Cost to Operations of Doing Nothing | FORTNA
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The Cost to Operations of Doing Nothing

The cost to operations of doing nothing can be defined as the negative impact of maintaining the status quo for current processes while ignoring innovative solutions that can transform warehouse operations into competitive advantage.

by TJ Franco

With e-Commerce and omnichannel fulfillment continuing to grow and customer delivery windows shortening, optimizing and automating your distribution network and operations is a logical path. Many distribution centers remain highly manual and dependent on labor, delaying the implementation of an automation plan. While maintaining the status quo and clinging to manual and low-tech processes can control short-term costs, it can prevent an organization from keeping up with present and future customer demands and make distribution operations rigid and unable to respond to disruptions.

The cost to operations of doing nothing can be defined as the negative impact of maintaining the status quo for current processes while ignoring innovative solutions that can transform warehouse operations into competitive advantage.

In this FORTNA blog, we will examine the cost of doing nothing in the different areas of a distribution operation.

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All business and technology investment decisions cannot be made using the same old criteria. In certain situations, including digital transformation and innovation, ROI cannot be the primary criteria for decision-making. In the current business environment, the cost of doing nothing is unaffordable. Inaction today leads to an uncertain future.1

Jamshid Vayghan

Global CTO and VP for Application Development and Management Innovation

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Increased Labor Costs

Highly manual processes and operations require a dependable labor pool to hire from. With worker availability continuing to shrink and retaining skilled and unskilled workers becoming more competitive, the cost to find and hire has risen significantly. In addition, distribution centers continue to experience the revolving door of exiting workers as they job-hop to other organizations offering higher wages, sign on bonuses and flexible schedules.

An automated environment has been shown to attract and retain labor as workers prefer an operation that is organized and structured, and the automation makes their work less physical and provides them with real-time information on daily company goals and worker incentives.

Inaccuracies in Inventory Management

With tightening delivery windows, omnichannel fulfillment challenges and vendor requirements, inventory control and management are critical to satisfying demand. Operations that manage inventory with a homegrown spreadsheet or a paper-and-pen method expose an operation to inefficient inventory processes, shrinkage and a lack of visibility.

Distribution centers that manage products with expiration dates or special storage requirements are at even greater risk as product loss becomes a real issue. In many cases, a loss of a customer due to poor inventory practices or a costly loss of a batch of products will be the last straw in triggering a move to an automated solution to manage inventory.

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Increased Returns

A direct result of an inefficient inventory program is a high rate of errors in order fulfillment and shipping. In a typical warehouse, the error rate can be between 1% and 3% of orders and can reduce profitability by 11% to 13%2; however, in a warehouse that does not use automation or warehouse management software, the number can be much higher. The higher the order error rate, the higher the rate of return, which leads to customer dissatisfaction, higher costs in handling the returns and, in many cases, product loss.

Inventory and omnichannel fulfillment optimization solutions can be utilized for any size operation and scaled to fit. Many organizations starting to automate will begin with slotting optimization software or cloud-based warehouse management system (WMS) software. When moving to a higher level of automation, organizations will employ a warehouse execution system (WES) to have a higher degree of visibility, orchestration and control.

Untapped Capacity

Operations that use manual processes tend to lack a strategic approach to inventory placement or slotting. This leads to space allocations that can be unorganized and quickly fill capacity, constraining an operation’s ability to scale for promotional and seasonal sales. This can force an operation to rent or lease extra floor space, pay overtime to get shipments out the door and miss opportunities to increase throughput and reduce their cost per order.

Vendor Compliance & ESG

With Environmental, Social and Governance (ESG) oversight and regulations on the way, organizations will need to have the ability to prove that they are not harming the environment, have a safe and diverse work setting and be able to report yearly on their progress. Many big-box stores and brands have already started to report voluntarily on ESG initiatives. These reporting measures will begin to trickle down to vendors and suppliers, who in turn will need to report and provide visibility into the supply chain as a condition of doing business.

Software, automation and environmentally friendly practices can ease the reporting requirement and avoid emergency capital expenditures to set up and maintain a reporting structure to satisfy customer and vendor requirements.

Missed Opportunities

The marketplace has many stories of well-established companies that kept to the status quo and found themselves on the wrong side of disruption. JCPenney, Borders Bookstore and Kodak are all examples of well-known brands that failed to embrace a digital transformation and found themselves fighting bankruptcy.

As disruptions continue in economics, technologies and on the geopolitical stage, it is now more important than ever to future-proof your business and distribution operations. The cost of doing nothing might be attractive on paper, but doing nothing allows competitors to transform their warehouses into flexible and scalable advantages ready to meet customer demand and gain market share.

FORTNA Can Help

The cost of doing nothing can be high. FORTNA can help optimize your operations for today and the future. We are an end-to-end design-build firm, designing and delivering data-driven solutions to ensure process improvements, growth and profitability. Contact FORTNA today to learn more about how to begin your business transformation for small, mid-size and complex operations.

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1 https://www.forbes.com/sites/forbestechcouncil/2017/11/17/transformation-roi-versus-the-high-cost-of-doing-nothing-why-inaction-is-unaffordable/?sh=4585245b5cdc
2 https://www.linkedin.com/pulse/measuring-real-cost-warehouse-picking-errors-bryan-goodall/

About the Author

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TJ Franco

Sales Director

TJ is a seasoned supply chain professional with over 15 years of experience in roles varying from production and sourcing, to importing and omnichannel distribution. TJ is a CSSC Lean Six Sigma Yellow Belt and a member of CSCMP and the Procurement Foundry.