The Hidden Costs of the Blind Warehouse

The warehouse is undergoing a transition, from a “blind” status, from a data-visibility point of view, to a fully “adaptive” one where systems will think and act autonomously to improve performance and operations. 

There are many warehouses today that still operate in a blind mode, meaning that they rely strongly on traditional ways of gathering and measuring data - pen and paper, manual tracking and spreadsheets. We call this stage “blind” because manual data gathering and interpretation is prone to errors, is not timely enough to make impactful decisions (for example, when cycle counting happens every 6 weeks) and it leaves room for a costly lack of transparency. 

Blind warehouses have - or at least, used to have - their benefits too. Deploying new technologies can be disruptive, introducing costs associated with training, and also exposure to cyber security risks. These benefits are  limited  in comparison with the alternative of switching to a more tech-driven approach, as we will see.

Remaining in this blind stage is a choice now. With all the new technologies on the market, with the raise of digital twins and centralised points of truth, with a wide range of tools going from really basic ones like barcodes, RFID tags, and scanners to warehouse management systems, automated robots and AI, there’s no question that going on a digitalisation journey is more accessible than ever. 

For those who choose to avoid this transition, there are both obvious and more hidden costs. 
‍

Higher inventory costs

Lack of real-time visibility over inventory has one of the biggest impacts on budgets. Given the accelerated growth of ecommerce and high demand fluctuations, warehouses might overstock to stay competitive, but inefficient inventory management comes with a cost - last year, the cost of inventory distortion was projected at $1.7 trillion, “with out-of-stocks accounting for $1.2 trillion and overstocks totaling $554 billion” (source).

The challenge associated with manual, analogue data gathering doesn't revolve just around over-stocking. Not having real-time access to an accurate inventory and to intelligent forecasting can also lead to understocking, misplaced stock, unnecessary replenishments or aging or obsolete stock.

Inefficiencies can cost companies from 20 to 30% of their revenue each year, data shows. The main causes of such inefficiencies is relying on manual data gathering, and insight analysis. In a blind warehouse, this process is slow, prone to errors and incomplete - siloed data fails to provide an accurate overview of the inventory, having a major negative impact over the business. 
‍

Inefficient space utilisation

Without precise, real-time data on inventory, warehouses are exposed to inefficient space utilisation. Items are not shelved as they should be, aisles are not properly organised, leading to wasted real estate. 

Inaccurate inventory management is the first step in a much more costly cycle, followed by space-related decisions like renting extra space or expanding just to cope with an existing demand. 

Warehouses end up paying more not just for the actual space - but also for maintenance, energy, labour, without getting the benefits they expected.
‍

Increased labour and process costs

Without the help of technologies like robots, order picking involves a lot of low-value, sometimes even dangerous manual work. Instead of scanning items or finding them with robots, workers look up for them and handle them manually - sometimes picking the wrong item. 

Not having a performant, updatable, digital map of the warehouse along with a full visibility of inventory and the right tools to identify product location and handling, can lead to unnecessary raising headcount and overtime to keep the operation moving. 

Needless to say, a blind warehouse can face higher work-associated costs than a digitally-empowered one.

‍

‍

Customer impact

With no live, real-time data, it becomes increasingly challenging to meet demand properly and serve customers fast.

Customers value a great customer experience - and when products are out of stock because of poor inventory management, shipping dates are missed and orders are delayed. With the next choice just a click away, clients will just switch to another operator, and brand loyalty is lost. 

“58% of consumers will sever a relationship with a business due to poor customer service” (source) 

Not having enough stock can affect delivery dates and also rush restocking at higher costs, while having too much stock means that space is occupied inefficiently. Handling picking manually can also lead to errors, as the wrong product or quantity might be picked, and then to returns, re-picks and even to penalties.
‍

Safety & compliance costs

Manually operated warehouses have higher chances for accidents - workers operate forklifts, climb on ladders, and manually handle objects that might fall and break or injure someone. In the next phase of the digitalisation journey, the Observable warehouse, this safety challenge is addressed through robots that can take over more repetitive and dangerous tasks.

Without proper tracking, recalls or quality issues cannot be identified and managed correctly, which means that compliance is also at risk. Recalls are costly - for example, in the food industry, the average recall cost is $10 million in direct costs, “plus brand damage and lost sales”. In other sectors (like pharma), not tracking or storing products according to regulations can lead to penalties.

Just adding more equipment, bringing more people on board, increasing manual labour volumes, holding more safety presentations doesn’t solve it and adds extra costs. A blind warehouse fails to keep up with its competition just because they are faster, safer and more compliant using available technology.
‍

The competitive advantage

The global warehousing market is growing rapidly, especially due to the expansion of ecommerce. The old tools cannot keep a player competitive in this new environment, where the entire supply chain is changing, as the whole world around it. 

The underlying hidden cost of staying blind is staying behind. 

Sensors, IoT, robots, digital twins, AI - all of these are already in use in several operators’ warehouses, from smaller ones to big companies like Amazon or Walmart, and for good reasons. 

These tools and technologies have become a strategic asset - for example, AI-powered tools can “unlock 7 to 15 percent additional capacity in warehouse networks” (source), while using AI-driven forecasting in supply chain management “can reduce errors by between 20 and 50 percent - and translate into a reduction in lost sales and product unavailability of up to 65 percent.” (source)”

Speed, accuracy, and efficiency define success. Staying blind to your own data and processes, especially when access to technology is more democratic than ever - that is a business liability.
‍

The need for warehouses to open their “eyes” is bigger than ever

Warehouses can no longer afford to stay “blind.” From a cost, safety, brand and competitive perspective, the price to pay is too high. Operating with pen and paper, relying on manually gathered and interpreted data in a world where accurate forecasting and optimisation is the name of the game, choosing opacity in lieu of transparency - all of these are keeping warehouses in the dark. The more obvious costs are backed by hidden ones - it’s not just about overstocking or understocking, but about safety, space management, customer relations and staying competitive. 

Learn more about transitioning from a blind stage to more advanced ones, and the characteristics and benefits of each step along the journey from our recent whitepaper: “The journey to Adaptive Warehouses: How automation, AI, and real-time data are redefining logistics”.