Warehouse Optimization, Hidden Costs, and Laying the Foundation for Improvements

In this episode of Growing EBITDA, Mike and I sit down with James Lowe, a Director at TriVista, to explore the fundamentals of warehouse optimization. We break down how optimizing warehouse operations can significantly reduce costs, improve efficiency, and drive top-line growth.

James shares insights from his 13+ years of experience in supply chain and warehousing, discussing hidden costs, process inefficiencies, and best practices for leveraging technology, automation, and strategic warehouse design.

Key topics covered:

• Identifying inefficiencies and hidden costs in warehouse operations

• How warehouse optimization impacts the bottom line

• The role of technology in streamlining warehouse management

• The importance of inventory control and process standardization

• Practical steps for improving warehouse efficiency

Whether you’re leading a distribution-heavy business, a manufacturer, or a private equity-backed portfolio company, this episode delivers actionable insights to help you optimize your warehouse operations and drive EBITDA growth.

Stay tuned for our next episode, where we dive deeper into advanced optimization strategies and the impact of AI and automation on the future of warehousing.

Listen now and start unlocking the full potential of your warehouse operations.

Episode Transcript

(00:00):
Welcome to the Growing EBITDA Podcast, where we unlock the doors to management and technology

(00:08):
insights in the middle market.
Join us as we explore innovative strategies to drive revenue and EBITDA growth, interviewing
industry leaders and technology experts.
Whether you're looking to streamline operations, understand the latest tech trends, or lead
your company towards exponential growth, you're in the right place.
Stay tuned and let's grow together.

(00:30):
All right, welcome back in the studio.
James, where's your studio today?
Where are you dialing in from?
I'm calling in from Vegas today.
So we're in a mobile studio, Mike, which is kind of nice.
We're trying out this remoteness.
Vegas, what are you doing in Vegas?
So this week, it's going to be a bit dated when you listen to this podcast, but I'm at

(00:54):
CES this week and kind of attending the CES for the purpose of hearing about all the great
innovation so one day you and I can have a podcast that we talk about it.
Cool, great.
And who do we have with us today?
Well, I think we have another James joining us today.
I guess we'll ask James, where are you calling in from, James?

(01:15):
Hey, I'm calling in from Maryland after 10 inches of snow this week.
Excellent, excellent.
How'd they do with that drive in Maryland with 10 inches of snow?
Nothing, just shut everything down, don't go anywhere.
Good thing this episode's not about logistics.
Lots of sledding, that's all you need.
Yeah, so James, Bandy, what are we going to call our guest James?

(01:38):
I think we're just going to call him by...
We're going to be confused the whole time.
I think we got to show respect to our guest as the first official guest and go full name,
James Lowe.
James Lowe?
Does that work for you, James Lowe?
That works for James Lowe.
All right, excellent.
Well James Lowe, thanks for joining James, Bandy and I, James and I.

(01:58):
We're excited to talk about all things warehouse.
And really specifically, when we were prepping for this episode with you, we wanted to dive
into warehouse optimization, right?
There's a lot of change that's been going on in fulfillment centers, in warehouses over
the last five, 10, 15 years, probably a lot more changes to come with technology improvements,

(02:26):
maybe AI, maybe we'll get into that at some point.
I'm sure you have some thoughts on that.
But we're going to do a deep dive and we're actually going to do this over a couple of
part series.
We think we're going to do maybe two episodes on this and try and cover some ground, really
trying to unpack how do you optimize warehouses, where are some of the hidden costs, and how
do you lay the foundation for making improvements.

(02:49):
Today we're going to focus kind of on some of the more fundamentals and the costs associated
with poor warehouse management and kind of get into some of the business problems that
people are experiencing that they're going to try to improve in the coming years and
maybe some tools and some best practices and insights that you have as a professional in

(03:09):
the space that helps all different kinds of companies of different shapes and sizes optimize
their operations.
So hopefully we'll learn a little bit from you today, James, about improving efficiencies,
reducing costs, meeting the ever changing demands of the customer landscape, which if
you're serving consumers versus industrial companies, a lot of change on both fronts.

(03:33):
I think a lot of people who are going to hear this think warehouses might go straight to
thinking about companies like Amazon.com who serve predominantly consumers, but there's
a big part of this landscape that is kind of more B2B in nature.
So I'm sure we'd like to hear from you about some opportunities to improve those kinds
of businesses too.
So James, introduce yourself, give us some of your background and let our listeners hear

(03:59):
a little bit why about who you are, what you do, and why you're here today.
Thanks Mike.
So James Lowe, I'm a director to TriVista in our supply chain practice.
Been around the firm for coming up on 13 years this year, so long time employee at the firm.

(04:19):
Spent first couple of years of my life working in our continuous improvement group, doing
process improvement work at various manufacturing sites and different businesses, then transitioned
over to our footprint and network group and spent a lot of years starting up and closing
down and relocating facilities.
And in the last couple of years, I've been focusing more on the supply chain side, whether

(04:41):
that be sourcing, procurement, PsiOp, and then also the warehouse optimization piece
of this.
In my footprint experience, I actually started up, personally started up a couple of distribution
centers.
So got a deep experience from cradle to grave of designing a warehouse with GCs and landlords

(05:01):
of what we can build in the building, working with clients on what should their racking
layout be and how do they want to manage inventory in the building.
So this is an area that I've personally seen that come from nothing to something, as well
as gone into existing warehouses and spent a lot of time trying to help clients figure
out how can they be more efficient and kind of treat the warehouse as an asset as opposed

(05:26):
to just a building that they keep stuff in.
And James, so in all your travels, how many different companies you think you've worked
with over the last 13 different years?
I looked at the report a few months ago out of the system and I think I was at over 150.
What's the most interesting business that you've seen out of those 150?

