You Might Have A Bad Warehouse If... You Expedite Orders More Than FedEx

This week’s bad warehouse involved a company that supplied spare aircraft parts. One of their primary directives was to quickly solve any customer parts request which involved an aircraft on the ground (AOG). Almost all outbound shipments were sent “Next Day Air” or some other method designed to get the parts to their destination quickly.  Many were even delivered directly to the airline customer at a local airfield.

Sadly, this expedite mentality permeated through the entire company and resulted in almost 85% of all inbound and outbound shipments being treated as rush shipments – regardless of the need. The picture below was taken on Sept 25 and the package was shipped by the supplier to the company's warehouse UPS Next Day Air . The package was sent on Feb 10, seven and a half months earlier.  Unfortunately this was not an unusual occurrence.

In discussions with the receiving personnel we found that many suppliers seemed to slap an "AOG" sticker on the package and ship everything overnight, regardless of the emergency. We dug a little deeper and found that suppliers did not get penalized for early shipments and were not held accountable for the costs of overnight shipments either because all shipping costs were born by the company – not the supplier. The supplier actually had a perverse incentive to ship everything via air freight.

The Warehousing Education and Research Council recommends that each department or line manager acknowledge, authorize and be responsible for expedited shipments. Not just a cost justification, but a clear description of the reason for each instance.

I also recommend avoiding the use of a “peanut butter spread” approach to cost apportionment for expedited shipments which is absorbed into overhead. Each business unit or profit center should be charged for the associated expenses directly. This level of visibility will go a long way toward helping control expediting costs.

Another tip is to assign reason code type tracking to expedited outbound shipments also, even if the customer is paying for the extra cost. There may be some real opportunity to improve processes and customer service found by auditing these.

Lastly, I highly recommend you work with a firm to do an audit of your expedited shipments and rates. Firms like AFMS, CTSI and TranzAct are excellent resources - often saving a company as much as 40% of their expedited fees in better rates and management of their expedited process. AFMS will work on a vested outsourcing solution to develop a win-win solution for managing your expedited freight.

I really love your feedback - and love your contributions to share those bad warehouse stories to help educate the profession on what NOT to do, and maybe what to do if you’re not doing it.

If you've got an example of a bad warehouse practice, send me your story and photo(s) to Kate@scvisions.com. If I feature your example in one of my blogs, WERC will send you a free copy of the WERC Warehousing & Fulfillment Process Benchmark & Best Practices Guide (a $160 value).

Your submission can be anonymous if you like so you don't get your boss or company in trouble! I'll be collecting examples all year and the winner will receive a free warehouse assessment by Supply Chain Visions, a $10,000 value. The runner up will win a free conference registration to the WERC 2011 conference (a $1,375 value).