Published On: February 21, 2020

Top 3 Nation-Wide Factors Hurting Warehouse Profitability

Recently, the demand for warehouses to increase productivity and turnaround has been ramping up, and many warehouse managers and professionals are feeling the heat.

To keep pace with growing global demands, increasingly complex operations and customer expectations shaped by Amazon, facilities have been assessing the ways they can improve their processes, productivity and efficiency. The important part of this process is to address the bigger factors at play that are hurting warehouse profitability around the country.

Warehouse leadership teams need to take a step back and examine the political, technological and societal factors affecting warehousing as an industry. Through this larger understanding, you’ll be more prepared to tackle these worrisome obstacles and continue creating a more effective, safe and profitable warehouse for your business.

Tariffs and Inventory Surges

 Since the U.S. began engaging in a trade war with China, warehouses have been adversely affected.

As of January 2019, the U.S. placed an import tax of 25% on $200 billion worth of goods from China, which led to many businesses and retailers to push to avoid this tariff by, “squeezing in as much volume as possible,” according to Lidia Yan, freight-brokerage company NEXT Trucking’s co-founder and CEO.

Warehouses across the countries were affected by this tariff, leading to many of them having large amounts of excess inventory and running out of space to store it. Plus, warehouses were unable to repeat this “cost-saving strategy” in 2019 when President Trump announced a 10% tariff on about $300 billion of additional Chinese imports.

While most of the burden was taken on by port cities, (“American’s West coast ports are experiencing extreme congestion,” says third-party logistics firm MIQ Logistics) Jock O’Connell, an international trade adviser at Beacon Economics, says other parts of the country are just as low on space.

“The surge in imports late last year (2018), driven by anxieties over higher tariffs, coincided with the continued explosion of e-commerce in generating a largely unprecedented demand for warehouse space,” says O’Connell.

As we’ve discussed previously, excess inventory in a warehouse can be a fatal organizational hazard. It ties up additional space and keeps budget money hostage that could be put to better use and increases the likelihood that your warehouse productivity will diminish, or that products will be misplaced.

Our advice? To the best of your ability, optimize your order quantities and begin the transition to a lean inventory management methodology. This involves eliminating any activity or procedure that uses up additional resources but does not add value in return.

Artificial Intelligence and Warehouse Workers

The increasing popularity of artificial intelligence has continued to stoke many fears throughout the warehousing industry – mainly, the idea of being replaced by a machine or not knowing how to use new technologies safely. Pushed by companies like Amazon to increase turnaround time, warehouses are now inundated with several technologies that are gunning for change, including machine learning, speech recognition and robotics.

According to Brian Pulfer, Manager of Solutions Development and Data Analytics at VARGO, many organizations, “are already integrated within warehousing to help retailers manage labor shortages and to shift mundane/repetitive tasks from humans to robots.”

There have been several overwhelming numbers floating around the media about just how many warehouse employees could be replaced by machines – from one million to thirty million. But a new report from the University of Illinois has revealed good news and bad news about these statistics, saying that no, AI and robotics aren’t going to replace warehouse jobs at these extreme numbers, but within the next decade, these technologies will make warehouse workers’ jobs more difficult.

This report states that while new technologies can help replace, “monotonous and physically strenuous activities,” AI and robotics could also adversely affect a warehouse worker’s safety, health, emotional morale and how soon they might be replaced.

Many warehouse workers will soon be coming into closer contact with large AI-run systems, like self-driving shelving carts, body sensors and overall management systems. This increase in technology is putting pressure on warehouses, and then the warehouse workers ramp up their productivity and efficiency with less focus on safety. The new technologies help in theory to increase turnaround time, but this time-save can go awry when injury or bottlenecking occurs due to a lack of training for employees – or employees getting burnt out in their new positions to keep up with the additions.

“The next decade is a story not about job loss, but more so about changes in job quality,” said Beth Gutelius, the associate director of the Center for Urban Economic Development at the University of Illinois at Chicago.

The focus going forward needs to be on how these technologies are implemented throughout warehouses and how employees are supported and protected as well. To have a smooth (and inevitable) transition into introducing more robotics and AI into warehouses, processes will need to be created in advance and to create a safe, productive environment that ensures employees are still able to do their job safely and successfully.

Workplace Injury

According to the U.S. Bureau of Labor Statistics, approximately 2.8 million nonfatal workplace injuries and illnesses were reported by private industry employers in 2017, with back injuries, in particular, making up 20% of that statistic. In fact, in that same year, warehousing and transportation were ranked 2nd overall in the list of preventable fatal injuries.

High levels of workplace injury in warehouses has been a matter of concern for years, especially with manufacturing giants like Amazon setting poor examples of valuing turnaround time over employee health and safety. As other, smaller retailers and warehouses attempt to compete, the likelihood of more dangerous workplaces continues to increase.

As we’ve discussed previously, these injuries can not only cost your company dearly in terms of workers’ compensation and time off for employees, but they can severely injure or disable employees for the rest of their lives, cutting off their means to make a living.

To avoid preventable injuries for your employees, and also losing time and money, it’s important to prioritize safety education and training, especially when new pieces of machinery are introduced to the floor.

If you are receiving feedback from your employees about muscle fatigue due to heavy lifting, it may be time to consider purchasing industrial manipulators – machines with a rigid steel arm that allow complex pneumatic tilts and rotations that can:

Stay Up-to-Date

 It’s important to be aware of the larger factors throughout the industry that could be affecting your business. By taking a look at the patterns that are holding back other facilities, you can use that information to help propel your business forward and avoid their mistakes.

If you’d like to discuss the opportunities that Dalmec’s industrial manipulators offer to create a more productive, safer workplace, contact us today!

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