(05:47):
Warehouse related or not, I'm just looking for, I'm looking for a fun one.
I mean, I think, I think the one I go to is I spent three months in a marinara sauce factory
and spent the first month of that working in their cook room.
They call it the kettle room because they cooked everything in these steam kettles.
And I personally rewrote all of their recipes, essentially their SOPs and work instructions

(06:11):
on how to-
Did sales go down after that?
I don't think so.
I kept buying the product.
They let you change the recipe?
I tweaked it.
I standardized the recipe.
So wait a second, after three months of working in that factory, you still had an appetite
for marinara sauce?
That was going to be my question, Mike.
Do you still eat marinara?
I took a break for a while.
I took a break for a while.

(06:32):
But no, I still promote the sauce and have very proud of that sauce.
Oh, you're sponsored by them still?
I wish.
No, not anymore.
I wish.
They did ship me boxes of sauce back home whenever I was done working there.
I never got one of those boxes.
You get one of those, James, Bandy?
No, I don't think I was around, unfortunately.
No, by the way, I got some pasta in the kitchen, James.

(06:54):
You just want to send me one of those.
We'll be able to, we'll feed the kids tonight.
Hey, by the way, Mike, I think James is actually a chef.
He sent Cindy the pasta.
She should arrive at your home, run the recipe and make it fresh for you in your home.
So that's what I'm here.
That's true.
That's true.
We're going to have to do a whole series on the culinary adventures of Mr. Lowe here.
I'll just slip it a jar and you guys won't even notice I didn't make it from scratch,

(07:17):
but it'll still taste good.
Yep.
Oh, well, that's fun.
So to get back to, to get back on topic here, because I'm sure I could talk about pasta
all day long, one of my favorite foods, that's for sure.
But to get back on topic here, what I, what I tend to do, I found that I like doing this.
I plug the topic that we're going to talk about into chat GPT.

(07:37):
Love chat GPT.
Quick shout out for those guys.
And I asked them how it, how would it define warehouse optimization?
So I'm going to read it to you.
And it said, warehouse optimization is the process of strategically improving warehouse
specifications, spanning layout design, inventory management, labor utilization, and technology

(07:58):
adoption to maximize efficiency and cost.
And to put that a little bit more in layman's terms, it's really about making your warehouse
run like a well-oiled machine, right?
Ensuring everything from inventory to labor works in perfect harmony with your business
goals.
Right?
Is that, you think that's a fair characterization?

(08:19):
Yeah, absolutely.
I mean, I think another way of kind of putting a phrase on it is, is how do you make warehousing
a core competency of your business, right?
It's not just somewhere you store stuff.
It can be a differentiator for your business if you, if you leverage it appropriately.
Hmm.
And do you, do you mean that for businesses where distribution is the business or do you

(08:43):
think there's opportunity for companies that aren't pure play distributors?
I think both.
I think it applies to both manufacturing and distribution businesses because if you're
able to improve your order accuracy and whether that applies to both, a lot of the, one of
the key metrics we talk about all the time with clients is, is on time and full.

(09:04):
And so making sure you're not damaging product, picking product accurately, shipping it at
the right time, meeting deadlines.
That applies to any, any business that has a physical product that they're shipping out.
So who should, let's talk about who should care about this, right?
I was kind of joking earlier, not joking per se, but you know, I mentioned amazon.com,
right?
I think a lot of people are going to hear warehouse optimization and they're going to

(09:27):
think about businesses like, like Amazon, but who, who, who should listen to a podcast
like this where we're talking about best practices around warehouse optimization and, and how
to improve.
You just attested to, it's not just pure play distribution companies, right?
It could be manufacturers too, but who else?
As we all know that there were three of us at least know our listeners, if they're new

(09:48):
or might not, you know, we do a lot of work with standalone businesses, corporations,
whether those publicly or privately owned.
We also do a lot of work with private equity backed businesses.
Should private equity investors care about warehouse optimization?
James, what do you think?
I think if you're going to spend the time to invest in racking and material handling
equipment and have a potentially a decent chunk of labor force focused on this activity,

(10:13):
it should be a key metric that you are monitoring and measuring on a daily basis to see how,
how well you're running that side of the business.
If people start focusing on this and implementing some of the maybe suggestions that you'll
share today, what's typical when you, when you walk into a warehouse operation, what,
what kind of improvements and benefits are you typically seeing through an initial walkthrough

(10:36):
or through an initial assessment?
Yeah, I think jumping over to James Bandi's side of the world for a second, one of the
changes we've noticed in the last decade has been the adoption of WMS systems.
They've become a lot more accessible to much smaller companies, smaller than the Amazons
of the world.
The challenge with that is it requires a change in process and behavior when you adopt that

(11:01):
technology to ensure your training, your people to actually use the system efficiently.
We've seen that during that technology adoption phase, you end up having to throw a lot of
labor at the problem because you're not able to train and sustain the changes that you're
trying to require of your, of your business.
Let me just dive in real quick here.

(11:22):
I'm going to talk about some of the key topics that we've asked you to talk about today,
just to kind of tell folks what we're going to go into in a little bit more detail.
And those include starting from the basics, like we said, the fundamentals, we're going
to talk about an introduction to warehouse optimization, what it is and why it matters.
We're going to talk about hidden costs of poor warehouse management, identifying and

(11:43):
resolving bottlenecks, spend a little bit of time talking about optimization strategies.
And then we're going to touch on technology, which you just touched on a second ago, James.
We're going to touch on technology a little bit today and talk about how tools like AI
and automation are starting to reshape warehouse operations in the 2020s and how that might
be a little bit different than how they've been running in past decades.

(12:05):
The next episode in the series, I think we're going to dive even deeper into technology.
So if that's primarily what folks are trying to listen in for, you know, stay tuned, but
I'm going to pass it over now to Mr. Bandy and ask him to dive in here a little bit.
Yeah.
James, you ready to be on the hot seat?
No.
So the first question that I had, which is interesting because Mike, I didn't GPT it.

(12:29):
I was going to ask our human here the same questions.
Well, you know, you got to remember, you got to remember, I don't understand most things.
So if I don't have chat GPT, you know, helping me along the way, I'm not going to get very
far in this life.
Yeah.
And I didn't know a lot about this either because I brought a friend, the other James.
Is I thought maybe a fun place to start, James is baselining a little bit, right?

