With costs likely to continue to rise in 2008, now is a good time to conduct an end-of-year review of your warehouse and transportation logistics to determine where you can save money and improve efficiency in the coming year.

In early November, the price of a barrel of oil once again reached a record high, trading at just under the $100 level. For middle-market manufacturers and distributors, rising fuel prices and steadily increasing inventory carrying costs have put logistics on the front burner among the key issues eroding company profit margins.

With costs likely to continue to rise in 2008, now is a good time to conduct an end-of-year review of your warehouse and transportation logistics to determine where you can save money and improve efficiency in the coming year. Here are five areas to consider as part of your review process.

What Do Customers Want?
Begin your analysis by reviewing what your customers are buying. Look for regular, recurring sales patterns. These present an opportunity for advance planning. In some cases, it might be possible to cross-dock shipments. By turning the inventory more rapidly, you can help eliminate the need to store products in your warehouse and improve customer service.

Your ability to effectively identify and capitalize on purchase data is directly related to the availability of quality data from customer point-of-sale and in-house warehouse management systems. Warehouse management software (WMS) provides an integrated view of warehouse operations and facilitates information access.

WMS systems can also enhance service and performance by increasing order accuracy and picking and packing productivity. Fewer mistakes translate into happier customers and lower operating costs.

Make your warehouse more efficient by ensuring workers have easy access to bestselling items. If your warehouse has limited space, consider renting an offsite facility – one with a lower cost per square foot – to store slow-moving products.

Another option is to sell off old or obsolete inventory. Sometimes, to gain access to “hot” moving products with limited availability, companies must purchase less-desirable and slower-moving product. When this happens, keep in mind that even if you sell the products at a minimal cost, you may save money in the long run by eliminating storage costs. And if the items have little or no value, look into a recycling program that will help defray disposal costs.

Location, Location, Location
Have you thought about where your clients are in relation to your warehouse? Once you determine what and when your customers are buying, you may want to relocate your warehouse to reduce costs.

A new, closer location could shorten delivery times and reduce shipping expenses. Analyze the costs and benefits of various warehouse locations. Having a warehouse close to your customers will enhance your ability to provide outstanding customer service.

The process for evaluating whether or not to relocate a warehouse is complex. The decision ties not only to management’s strategic focus and the strength of the company’s relationships with key customers, but to other factors. For example, investment tax credits for relocated facilities can make computation difficult. Make sure you involve your accounting and legal teams in any decision you make.

Be Practical
Full-scale automation is not just for large distribution companies. Cutting-edge technology is now readily available to small- to medium-sized distributors thanks to further advancements and lower prices. Here are some recent tools that can help take your operations to the next level:

• Radio frequency identification (RFID) – Electronic, real-time tracking of goods throughout the supply chain eliminates the need for manual scanning.
• Wireless devices – WiFi tracking accesses and updates inventory information in real time directly from the warehouse floor. This is a real time-saver.
• Automated storage and retrieval – Computerized systems leverage machinery and other tools streamline production and improve accuracy.
• Robots – Mechanized processes provide flexibility in handling multiple production lines simultaneously, including the ability to palletize and de-palletize layers.

Consider carefully if a particular solution is worth the extra money over the long term. How long and how frequently will you use it? More sophisticated and costly tools may take longer to provide a benefit than a less-expensive tool, so choose wisely. Also, put into place those systems that will provide the most savings first and utilize a careful, phased-in approach.

Consider Outsourcing
If your budget or staff is limited, consider using a third-party logistics (3PL) provider. These companies can handle your inbound and outbound transportation, as well as warehousing and bill payment.

A 3PL also may be able to offer freight consolidation, which could translate into your shipments gaining priority treatment at receiving docks that handle full-load shipments before partials.

They can leverage inherent economies of scale to negotiate contract rates and terms that would be difficult for an average-sized manufacturer or distributor to match. But bear in mind that it is the manufacturer or distributor that is ultimately accountable for ensuring that products reach the customer on time and in good condition.

Time to Get Proactive
Thanks to unstable fuel prices and the increasing costs of warehousing products, the time is right for an end-of-year review of your transportation and warehouse logistics. Using your findings, determine a plan of action for the coming year. With new warehousing technologies, increased knowledge about customers and their buying habits, and the availability of superior outsourcing solutions, a nimble company may be able to achieve a short-term competitive advantage.

Kelly A. O'Callaghan is a partner at J.H. Cohn LLP. She leads the logistics, warehousing and transportation specialty service area within the Manufacturing and Distribution Industry Practice at J.H. Cohn. O'Callaghan can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it