By Alex Breeding
When I began to create my budget for last year, I had to face some harsh realities. Due to changes in technology spending, there would be no major projects that year.
Nonetheless, this did not mean that we wouldn’t be able to implement the major changes necessary to accomplish our goals. What it did mean was that we had to work very hard to accomplish our larger goals via miniprojects.
Each miniproject had to be addressed on its own merits. Each had to include proof-of-concepts and ROI deliverables. Each had to have its own timeline, be accomplished in accordance with strict project management guidelines, and deliver benefits as a stand-alone project, separate and distinct from the "major" solution. If not, we wouldn’t have been able to justify the expense. The payoff had to be almost immediate, preferably paying for itself within 12 months.
Here’s an example of how we had to replan a large project when the payout-to-pain ratio proved too much to overcome.
The payout-to-pain ratio
Our payout-to-pain ratio is what we achieve vs. how much it costs. By completing the miniprojects on time, on budget, and with a maximum payout-to-pain ratio, we won friends throughout the organization, which, in turn, went a long way toward helping us accomplish our business objectives and improve our business.
The theory in practice
Last year, we considered installing a totally automated warehouse. This would have allowed us to cut our staffing levels to a minimum, thereby saving us hundreds of thousands of dollars a year. Also, the system we looked at claimed to eliminate any warehouse picking errors, which could also save us thousands of dollars each year. But after much consideration, we thought there were too many things that could go wrong with the installation, including the undoubtedly deleterious effect it would have on morale. The cost alone of a completely automated warehouse was prohibitive.
But that didn’t mean we still didn’t need help in our warehouses. We have nine distribution centers throughout parts of North and Central Texas. None of the nine warehouses operated as efficiently as it could. We decided that rather than trying the “big-bang” approach of installing a complete high-dollar warehouse management system to attack our issues, we would go after some smaller items first. After a thorough analysis of each warehouse, we decided that our initial project would involve the way we loaded our trucks. Each warehouse loaded the trucks differently, right down to the way the pallets were built. It could take a new warehouse worker several weeks to learn the best way to build a pallet. This “best way” could differ in each of our nine locations. We saw this as a major loss of productivity, especially considering the normal turnover rate in a warehouse. We had to get better at building our pallets and loading our trucks.
We discovered a software package called Ultimate Load Manager made by Ultimate Distribution Systems. This software would tell our warehouse workers exactly how to build a pallet. It would also tell the loaders exactly how to stack the pallets on each truck. One final and unanticipated benefit of this system was that it gave our delivery drivers a map of exactly what was on their truck in what bay. Previously, our drivers had a “rolling warehouse” that could be loaded differently each day. They would have to build the delivery on-site from their stock of pallets on the truck. But since a different person could load the truck each day, the delivery driver had to learn where the pallets were stored by trial and error. This made our delivery drivers very inefficient.
Also, we had to decide whether to roll out this software package to all nine locations at once. If we chose to do that, it would have meant lots of overtime for at least a two-week period and lots of headaches and adjustments by our entire warehouse, operations, and IT staffs. So we put the idea of miniprojects to the test and decided to implement this package one warehouse at a time. Our initial installation took almost a full week and involved lots of follow-up to ensure the proper operation of the software and the facility. But during the past two years, we’ve learned a great deal regarding the installation of this package. We can now complete the installation in a matter of hours.
Savings in time and money
We were originally looking at a cost of more than $200,000 to purchase the software for a big-bang rollout of a major project. By using miniprojects instead, and through some tough negotiations, we were able to reduce software costs by $70,000. We have also continued to work with the vendor to improve the package, as well as contribute additional features. Now we can train a new warehouse worker to build pallets the best way in just a couple of days instead of several weeks.
Our procedure is now the same in all nine locations. We were able to discover better ways of loading our trucks because of the increased visibility. We have also experienced a boost in productivity among our delivery drivers. We estimate that we’ve saved approximately one labor hour per employee per day in each of our warehouses. Over the past year, that figure approaches a savings of $400,000. That savings is exclusive of the more efficient delivery drivers. It also does not take into account the greater accuracy we’ve been able to achieve in loading products (thereby reducing reshipments and multiple handling of packages). The greater customer satisfaction we’ve achieved is also a great boon for our business.
Each implementation at each location was considered on its own merits before installation. While the return on investment was not the same at each location, the savings and return were enough to justify the installation. We hope to continue to improve the product and certainly our operational efficiency. We will continue to see savings as we compare our new methods to the old way of operating our warehouses and trucks. And, hopefully, we’ve achieved a good win by gaining some new friends throughout the organization. In this new economy, wins will beget wins, and failures will beget smaller budgets.