(12:50):
What is warehouse optimization in your words?
And then I think at the end of that, maybe we can chat a little bit about that.
And then let's round it out by kind of the benefits, because I think one of the things
that we on the podcast always try to understand is establish what it is and then how can I
benefit from it or how can I improve?
And that's really what we're here for.
So let's turn it over to you and give you some time to tell us in your own words, what

(13:12):
is warehouse optimization?
It's a broad topic.
It can cover, you know, really every aspect and functionality of the business, regardless
of whether you're a manufacturer or distributor.
If you are receiving sales orders and fulfilling those from a location, you know, it takes
more than just people going and picking items off a shelf and putting it on a truck.

(13:35):
So if you're thinking about warehouse optimization and all you want to do is try and reduce the
head count, reduce the complexity inside the four walls, you need to broaden that view
and go and look at really your inputs, the sales and the procurement side of the business,
how am I buying product and receiving it in that warehouse, how may be converting it in
a manufacturing business and then taking finished goods and exchanging those raw materials into

(13:58):
finished goods, into a finished goods storage facility.
And then how quickly can I get a sales order processed in the front office and get that
fulfilled by the warehouse team?
And though all those pieces have to be in constant communication, you can't just run
isolation and expect the two different sides of the wall, front office and the warehouse

(14:21):
to know what each side is doing without constant communication.
ERP systems help with that, but there's obviously a lot of human error that can be involved
there and managing exceptions between the warehouse and the processes.
So we typically walk into a warehouse project like this and we try to interview all the

(14:43):
key stakeholders across the business.
It's not just, hey, show me how something moves in your facility.
Yes, that's the most important part potentially, but it's how does the information and process
flow between all the different functional areas.
The secondary part of that becomes the physical side, right?
There's the information side, then there's the physical side of movement.

(15:05):
We can go back to our Trivista fundamentals of lean manufacturing and lean processes.
Lean is a form of waste, so how do we look at a facility and put the inventory in the
right location that it can be picked quickly, efficiently, without damage?
And how quickly can we get people to move that to a dock door or staging location to

(15:28):
then get it on a truck?
And really those combinations, you want to time is money and to optimize that labor side
of the piece, you need to get the layout side optimized as well as the information flow
optimized.
And if you're able to combine those, you'll start to see significant improvement both

(15:49):
on an OPEX cost side of the business, but also on the customer satisfaction side because
you're able to meet customer demands a lot quickly and then become scalable.
You can then start to go out and push your sales team to sell more, drive top line growth
and understand the capacity in that warehouse to be able to go and push that market.

(16:11):
One of the things we get asked all the time is how many locations, how many warehouses
do I need in my network?
And that's not a simple question to ask.
It could be due to market demands as far as lead time.
We've all seen the expectation in our personal lives that you order something off Amazon

(16:31):
and it's here next day.
That's not always the case for every market and every business, but there's a lot of companies
that have expectation.
If you order a part, you order some type of B2B item, you expect it to be in your facility
within at least within a week.
And you've got to be able to meet that lead time and shrink it as quickly as possible.

(16:53):
The other piece becomes working capital.
If you're not able to understand where inventory levels are, how quickly you're turning inventory
and how you optimize that, that can be a drag on the business because you might have either
slow moving products that you're not managing appropriately, or you might have excess inventory
that's just taking up carrying cost and space in your warehouse that you could be using

(17:16):
for products that actually might make you money quicker.
So there's a lot of elements here that I think everybody in the business from the sales side
and the CEO's leadership to a CFO to a COO, all three of those C-suites should have a
strategic view of how does a warehouse drive and pull levers in their business.
James, one of the things that I think that's interesting is, I came from large retailers,

(17:39):
multinational retailers, a lot of warehousing was obviously a lifeblood coming from a distributor
that also had warehousing.
I think a lot of times when folks hear these types of programs, they think really large,
arduous, multi-year, big programs.
Can you maybe talk about the scale of these projects and is it always this big?

(18:00):
Because I think we've talked so far to this moment about these big programs.
Are there potentially some smaller things that are done along the way that are still
under that warehouse optimization?
The small projects, and I can give some examples actually.
That'd be great.
Of things we've done with clients.
We've recently worked on a consumer goods company in Pennsylvania and they had a combination

(18:24):
of a finished good distribution warehouse as well as a final assembly lines within that
warehouse.
It's called value add distribution where they're not manufacturing the parts.
They're outsourcing the actual injection molding and electronics and all those things are all
done overseas.
They were bringing that all, landing it in the US and then doing the final assembly and

(18:46):
then boxing it and putting it into storage.
They called us going, hey, we don't know our inventory is in the warehouse.
We are struggling to supply product to the assembly lines so that when sales orders come
in we are just running around trying to find stuff to get it out the door.

(19:06):
We had a double approach to that which was we'll come in and help you evaluate where
should your inventory be stored in the racks themselves because they were not utilizing
the system to dictate and tell them that.
We put together a strategy of where should you be storing product and dedicating pick
locations, storage locations for that product.

(19:28):
Then we set up really more on the process improvement CI side of the world is sideline,
line side sorry, line side bins and raw material storage locations so that they could pull
product as they needed it.
You set up a Kanban system where empty bin means somebody has to go and pick more product

(19:49):
and they are able to meet the demand and cycle times that they needed to achieve to get out
of that on time.
Those are relatively smaller projects.
We're not talking about redesigning a whole warehouse, opening a new warehouse.
It's taking what you've already got and just putting the process and structure behind it.
Another example on more of a pure distribution business is pick pack ship stations.

(20:15):
That's a relatively simple project but if you are not thinking about it in terms of
lean manufacturing viewpoint, you're going to struggle with the whole flow and process
of that of line leveling, making sure if you're trying to put too much on the pickers versus
what the packers can pack versus how do those boxes get staged by Dockdors.

