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Fixing the Warehouse

With companies seeking to cut costs and wastes wherever they can, problems in the warehouse are getting more focus, and RFID can help.
By Mark Roberti
Aug 31, 2009I received an e-mail the other day from René Jones, founder of warehouse efficiency firm Total Logistics Solutions. It offered some interesting statistics regarding warehouse inefficiencies, including some that radio frequency identification could likely solve.

According to Jones, inventory value ranges between 6 percent and 20 percent of most companies' top-line sales. That means a business with $100 million in sales will generally have, on hand, between $6 million and $20 million worth of inventory. "Assuming you are generating a 4 percent margin," he says, "your hard-working sales staff must generate $2,500 in new sales to make up for the $100 of inventory your warehouse lost. If a warehouse loses $100 worth of product each week, the sales staff has to generate $130,000 to make up for the $5,200 of inventory lost in the warehouse."

RFID could help reduce warehouse losses by preventing items from being misplaced until they become obsolete, and it could potentially reduce theft. Several companies have begun tying RFID to closed-circuit cameras so that when specific items go missing, the time they were last read by an RFID system is matched to a video recording to determine who last handled that product.

Warehouse personnel responsible for picking and put-away spend 55 percent to 60 percent of their time traveling to and from storage locations, Jones indicates. When a worker finds that the rack where he's supposed to store a product is full, or that the product he's supposed to pick isn't in the assigned location—which, according to Jones, happens fairly frequently—he has to spend approximately an hour searching for the product, or for an alternative put-away location. RFID can be used to associate a pallet or tote with a specific location within a warehouse, so that workers spend less time searching for products to be picked, or for empty locations for products that need to be put away.

For most distributors, Jones says, 3 percent to 8 percent of orders are returned, and the cost of handling a return can be two to three times that of an outbound shipment. RFID can reduce returns by reducing shipping errors. As items, cases or pallets are picked, an RFID reader can confirm that they match the purchase order and alert warehouse personnel when they don't. Moreover, tagged items are easier to track when they are returned.

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