cost increases—so what can you do?
The most obvious answer is to deploy automation and technology wherever possible to reduce human labour requirements and/or help warehouse staff become more efficient and productive.
We’ll look more at this option in the following paragraphs, as, once again, we suggest some questions to ask yourself and your team to help you home in on potential warehouse labour cost-saving opportunities.
Do We Understand Where Efficiency and Productivity Needs Improvement?
It’s generally accepted that, in the absence of full automation, increasing warehouse employees’ efficiency and productivity is the surest path to labour cost reduction. However, such improvements first require a clear understanding of your warehouse operation’s strengths and weaknesses.
A warehouse benchmarking exercise is an excellent way to start the quest for improvement opportunities. By benchmarking your warehouse processes against companies with similar operations, you can identify where efficiency and productivity improvements will deliver the most benefit, sparing you from guesswork and ensuring lucrative returns on investment.
Of course, the most challenging part of any benchmarking project is accessing other companies’ data against which to compare your warehousing performance.
Happily, that’s one thing we can help you with here at Logistics Bureau. Talk to one of our experts today to learn how your company can benefit from our vast database of benchmarking results.
Can we Deploy More Automation in Our Warehouse?
The implementation of warehouse automation can be expensive. Still, it is one of the most effective options to bring labour costs down, and you can deploy it in many different ways. For example, you could reduce human labour by deploying robotic equipment or other forms of direct automation.
Such solutions are becoming less expensive to implement, particularly in cases where vendors offer robotics as a service, removing the requirement for substantial investment up-front and making them accessible to a broader range of customers.
Another alternative is to automate workflow management for greater employee efficiency and productivity. This type of technology includes voice-picking and similar innovations powered by the latest in WMS sophistication.
With so many options now available, many companies are exploiting warehouse tech advances to revamp their processes, targeting increased warehouse automation levels to minimise human labour or make it more cost-effective.
What can we do to Optimise our Workforce?
In cases where automation is not feasible, other opportunities to raise efficiency and productivity will inevitably exist within your warehouse operation. As already mentioned, benchmarking can help you identify areas of weakness, and with that intelligence, you can set to and decide upon steps to improve.
But sometimes, even a general approach to workforce optimisation can deliver results. For instance, it’s always worth looking at your approach to scheduling.
Is it possible to tighten up your scheduling by acting on historical and forecast data to right-size the workforce and reduce any tendency to overstaff during quieter times and understaff during peak periods?
It’s becoming more common for warehouse operators to use labour management systems (LMS) to monitor and optimise labour performance. LMS applications can help with real-time workforce tracking, performance analysis, and scheduling. Could your enterprise benefit from such a solution?
Are Our Processes Optimal?
Are you able to optimise specific processes in the warehouse? It’s always a good idea to review your picking and packing operations, for example.
Are you using the most appropriate picking method for your operational profile?
Do you practice batch picking, wave picking, or zone picking, and if you use any of these methods, are you sure they represent the optimum approach?
Similarly, can you streamline the receiving and replenishment processes to reduce the time and labour needed for these activities?
Can we Train, Educate, and Engage our Workforce for Greater Productivity?
No two people are the same, meaning the productivity of your warehouse operatives will vary regardless of adherence to best practices and process optimisation. Your aim should always be to achieve the highest productivity possible while ensuring employee safety and well-being and to reduce the variance between your most and least productive team members.
So, what can you do to enhance employee productivity?
Goals and Incentives
The first step is to ensure that your warehouse operatives have clear and specific objectives to meet, that they understand those objectives, and that you track progress using actionable warehouse performance KPIs.
Another way to motivate employees to meet or exceed productivity goals is by applying individual or team performance incentives.
However, when using goals and incentives, it’s essential to avoid encouraging behaviour that could jeopardise health and safety in the warehouse. Similarly, you must guard against incentivising practices that threaten service performance or increase costs, perhaps due to errors or lapses in attention to quality.