(20:40):
It's not as simple as just again, keep throwing labor at it.
You've got to figure out how do I maximize that labor and really you start to think in
warehouse terms, you think about pick lines.
It's not about how many orders can I get.
It's how many items on an order do I want to go and pick as efficiently as possible
because every line item in theory, if you've got primary pick locations that are refilled

(21:03):
appropriately, every line item is a stop on a track around a warehouse.
You start to measure your warehouse employees based on how many lines are they able to pick
per hour, per day and that's how you start to drive efficiency improvements with very
little other changes.
It's just, hey, this is your goal.

(21:24):
This is how many lines you have to pick and setting up that fundamental concept is a simple
project but can have huge impact on how you run your warehouse.
Those are great examples.
I think the VAS side is always an interesting side to talk about how do I align that and
make sure I'm covered.
I do also like the idea of thinking about I have a very specific issue I'm trying to

(21:46):
solve.
I need to solve this issue before I solve my next.
I think that's a good one.
You answered a bit of my question but my follow up to that was going to be how do I know when
I'm done?
Right?
So I have the issue.
I've done the improvement.
I've never done.
The answer honestly is you're never done.
It is as we do in most of TriVista's clients, it's a continuous journey, continuous improvement

(22:09):
journey of always looking for that next step of improvement and maturity on the growth
path of becoming an operationally sound business.
There's always waste to go and chase.
It may be in different areas and you're going to kick it down to a different bottleneck
at some point in the process but you're never done in this journey.

(22:31):
There's always something and obviously depending on your business, how it changes year to year
and what products you're carrying, you may find that what you did last year may not apply
because you've had to change your business model or what products you're offering to
support or you might do an acquisition.
A lot of times we get called in because they bought a business and they go, hey, how do
we fit two different businesses with unique SKUs and profiles and complete different ways

(22:56):
of picking the product even into the same warehouse because sometimes you're talking
about case picking or each picking versus full pallet picks and you handle those completely
different even within the same four walls.
So it's never done.
No, I agree with you.
That was a bit of a tee up, a softball question there because I think that is a fair answer.

(23:17):
The last one for this section, you talked about it a little bit earlier but I do want
to call it back because I think it's important because a lot of times when we hear the optimization
side, warehouse optimization, we think finished goods, pick mods, goods to people, automation,
all that type of stuff.
You mentioned manufacturing and I just want to go back and just put a lens on and you
don't have to spend the same amount of time if you don't want but what's the projects

(23:42):
you see in that and how am I done and that same lens but for manufacturing, does it change
at all?
Am I thinking about optimization differently or is it essentially the same?
It's just raw materials.
What are your thoughts on warehouse optimization as it relates to manufacturers?
Usually doesn't change very much because it's more about segregation inside the same warehouse.

(24:06):
You're typically not going to intermingle raw material and finished goods inside the
same four walls.
You're going to have dedicated either aisles or even just dedicated rack bays to raw materials
and there's the whole concept of a U-shaped cell and it depends on if you can get into
actual facility design and go down that tangent if you want but whether you're doing a single

(24:29):
loaded warehouse where your dock doors are all on one wall, whether you're doing cross
docking, your flow is going to be dictated somewhat by the shape and size of the building.
Your layout of racking is going to be dictated by dock door locations and column spacing
and how you want to set that up whether you've got raw material or finished goods, you're

(24:50):
probably going to want to segregate because you want to again think about the forms of
waste.
If you're a manufacturer and you've got on-site manufacturing next to your warehouse, you
want that raw material to be as close to the lines as possible and you may receive that
material differently than you ship finished goods.
A lot of our clients, they'll receive, think about metal fabrication for a second, you're

(25:10):
going to receive metal fab off typically flatbed trucks that don't use dock doors.
You have to either do side unloading or cranes whereas the finished good might be on pallets
and you can use a dock door and a forklift to get that on and off a truck.
So you've got completely different styles of truck receiving versus truck loading.

(25:31):
And so yes, they are different but you treat them the same way as far as the optimization
approach and process approach and what you probably want to tackle is set up different
projects focused on those unique things.
You can't use the same solutions but the same methodology and tool book can be applied to

(25:51):
both manufacturing raw material as well as packaged finished goods.
So James, let's switch gears here.
We've talked a lot about ways to improve already a little bit.
Tell me about the hidden costs in businesses, right?
I'm sure a number of our listeners are going to be well-versed in warehouse optimization

(26:13):
but I'm sure there's also going to be a large contingent that is looking for advice on this
matter.
How does somebody tell if they've got opportunities to improve?
Where do these costs hide?
Tell me about some of the inefficiencies that you see and how those inefficiencies are impacting
people's bottom lines whether or not they can see it themselves today.

(26:37):
This again is a broad topic because a warehouse you have inventory and so we could very easily
start having a conversation about SIOP side of the world of inventory planning and optimization
without even thinking about the actual physical warehouse itself.
It's the decisions you make on how much inventory should you carry and so without even going

(26:58):
to a warehouse you can look at historical demand data and current inventory levels and
tell a client, hey, you've got excess and obsolete or poor working capital utilization
that you can improve and that then translates into space utilization within the warehouse
itself because if you as a management team you might look and say I've got $15 million

(27:22):
of inventory and not know that a third of it is excess and if you're able to bleed some
of that inventory off you can now shrink your facility size from maybe down 25-30% or use
that space more effectively for other products or even for more other manufacturing processes.
And so there's a classic joke when you get a new building or you give somebody a bigger

(27:44):
building in this world that you give them extra space and they're going to fill it with
something.
We've literally had clients put up fencing or ballards to stop employees from filling
empty space because otherwise you come back in six months after you've handed the keys
of the building and you find just stuff stored there and you're like, whoa, this was penciled

(28:04):
in for a future product line, a future acquisition.
We've got a project right now that we're helping a client open a DC in Houston and they currently
outsource their e-comm department but they have plans over the next couple of years to
bring that in-house but they're not ready yet.
They got to do their full pallet picks first and then they want to phase in their e-comm
and so we're setting aside 50,000 square feet of a 350,000 square foot warehouse for e-comm

(28:29):
but we've already told them like, hey, you're probably going to find a ton of pallets stored
there on the floor because it's somewhere to stage something.
It's somewhere just like, hey, we don't know where to put this.
Let's just put it off to the side.
So you think about warehousing and distribution businesses and even manufacturing, one of
your biggest fixed costs is your lease cost of a building and you want to sweat that asset

(28:53):
that you're paying for on a monthly annual basis that you've signed up for 10 years,
a 10-year lease on a warehouse typically.
Sometimes you get down to seven-year leases and you've got to make sure when you sign
up for that that you've got the right space and that's a big area where we see some potential
hidden cost is, hey, you're carrying too much fixed costs on your actual lease piece.

