Manufacturing has a lot of moving parts – literally. From the machines on your warehouse floor to the many people staffing it to the products you’re creating, everything needs to be accounted for.
You’ve got labor and maintenance costs ticked off on your budget. But are you including the secret costs that lurk in the shadows of your warehouse? Do you even know what they are? If you’re not keeping track of these hidden costs, you could be losing a lot of money without even knowing it.
Our advisory team here at ERP Suites has helped numerous clients get better visibility into their whole business, from their JD Edwards release to their supply chain. We believe that you have to understand the full picture before you can zoom in and start tweaking one part.
That’s why we dig in deep, and want to help you do it, too.
Here are four hidden costs of manual warehouse processes in manufacturing and how you can avoid them:
- Inconsistent cost accounting
- Incomplete work order records
- Inaccurate inventory
- Human oversight
What Is A Manual Warehouse Process?
Let’s start with a quick definition of a manual warehouse process: a warehouse manufacturing activity that relies on human labor and non-digital tools. This can be as simple as using spreadsheets to track inventory before it enters the supply chain instead of using specialized software.
The danger with manual processes is two-fold. Not only could you potentially lose funds through unaccounted-for product, but you also run the risk of losing future revenue. Because your data is only as good as your methods of collection. If any of your foundational master data are inaccurate, then the entire basis for your budget projection and revenue forecasting will be faulty, skewing your numbers and potentially costing you.
Problem 1: Inconsistent Cost Accounting Makes Unreliable Records
Cost accounting is when you keep tabs on the various factors that go into making your product. Whether you’re making laptops or stuffed animals, your warehouse team needs two things: the bill of materials (BOM) and the manufacturing routing. These two documents outline the exact ingredients, if you will, and step-by-step instructions needed for a final product. If either of these are wrong, your team could be in for a lot of extra unnecessary work and costs.
Let’s say you manufacture laptops. You need a keyboard, a screen and the internal guts – hard drive or processor, memory, etc. You need screws to put it all together. Glue for certain parts. Thermal paste for your CPU. The team putting the laptops together in your warehouse needs to know exactly how many screws are required. They need to know whether to get 16 GB of memory or 8. Do they need a 4k screen or an HD screen? The bill of materials contains all this information. The routing tells your team how to put it all together, and which machines to use.
If automation isn’t built into the process, or items aren’t automatically tracked, your actual costs will be inaccurate. The missing part isn’t accounted for, so when your revenue comes in and it’s not what you anticipated, you’ll have to backtrack manually to pinpoint why.
An example of the parts and process of manufacturing a laptop.
One way to solve this dilemma? Automation. In fact, you can even use an AI digital assistant to track those details. For example, take Franklin, the ERP Suites AI digital assistant tuned to financing. It can perform a range of financial planning and analysis tasks to keep your warehouse on track and on budget.
Problem 2: Incomplete Work Order Records Misrepresent Your Operations
When your team physically moves between stations in your warehouse, finding the right paperwork, and manually entering data, this is called operational reporting. It needs to be meticulous and accurate – and can introduce delays, errors, and lost productivity when it’s not. But how hard can it be?
If you’re reporting this critical get-made information by hand, there’s a high likelihood that a few different things could happen:
1) An employee forgets to type in the information.
2) An employee types in the information, but doesn’t adjust for any extra parts used.
3) An employee leaves the previous information as-is, which doesn’t account for any variance from the work order routing.
When any of the above happens, your manufacturing process is misrepresented. You don’t have crucial information about the small ways your costs have changed, which can add up. You don’t want to be caught at the end of the year, trying to account for lost revenue and increased overhead.
One solution for better transparency on the warehouse floor is automated data capture through barcode scanning solutions, such as ERP Suites Scanability. Digital kiosks could also be used. Workers simply scan barcodes or tap a few buttons to log their progress, without having to leave their workstations. This real-time reporting gives you greater visibility into the manufacturing process. This in turn allows for faster identification and issue resolution.
Problem 3: Inaccurate Inventory Leads to Inaccurate Ledgers
Closely tied to the BOM and routing challenges and reporting discrepancies are problems with inventory management. When manual processes are used to update stock levels, it’s all too easy for discrepancies to creep in. Parts may get used without being deducted. Damaged items might not be properly accounted for.
The risk of inaccuracy is unfortunately abundant. Say a team member on the warehouse floor drops a small but important piece of hardware and needs to replace it. In the scramble to replace and stay on track, they might not return to report the broken piece in the inventory system. This could lead to inaccurate inventory counts and eventually inaccurate costs, which can have long-lasting ramifications for your budget and revenue.
Human error can be resolved in this scenario with a scanning solution. An item is scanned, which updates the inventory system in real time. Inventory is kept accurate, because transmission errors are kept low.
Problem 4: Humans Can Overlook Details
User error isn’t exclusive to the digital world. Human error occurs in real life, in real time, all the time. Think of how easy it is to overlook a simple task or step in your daily routine. Unlike humans, though, robots and AI never overlook anything they’re told to keep an eye out for.
When tedious, repetitive tasks are offloaded from employees to a digital workforce, everyone can benefit.
Say a mid-size warehouse specializing in order fulfillment invests in AI-driven software that operates robots. These robots lighten the load for employees. They are programmed with the locations to retrieve items on the floor, and the employee is responsible for scanning the items procured. The collaborative nature ensures both digital and manual skillsets are being used to their best ability.
Your Warehouse is Full of Potential – and Unrealized Value
Oversight during manual tasks can pile up and negatively impact your finances. Automation can solve so many warehouse problems these days – and it’s increasingly more reliable.
Read more about smart manufacturing and how it can optimize your operations.
