Boards Ignore Intralogistics at Their Own Risk

Warehouse Waste Eats Profits Before the First Order Ships

Boards of directors spend hours debating new buildings, mergers, acquisitions and tech platforms. But they spend precious little time discussing intralogistics – how your operations manage the flow of material, goods and associated information within the four walls your company already owns.

That’s a critical error. From a strategic perspective, intralogistics contributes directly to key business metrics like cost per order and order cycle time. Yes, most people picture logistics as trucks, ships and planes moving goods from place to place and port to port. But all those raw materials, components and finished goods are, at one time or another, inside your facilities, warehouses and distribution centers.

Anybody with an industrial engineering degree – and I have three from Purdue – will tell you that waste kills your bottom line. Efficient internal processes generate much less waste. That’s less movement, less waiting, less overprocessing, right-sized inventory, lower energy costs and fewer damaged products.

If you get intralogistics wrong, you start losing money before the first product leaves on the first truck. You pay people for walking instead of fulfilling orders. You pay for inventory that piles up because nobody trusts the reported stock levels, and for space the layout wastes. And sometimes the fix your team proposes is a new building you never needed.

Boards see the sticker shock of new warehouse technology or a redesign. They rarely see what bad intralogistics already costs every quarter. That’s the number they should weigh against the upfront price tag.

 

 

The Cheapest Square Foot Is the One You Don’t Have to Build

Running a warehouse, distribution center or fulfillment center isn’t cheap. Labor, warehouse space and inventory are hard costs of warehousing that boards just can’t wave away.

With intralogistics, small gains per task add up. Slotting products better, reducing travel time through smart layout and adding automation all cut labor hours per order.

Let’s say one of your warehouses ships 8,000 orders a day. Shaving 30 seconds off each order equals 240,000 seconds, or 67 hours a day. That’s roughly eight eight-hour shifts. At the Bureau of Labor Statistics median wage of $22.06 an hour for warehouse workers, that’s nearly $1,500 a day – about $380,000 a year on a five-day schedule, before benefits and overtime. You can redeploy those people to higher-value work, cut overtime or stop paying for temp labor.

Multiply those savings across an entire distribution network, and we’re talking real money. Cost savings for five warehouses total about $1.9 million in wages alone.

And if running a warehouse isn’t cheap, building new ones is even more expensive. A 250,000-square-foot distribution center at the medium cost of $87 per square foot comes to about $21.75 million for the shell alone.

While costs vary by size and type of storage facility, in my experience the fix costs far less. Reslotting SKUs takes one to two weeks and can run $10,000 to $20,000. A warehouse redesign might cost $35,000, and new material handling equipment another $80,000.

Even at the high end, that’s about $135,000 – roughly a third of one year’s labor savings in a single warehouse, and well under 1% of a new building.

Intralogistics is not just a cost center. Smart leaders invest here because it pays back fast. With better intralogistics, companies can add capacity, reduce inventory and labor costs, improve service – and avoid spending millions of dollars on new buildings.

Your Customers Never See Intralogistics. They Feel It Every Day.

Your customers have never heard the word intralogistics. They never will.

But think about what they expect. They want the right product, at the right price, delivered how and when they choose. If they order online and pick up in the store, they don’t want to wait more than a few hours.

Every one of those expectations depends on order fulfillment. And order fulfillment starts inside your warehouse.

Whether boards think about it or not, customers are their lifeblood. Without them, the company, the employees, the managers and the board cease to exist.

Since the advent of eCommerce, I’ve noticed one common thread across scores of retail operations: Slower delivery times mean fewer sales. Late orders force premium shipping. And inaccurate orders increase returns.

All of those add up to higher costs, lower customer satisfaction and lost sales.

And your competitors are counting on it. Amazon markets same-day, next-day and two-day delivery as a selling point. If your warehouse can’t keep pace, standing still cripples your competitiveness. Customers won’t wait for you to catch up. They’ll buy from someone else.

 

 

Intralogistics Is Your Shock Absorber

For the last six years, resilience has shared top billing with efficiency in supply chain. Perpetual disruption is the name of the game.

First came the pandemic. Then came attacks on Red Sea shipping, tariff swings and trade wars, with shooting wars on top of that. Nobody can predict when demand will spike, by how much or when it will fall again. That makes life even harder for warehouse operators.

At its core, intralogistics is your shock absorber. If you’re not resilient and agile here, the whole supply chain rattles.

A well-run logistics operation can shift inventory between regions when one market dries up and another takes off. Well-designed warehouses can quickly reconfigure to handle a new product line. Less organized operations struggle to do either.

Growth tests your layout the same way. Modern warehouse design builds in room to adapt, such as a mezzanine or floor space reserved to add new material handling equipment later. You add capacity without building another warehouse.

When disruption hits, and it will, flexible intralogistics decides whether you’re scrambling or seizing the opportunity. Scrambling means paying whatever it takes to catch up and still leaving orders unfilled. Seizing it means winning the customers your competitors couldn’t serve.

‘If It Isn’t Broken’ Is a Board-Level Blind Spot

Most warehouses look fine from the boardroom. Orders ship on time, customers get their products and nobody sounds an alarm. Meanwhile, inefficiency compounds quietly, and it never shows up as a line item.

That’s how “if it isn’t broken, don’t fix it” turns into a blind spot. Complacency can be fatal to successful businesses.

If you want your board’s attention, start with these questions:

• What does it cost to fulfill an order, and how has that number moved over the last three years? If nobody knows, that’s the first thing to take to your board.
• Can management show that the buildings we have are full? If not, board members should not approve another building. Space crowded with slow movers, wide aisles and poor slotting isn’t the same as running out of room.
• How much inventory do we carry because we don’t trust our own counts? Safety stock that covers for bad data is capital sitting on a shelf. Let your board know.
• If volume jumped 30% next quarter, where would our warehouses break first? If management can’t answer this, the board is betting the next spike never comes.

Your board will never see intralogistics on a balance sheet. But it’s there – in labor, inventory, space and every customer you keep or lose.

Is intralogistics even on your board’s agenda? I’d like to hear the answer.

 

Related Reading

• AI in Warehousing Won’t Fix Broken Processes
• Build Leverage Before Your Next SaaS Contract Negotiation
• Warehouse Design Should Start with Flow, Not Space