(29:14):
The other piece becomes labor.
Some businesses, depending on how they got the financial setup, warehouse labor may or
may not be in cost of goods sold and above the gross margin line.
Some of it's going to be hidden in OPEX SG&A below the line and they kind of treat it as
a fixed cost and it's not.

(29:34):
People effectively are a variable cost because you can use temps.
You can maybe have to do some seasonal work depending on what the seasonality of your
business is.
And so if you're not able to manage that human capacity side of the business, you're going
to have margin erosion because you're carrying incremental payroll costs that you don't really

(29:55):
need and because especially if it's hidden below the gross margin line, you're not truly
understanding what your product line profitability is when it comes to your people cost and that
becomes a huge focus.
Another fun one is maintenance.
You can go to a warehouse, both manufacturing or distribution businesses, and you'll see

(30:17):
a lot of forklifts, a lot of material handling equipment.
And when those break down and somebody cannot go and pull a pallet, move a product, load
a truck because a piece of equipment is down and there's waiting for a maintenance team
to fix something, that's a huge hidden cost.
I've never heard anybody say the words fun and maintenance in the same sentence before,

(30:37):
but you did that nicely, James.
That's what I do.
So I wish I had to come back for you on that one.
There's room for that next episode.
Yeah.
So James, tell me about the impact on the bottom line.
So you talked about hidden costs, but give me order of magnitude.
How impactful can these hidden costs be on a business or some of these inefficiencies

(31:02):
be?
What are you seeing out there?
I think typically if we're going into a business that really hasn't focused on this, you're
looking at an opportunity of 10% to 20% reduction of pure warehouse cost, whether it's labor,
whether it's just getting more product out, who are more quickly be able to fill orders
more quickly.
You're able to drive that improvement of the bottom line.

(31:23):
And then it becomes a question of, can you scale that with your sales team?
If you've got more capacity identified, it can be a compounding effect of top line growth
because now you can meet more demand.
And so there's a huge opportunity there.
If you focus on driving that cost down within a warehouse, you can be more efficient from

(31:43):
a pure OPEX perspective, but then you can also unlock capacity that you didn't even
realize was there.
So what's the first thing you're looking for?
You go out to a new site, never been there before.
What are you looking for?
You do a walkthrough, 30 minutes, hour.
What questions are you asking?
What are you looking for?

(32:05):
What are some of the telltale signs that there are either $100 bills lying on the floor waiting
for somebody to pick them up or whether the processes can be optimized or the throughput
can be expanded or on time and full, as you mentioned, could be meaningfully improved.
What are some of the first two or three or four things that you're looking for?

(32:27):
Visually, a huge indicator of a poorly managed warehouse is dust.
It sounds silly, right?
But if you walk through a warehouse and you're looking at product on racks, on shelves, and
it's got a lot of dust sitting on it, you know immediately that inventory hasn't moved
in a long time.

(32:48):
So avoid the dusty marinara sauce, James Bandy.
That's what I learned on today's podcast.
That's the secret ingredient, though, that I added for that.
That's what makes it so good.
It's a silly one, but it's a visual check because literally you can figure that out.
Walk in five seconds into a warehouse, you go, hey, how much dust is sitting on this

(33:10):
product?
Now, obviously, there's some manufacturing companies that create dust because of their
manufacturing process.
So it's not a 100% rule, but for generally, if you've got a demised building that inventory
is kept separately, it shouldn't be that dusty.
But that's a big one.
That starts to go down the path of both how am I managing my inventory?
How are people picking it?

(33:31):
Am I following a FIFO practice of first in, first out, and making sure I'm taking the
older aging inventory before I pull stuff that I just received?
And it also goes back to the PsyOp discussion of am I caring too much?
Do I have excess and obsolete that I need to take care of?
That's one.
The other one is go walk the process with a warehouse associate or operator.

(33:55):
Go and ask them, hey, how do you know what to pick next?
If they can quickly show you, hopefully on an electronic device like a tablet or a scan
gun, that these are my pick tasks, this is what I'm working on next, you'll figure out
are they getting the information they need to be efficient.

(34:17):
If you ask them, okay, great, how do you find that product?
That's the next question to ask.
How do you go and find product?
The answer to that is I have to drive around a bunch and look.
That's an immediate red flag.
If you are wasting time by driving up and down aisles looking for product, trying to
identify, because it's either not marked correctly, it's not in the right location that the system

(34:37):
thinks it's in, or the system is just wrong, then you very quickly start again throwing
dollars back to your reference of $100 bills.
You're throwing $100 bills out the door just having people drive around on forklifts.
That's a huge, huge red flag.
The next one is damage.
If you start to see a lot of scrap in warehouses, whether that be packaging materials, whether

(35:03):
that's raw materials, that's finished goods, if there's a large scrap department and how
you get rid of that, that is just pure margin hit because you're throwing away product that
you spent a lot of money on to hold and now you're disposing of it, which most of the
time you're not getting any money back on that.
In some cases, depending on what the product is, let's say if it's some type of commodity

(35:27):
and there's some recycling opportunity there, sure, you might get a few pennies on the dollar,
but for the most part, anything your employees damage in your warehouse is just a pure loss.
That's a red flag as well if you start to see that.
That means there isn't a culture of caring about the product.
How are you training your employees to pick it up with a forklift, put it down with a

