Expert Insight: Guest Contribution

By Chandradeep Bandyopadhyay,
Principal Consultant


Date: November 15, 2009

2-Part Expert Insight Series on Warehouse Management: Part 1, Cost Sinks or Profit Sources?


Measuring Operations and Costs is Key to Rediscover the Warehouse as a Profit Source

It is said that behind the functioning of every cost center lies the silent aspiration of making profits someday. However, this is a simplistic statement when applied to the role of warehouses within an organization, for every business may not consider its warehouse to be a profit center in the accounting sense. Even so, warehouses can be designed to work as a source of profit.

Let us see how a warehouse can be converted from a cost sink into a profit center. While some organizations look at warehouses as the lowest point in the supply chain, for most B2C chains, warehouses are where one end of the supply chain starts. It’s like a double spiral galaxy – one arm leads from the manufacturer to the warehouse that sits at the center, and the other reaches out from the center to the end consumer. 

Any organization dealing in the commerce of physical goods quotes its inventory as an asset on its balance sheet. Inventory is held in warehouses, the running cost of which shows up as an expense. Thus, improved efficiencies in the warehouse, coupled with a better inventory view, have a direct impact on the company’s financial performance – improved efficiencies lead to lower costs for holding and handling inventory and allow faster turnaround of orders.

The key to rediscovering warehouses as sources of profit is to measure their operations and costs, and then tie the efficiencies directly to enhance the value accruing to the business. Warehouse performance can be broken down to multiple measures, a few of which are:

Dock-to-Stock time


The faster it’s in stock, the faster it can be sold. This directly affects the availability of the merchandise for sale. While organizations do take orders against purchase orders, the likelihood of taking an order when the merchandise is in the warehouse and ready to ship is higher than when it is expected at some future date. As soon as the inventory is in stock, it can be waved, and the moment the inventory is out the door, the sale can be registered on the books.

Stock-to-Dock time


The faster inventory is moved to pack/ship stations, the faster orders go out of the door. Further, the faster orders leave the warehouse, the faster organizations can optimize on shipping methods to save costs, or, better still, get orders to customers faster than promised, thus, improving customer satisfaction and earning goodwill.


Rate of Short Picks


Physical inventory can get damaged, however, the short pick implies that the order hit the inventory before the cycle counter did! Mechanisms such as cycle counting on pick ensure that locations get counted irrespective of cycle count periods and any inventory problem is immediately reported. Placing such inventory on hold ensures that it’s no longer sold. This reduces customer disappointment with an order cancelled due to incorrect inventory.

Kitting Accuracy


The ability to provide value-added services is critical to warehouse performance. ‘Thanks for shopping with us’ notes on the pack slip and gift boxing are passé. The warehouse needs to be able to provide personalized services, which require a mix of the right information systems and equipment and a trained workforce.


System Performance


The Warehouse Management System (WMS) must enable a warehouse to directly contribute to the top line and bottom line.

So, how do warehouse management systems ensure that these metrics are improved in ways that impact the business value they are linked to? I like to call these features the powers with which a super WMS is endowed. Next time, we’ll talk about this super WMS.

Agree or disgree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

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About the Author


Chandradeep Bandyopadhyay is a Principal Consultant at the Supply Chain Management practice of Infosys.

Chandradeep has led multiple implementation teams in the areas of direct-to-customer retail order management, inventory management and warehouse management. He has deep understanding of Sterling SCM packages, their project implementation lifecycle and program execution. He shares his thoughts on supply chain management at:


Bandyopadhyay Says:

‘Thanks for shopping with us’ notes on the pack slip and gift boxing are passé. The warehouse needs to be able to provide personalized services, which require a mix of the right information systems and equipment and a trained workforce.

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