Amidst all the economic upheaval we’ve recently seen, the country is seeing continued interest in warehousing capacity. The Wall Street Journal recently reported total spending on warehouse facilities is 2.8% higher than it was last year as retailers and distributors are “repositioning inventory and adapting systems for this new COVID-era of shopping.”
This comes amid a renewed focus on cash conservation. So, how are companies coping with these two overlapping trends? We’re seeing a lot of warehouse operators focus on four key actions: selling excess equipment, reorganization, purchasing used equipment instead of new and leveraging automation.
Selling excess equipment
With slower sales and fewer staff members, companies have found themselves with equipment that isn’t being fully utilized. Selling this excess equipment can quickly raise cash. The three most prominent outlets available to sell used equipment are: auction houses, private sales and used equipment dealers.
It’s important to consider your primary goal when deciding which route to take. Auction houses allow a company to sell a greater diversity of equipment at the cost of attaining the highest price. Used equipment dealers are likely more specialized but know the true market value of the equipment, so they’re likely able to pay more.
Simple changes to the existing layout of a warehouse can generate a 2½ to five times return on investment. This is typically because a better warehouse layout leads to faster inventory turns and lower cost per pick. Faster inventory turns reduces the amount of inventory that needs to be kept on hand, which frees up cash.
Since nearly 54% of labor spend in a warehouse can be attributed to order picking, reducing the cost per pick can significantly reduce ongoing payroll expenses. Containing travel time is three times more important to reducing labor spend than is the cost of search and selection.
So, just consolidating fast-moving SKUs closer to where pickers begin and placing them in more convenient locations — such as the lower levels of pallet rack — can generate a large return on a small investment in labor and design services.
Purchasing used equipment instead of new
If companies are investing in additional capacity, they are tending to give used equipment a more thorough look. This is because used warehouse equipment can be significantly cheaper. For example, when you include the cost of freight, purchasing used pallet rack can save a company nearly 55% as compared to purchasing new.
Over the last few years, it’s been very difficult to find high-quality used warehouse equipment. The pandemic has resulted in a tidal wave of used equipment coming on the market over the last three months. So, there should be many more opportunities to find good-quality used equipment today.
Implementing automation where it makes sense
Modern Materials Handling reports nearly 20% more companies are considering implementing automation in 2020 than they were in 2019. Automation can help ensure your company is ready for a second COVID-19 wave by reducing the number of employees needed to continue warehouse operations. Reducing the number of employees in the warehouse also allows the remaining employees to operate more safely since there is now more square feet allocated to each employee.
In today’s environment, the goal is to conserve cash where you can and position your distribution center operations to operate efficiently in the new paradigm. All four trends we’re seeing in the market today ensure that companies come out of this crisis stronger than they went in.