(35:48):
truck, and then it becomes a question of customer satisfaction of escapes.
One of the biggest things from a warehouse distribution perspective, and this applies
to both manufacturing as well, is how do you prevent your customer from being impacted
by those bad practices.
Very quickly and easily in a 15, 20-minute walk around a warehouse facility, if you can

(36:11):
visually see those things and ask an operator how do they know what to work on next and
how do they know what their goal is, that very quickly tells you whether or not you
need to go a little deeper.
That's all I got for you, Mr. Bandy.
Well, that was some good insights there.
I think there's a couple, the dusty learning, the part that was funny too, but that's one

(36:31):
of those that I always enjoy.
For me, that equivalent is when I go to a DC and I go see a pile of paper on the back
bay doors.
I know you're not using the system because you got this pile of paper, why the heck is
it in the system already?
Either A, you're not leveraging a system that will allow you to fully automate, or B, you're
so backed up that you can't code it in.
I think that's interesting is now we've gone through what it is, some of the value of it

(36:56):
financially and some of the other components.
I think a lot of our listeners are business folks and sit at these businesses and they
may be thinking to themselves, gee, there's a lot of great information.
Seems like James is really knowledgeable.
I wonder how knowledgeable and how well my organization's working.
I think that's one of the things we always do when we hear something is we bring it internal.

(37:19):
If I'm trying to understand my maturity level and I'm a business operator, what are some
things or how do I think or how can I go investigate my maturity level and do a little of my own
sleuthing and research to know where I am on that continuum that we discussed?
The way we approach that is with an initial assessment.

(37:39):
Fortunately enough, you can combine both the technology side of the world and the business
process human side of that into a single assessment.
Travis has got experience of being asked to come in from both angles where a client goes,
hey, I don't think I'm using the technology right.
Can you go look at it?
While you're looking at it, take a look at how my operators are operating.

(38:03):
From the flip side, I know I've got a bad operation here.
I know I've got an inefficient warehouse.
Can you also just check if I'm using the system correctly?
It can go either way.
Either way is an entry point into this discussion.
What we like to do is go in and use our toolkit of process maps and value stream mapping to

(38:23):
understand how everything's linked together in the business.
As we said at the beginning, you've got this need for information to come from sales and
procurement that has to feed that warehouse to make sure they know what's coming in and
what should be going out.
That process needs to be tightly linked together.
Then you've actually got the goal and process management of the people on the floor.

(38:46):
Are they able to go and drive to accomplish the goals that are set for them on a daily
basis?
Looking at that process, looking at the data that's available, and obviously every client's
got a different level of maturity and quality integrity of data.
If we can look at what's in inventory, how quickly is it turning and start to stratify

(39:06):
that into various segments.
We haven't even started to talk yet about ABC inventory analysis, which is a huge topic
in and of itself.
If you start to think about your warehouse in the different segments that you have to
serve, whether that be product lines, whether that be the ABC moves, whether it be for all
material and finished goods, you start to break that down into digestible chunks.

(39:30):
As we do, we start to put plans together on how do we improve those because not each one
of those different segmentations needs the same approach.
You might have different approaches across the facility.
What we try to do is we try to build a list of projects that will have meaningful impact
into the business.
Then on the technology side, which is really fun these days, is start to work on system

(39:55):
configuration and capability.
Are you paying for a WMS system that you might only be using 10% of the capability?
How do we start to increase that utilization?
Because you're spending a lot of money on license costs and not getting the value out
of it.
We try and look at it from that perspective as well.
They're heavily linked.
You want to use the technology to enable yourself to manage the business and have that data

(40:19):
and insight and not be flying blind.
From there, figuring out what else you need, you look at people.
People becomes a huge component of this.
Do you have the right skill set, the right leadership, the right structure?
Depending on how many shifts you're running in your warehouse, that can impact you heavily.
If you're a type of business that is reliant on external logistics companies to pick up

(40:46):
product, you're somewhat at the mercy of their schedule.
You're going to be told, hey, this truck's coming today.
You're going to be delivering at eight o'clock and you've got to assign a doctor to it.
Your pickup's happening at 2 p.m. because that's when the driver's available.
That's when the truck's available.
You've got to manage your actual receiving and unloading process around a schedule that
you may have very little input on.

(41:08):
There's the whole truck side of things that we haven't even really gotten into yet.
From there, from a people perspective, it's leadership and managing metrics.
As with anything, you only can improve what you measure.
If you don't have a baseline, you don't know what you're starting with, you don't know
what your goals are, and your leaders aren't able to hold their teams accountable to those

(41:29):
goals, then you don't stand a chance really of improving things.
We have to always go in and either see if that baseline exists or a lot of times, we've
worked with a bunch of companies over the years that we've had to put that baseline
in to even be able to start improving.
We go, hey, it's a process deployment.
It's not even process improvement at this stage of your maturity curve.

(41:49):
That becomes a good way of seeing if there's opportunity or not when it comes to improving
the warehouse.
I really like the comment around KPIs.
Here on the podcast, we're big on data-driven decision-making.
I think looking at those KPIs and having something to hitch to is pretty good.
I'm going to put you on the spot.
This is not something we prep for, but I think it's a fun one because I'm going to go back

(42:10):
to the dust thing.
We talked about, I'm talking to my team and I think some of these things are outputs that
you discussed in some of those.
If I had to ask one question of a warehouse operator and by that one question, I could
derive where they were on the continuum, what would be a good question to ask and say, hey,
it's blank, blank, blank, blank, blank.

(42:31):
Then they can take that answer and come to you and say, here's what I heard.
You can help them understand where they are.
We're going for the deep questions on this cast now.
We're not keeping it surface level.
We're stepping outside your comfort zone.
I like it.
Yeah, I think working with the frontline personnel is always the most valuable in these situations
because they know the job.