Training and Engagement
Continuous employee training also plays a vital role in warehouse labour cost control. Well-trained warehouse operatives will work both efficiently and productively.
Cross-training, where all warehouse workers develop the skills and know-how to perform a wide range of tasks, can go a long way to keeping labour costs down. That’s because it will enable you to adapt to changing demands without the need for additional staff.
While goal setting, performance monitoring, and training help engage your workforce, which, in turn, stimulates productivity, other steps to increase employee engagement can also deliver benefits—initiatives such as introducing flexible work scheduling to accommodate staff preferences and minimise overtime costs, for example.
Happy employees tend to be more productive and committed to their work, so why not see what other ideas your management team can generate to engage with your employees and foster a positive work environment?
Can we “Lean” Our Warehouse Processes?
Since the COVID pandemic rocked the logistics world, many companies have lost their appetite for lean principles in inventory management. However, the lean concept can be applied to warehouse operations in many ways, several of which remain as valid as they have always been, even if you don’t want to cut inventory to the bare minimum.
After all, lean is all about eliminating various forms of waste. Therefore, it’s a good idea to assess your warehouse processes from a lean point of view. Is there waste within your processes that impacts labour costs, and can you eliminate it?
Look at the Layout… Again
The warehouse layout often represents an ideal target for waste reduction. Does the layout create wasted motion in the picking process?
Every step that you can remove from a picker’s route around the warehouse, or every metre of forklift travel saved, is a potential reduction in the cost of warehouse labour, whether in the form of reduced overtime or headcount requirements.
That’s not to say that changing the layout or re-slotting the warehouse will enable you to remove heads from the workforce. It’s just another small part of the overall puzzle, which, once fitted into place, will contribute towards overall labour cost savings.
Warehouse picking routes are only one example of where waste might impact costs. Try looking at all your warehouse processes in the same way—because the collective effect of tightening them all up to reduce waste can bring you more savings than you imagined.
How can our Suppliers and Customers Help Us?
The drivers of labour (and energy) costs are many, and they don’t all reside within the walls of your warehouse facilities. So, while looking for savings opportunities, remember to think outside the box (did you see what we did there?).
Are vendor and supplier lead times generating unnecessary costs for your warehouse, perhaps in overtime or expedited labour? Some suppliers may be prepared to work with you on lead time optimisation.
And remember, your customers can also drive labour costs in your warehouse. A thorough cost-to-serve analysis will reveal any customers whose ordering behaviour results in a disproportionately high use of labour in your warehouse(s). Once identified, you can work with those customers to achieve cost reductions.
Reducing Warehouse Energy and Labour Costs in 2023—and Beyond
It would be nice to think that there will someday be a reversal in the direction of warehouse energy and labour costs. But thinking—especially the wishful kind—tends not to be effective when it comes to cost control.
Asking questions, though, like those we’ve suggested in this article, can set you on the path to reducing the impact of these cost increases. At the same time, we hope the pointers we’ve shared about where and how to look for opportunities will give you some stimulus to act.
As you may have observed, some activities we’ve suggested, such as looking at the warehouse layout, have been mentioned in Parts One and Two of this post. Indeed, several of the actions you can take to try and limit warehouse labour costs can bring about energy cost savings, too, and vice versa, doubling the benefit of putting the measures into effect.
Costs Rise, But Savings Accumulate
Finally, keep in mind that any warehouse labour and energy cost reductions you achieve, however small they may seem initially, will add up to phenomenal savings as their effect accumulates throughout the remainder of 2023 and, more importantly, over the years to come, especially as costs continue to rise.
Would you like help identifying and exploiting opportunities to reduce warehouse energy and labour costs, or do you need support with the cost-saving activities suggested in this post? If so, our team is ready and waiting to assist.
You can even save money as you begin to benefit from our assistance, because an initial consultation call with one of our logistics experts will cost absolutely nothing.
Editor’s Note: The content of this post was originally published on Logistics Bureau’s website dated November 07, 2023, under the title “Energy and Labour Costs: 2 Top Warehousing Challenges in 2023“.