(42:52):
It's one thing to talk to a COO or a general manager or a warehouse manager, but the people
who actually pick up the product and put it down on a truck, they are the ones that truly
know what the pain points and issues are.
I think the question you can rely on to ask is, do you have all the information and tools

(43:13):
you need to be successful?
If they are able to proudly say, yes, I know what I should be picking, where it is and
where to put it, if they can confidently answer that question, then you've probably got a
pretty good operation.
If they tell you, turn around and say, yes, I know where my inventory is, but my forklift
breaks down every other week, pretty good indication of what your problems are.

(43:38):
If they turn around and say, I don't even have the right tool for the job or you start
to see them duct taping things in the warehouse, it's all those signs.
Going straight to the front lines and asking them, do you have the information and tools
to be successful, would probably be the question to start with.
I like it.
That's a great perspective.
I used to work with a guy that would go to warehouses all the time, and his question

(43:58):
was, what's the last thing you improved?
I think that that really doesn't get you as deep as your question because everyone's going
to have something last thing improved.
At the house, I am always answering my improvements.
I don't really like to focus on the things I'm not doing well.
That's a good perspective.
I like that, going to the front line.
I think that's one of the things that I also, when I joined Trivista, which by the way,

(44:19):
everyone, I hit my five year anniversary, so I don't have the tenure that you two fine
folks have, but just hit my five.
I think one of the things I respect about the firm is we go out, get on the floor and
have those conversations.
I think you proved that just in your answer there, so I respect that answer.
I'm on my path of wanting to be the best in the industry, and I'm on my growth path, and
I'm working my way through it.

(44:40):
Now I have some understanding.
I understand financial implications.
I've talked to the team where I'm at.
On that path to excellence, how would you bucketize that path in as I'm new or I'm along
the way or I'm immature?
How do you articulate where somebody is in that?
I think understanding and being able to have those conversations, let's say at board level,

(45:04):
but then drive the need to maybe reach out to a group like us and say, we need help.
How do I talk about where I am on the journey and then express that to business folks so
I can go get help to move up the curve?
If you could also define bucketize for me and maybe everybody else who ever listens

(45:25):
to this, that would be helpful too, Mr. Lowe.
By the way, Mr. Bandy, is that a technical term, bucketize?
I believe so.
Bucketization of information.
Bucketization.
Yeah, I'm going to bucket your question to the side and let Dave talk about that continuation.
Besides how do you group?

(45:45):
Sorry, let me be more proper.
How do you group those things and how do I articulate that?
The buckets I would use are definitely around the probably for most of our clients these
days it's about how they introduce technology into the warehouse.

(46:06):
You go back before most of our clients were using sophisticated ERP WMS systems and everything
was paper.
Everything was you get a pick ticket, you go and find the product manually, you take
it to a staging area and you put it on a truck and you're handing manifests over, you're
handing pick tickets over, everything's being signed off completely by human hands on pencil

(46:29):
paper.
The other end of the spectrum becomes full automation.
We can use the Amazon reference where very little humans actually walk around that facility.
It's a lot of robotics, a lot of automation and barcode scanning, RFID.
Very few companies are actually at that level of maturity.

(46:50):
You've got the whole spectrum there and there's how many milestones you could put between
the two.
That's a lot, but the buckets in that that you can think about as one of our clients
is let's say you want to get to some of the industry best practices of barcodes.

(47:13):
Barcodes is a simple one.
If you're able to reduce the manual input of SKUs, PO numbers, sales order numbers,
any of that information can be barcoded.
Great improvement because you take out human error of fat fingering data into a system
and you speed up the process of identifying is this the right location?

(47:34):
Is it the right product?
Am I putting it in the right place?
If you're able to go in a warehouse and see barcodes pretty perfectly across the facility,
whether that be bin locations, staging locations on the product itself, that's a pretty good
milestone to try and go for is that barcoding piece.
The next one's going to be around the actual handheld systems that employees are using.

(48:00):
Again, the paper to electronic transition of am I being told what to do because my manager
physically comes and hands me a piece of paper or am I being told what to do because the
computer system is able to do directed picking, directed put away and I can just follow essentially
what the system is telling me to do because it's got enough logic built into it that it

(48:24):
can guide me and be somewhat of a manager itself.
The managers end up then just managing by exception.
They don't have to go and babysit and make sure all the employees are picking the right
stuff at the right time.
The next step in that curve, some of the best practices we like to see is more on the inventory
management side.
I use the phrase there, directed picking, directed put away is do you have a business that, again,

(48:49):
the system is driving you to best utilize all your pallet locations because if you're
a business that has dedicated primary pick locations, you usually have overflow inventory,
excess inventory that is overstock that you're going to be pulling from.
The system should be able to tell you, hey, this bin's getting empty.

(49:13):
Material handler person, you go grab a pallet of it and bring it to the primary pick location
so that the pickers don't have to travel two, three, four times as much to go pick it from
the overstock location.
That's another gating item.
The other piece that we've seen a lot more get introduced is license plates.
Actually be able to monitor discrete pieces of inventory because you're giving them a

(49:37):
unique ID number inside the system versus a lot of times, if you're doing a basic WMS
location and running a warehouse that way, you are simply telling it, hey, I got another
pallet of SKUX and it's a thousand pieces.
I already have a thousand pieces.
Now there's two thousand, but I don't know which one's older, which one's newer.
I don't know where the new one is.

(49:57):
I don't know where the old one is.
Whereas if you're giving it a unique warehouse license plate number and you tell it, hey,
license plate Y is in that location, it can now start to handle that inventory churn and
turnover that you want.
If you're doing bulk picking versus piece picking and you know you've got a full pallet

(50:18):
of something and a customer orders a full pallet's worth of product, you now don't
have to go and build a pallet of that based on multiple boxes.
You can go and just pull that full pallet because the system knows it exists.
It knows how much is on it.
That's another big step.
Then you start to get into some of the more automation, cobot, semi-automation, whatever

(50:39):
phrase you want to use, and that's a big step.
That's a pretty big step for our clients because it's a trade-off of labor cost versus a significant
investment because it's not just buying a robot.
It's buying the systems to operate and optimize that robot and then having a support staff
in the background who can run it for you because now you're going from relatively entry-level

(51:02):
warehouse employees to pretty sophisticated engineers from a salary comp perspective to
go and operate those robots.
It's not as simple as, hey, I'm just going to buy a robot and throw it in the warehouse.
We've implemented those.
We've worked with a couple of vendors to put those in place, but the volume you have to
be driving through a warehouse to justify that is pretty high as well as it needs to

(51:25):
be product that can be handled by that robot.
For our clients, industrial-type clients, the product's too heavy for robots anyway.
The robot physically can't even move it because it needs to have the weight capacity of a
forklift and it's not going to happen.
Actually, I will go back.
There's one cool thing you can do that, again, it depends on the product and your business,

(51:46):
is wire-guided forklifts.
You start to think about capacity and optimization of a warehouse.
You want to fit as much in as possible, but in order to do that, you need to make the
aisle width as narrow as possible.
You can get into a whole rabbit hole here of material handling equipment, opportunities
to improve.
If you're able to do wire-guided forklifts and you're no longer worried about human error

(52:10):
of crashing into an upright of your racks and knocking the whole building down, that's
a pretty cool step to get to.
It's expensive.
Again, you think about the payback period of going to that level of sophistication, but
if you've got the right product mix and the right pick profiles to support that, it's
a worthwhile endeavor.

(52:30):
One of the examples I've seen at Best Used was a manufacturing facility that had a lot
of jigs and fixtures for all their products.
It was a metal fab facility, so heavy jigs, heavy fixtures that they used to put steel
pieces in to stage everything right and weld it all up.
They had, I don't know, a couple thousand jigs and fixtures.
The question becomes, how do I quickly pick those, put those away and get them to the

(52:56):
welders because at the end of the day, the welder is the most expensive labor part of
that business.
I need to be able to get them their fixtures.
I can't have welders walking around going to find those.
They put in a wire-guided, it was only three aisles of racking, but this one person just
all day just drove up and down those aisles on a wire-guided system, picking and pulling
jigs and fixtures.

(53:16):
Again, that's not even a finished good we're talking about.
It's not even a raw material we're talking about.
We're literally talking about something that is used in the process itself that the customer
doesn't see that as a value add of how do I get my jigs and fixtures.
The business realized, hey, this is a huge cost for us.
That's a complete different angle on how do you go after warehouse optimization.

(53:36):
No, I really appreciate that.
I think those are some very visual things that our listeners can go out to their own
warehouse and see pretty easy.
The other thing I loved is there's a lot of tech in those answers.
Next episode, I'm pretty excited for, there's going to be some good conversation.
It's interesting, you made me think about, I am at a conference here right now, like
we discussed at the top of the call, but Nvidia yesterday announced, and I'm not sure if anybody

(54:01):
saw it, but their CEO came out and said that IT departments will become like HR departments
in support of systems.
The idea being is no longer you're going to be a build and create and run, it's more support
and be around.
You called out, which I think is an interesting call out, is as you add these systems, there
is a support mechanism or a support team that goes behind it.

(54:22):
It's not just the folks on the floor.
You add cost of ongoing maintenance.
I think all of us, when you initially buy that vehicle and then you continue those years
of maintenance, it's there and those systems aren't.
I think that's a pretty interesting call out for some of our folks on the line is, and
I think I'm sure you do a lot of the financial analysis of my upfront cost versus my ongoing
cost versus doing it the way I do.
It's a great call out.

(54:42):
The other part of being at the conference, it's interesting you say that.
I walked by the industrial section and it had goods to people, pilot robots, full automation,
RFI with hyper awareness down to a single inch, all these things are driving some of
those.
I think it's interesting that you say that's high on the maturity curve because if you
see these guys, they're selling you, it's like everyone's doing it.

(55:03):
The CapEx is extreme to get there.
It's not really something that a lot of folks are doing.
It's still that bleeding leading edge.
I appreciate that.
My last question before I kick it back to you, Mike.
I know, James, beginning of your career, we probably focused more on PE.
Over time, I know that Trivista has changed and now we're not just only PE focused.
We have a bunch of other folks in the middle market, but I'd be remiss with all your years

(55:25):
of experience to not ask.
If you put on your PE hat for warehouse optimization as a PE operating partner, as a PE leadership
team or even as a PE group, why should I be interested in warehouse optimization?
Why are PE folks and PE companies interested in this and why do we get engaged and get

(55:46):
calls to go to their port coast to do some of the very things you discussed?
You just close us on a PE lens.
A lot of the times, private equity calls us because things have started to get formed
poorly when it comes to the KPIs.
We talked briefly about on time and full OTIF is a huge metric.
Customer satisfaction is a huge metric.

(56:08):
If a private equity firm senses that warehouses are struggling to meet the demand and customers
are dissatisfied and they start to see that softening of the top line, it becomes pretty
obvious that who's the customer touching?
A lot of times, the last person to touch your product is a warehouse employee.
You start from the customer backwards of why is that experience bad?

(56:31):
That can become a huge issue to try and fix for when you go to sell the business.
If you're doing due diligence and you've got somebody walking through your warehouse
and they see the things we sometimes see when we walk around, the warehouse becomes a huge
risk on that transaction, then you want that warehouse to be as clean and organized and

(56:55):
as safe as possible because that can become a huge risk for a private equity firm, whether
that be a manufacturing site or a distribution site.
Obviously, if it's distribution, all the focus is on that, but as a manufacturing site, it
should also be a huge differentiator.
Well, James Lowe, thank you very much.
Great having you.
Great your thoughts on warehouse optimization and helping everybody understand, not just

(57:17):
a buzzword, really a means of competitive advantage if you can get it done right, if
we all understood everything that you shared with us today.
My key takeaways were start by assessing where you stand today.
In the next episode, we'll dive deeper into fixing some of those bottlenecks, leveraging
technology to do it, and building data-driven efficiency.

(57:40):
Don't miss it, everyone.
We'll talk to you soon, and again, Mr. Lowe, thank you very much, and we look forward to
chatting with you again in the near future.