Warehouse Costing: Cleansheet Analysis

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Framework Primer
Warehouse Costing:
Cleansheet Analysis
Presentation created by
Ascertain Critical
Parameters
Perform
Bottom-up
Calculations
Determine Ideal
Throughput
Metrics
1 2 3

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Contents
 Overview
 Warehouse Costing
 Cleansheet Analysis
 Deriving Savings
 Templates
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This frameworks outlines Cleansheet Analysis, a robust methodology to
understand the real costs of Warehousing
Presentation Overview
To precisely estimate operational costs for each facility, senior leadership should look into
and carry out a Cleansheet Analysis.
The Leadership at many Warehousing companies globally understands that they should spend
less on Warehousing Operations, but is not aware of the real costs associated with it. In the same
vein, most leaders are unable to tell how much is their human resources cost per facility.
Lack of appreciation of true Warehousing Operations costs is one of the main reasons for failure
of most Warehouse Transformation Programs. Without this knowledge, the Leadership is unable
to comprehend where the improvement areas lie and how much value can be generated from
those.
This deck provides a detailed overview of Cleansheet Analysis, which is a comprehensive yet
clearer approach to accurately estimate the real Warehousing costs. The Cleansheet Analysis
encompasses 3 main steps:
The slide deck also includes some slide templates for you to use in your own business
presentations.
Ascertain Critical Parameters
1
Perform Bottom-up Calculations
2
Determine Ideal Throughput Metrics
3

4
Contents
 Overview
 Templates

5
Warehousing Operations is a costly affair for Manufacturing and Retail
businesses
A bottom-up cost analysis helps in selecting and prioritizing the right Transformation
projects.
Warehouse Costing – Overview
The Leadership at many Warehousing companies globally understands that they should spend less on
Warehousing Operations, but is not aware of the real costs associated with it.
Across the world, organizations spend around €300 billion annually on Warehouse
Operations. With the boom in online retail stores and the increasing complexity of
Supply Chains, this spending is going to surge further.
Of the total labor force, the number of people performing jobs (as supervisors,
packers, or material handlers) at warehouses across the US was around 1.2 million
in May 2019. However, most leaders are unable to tell how much is their human
resources cost per facility.
Ascertaining these costs warrants a clear approach, which many organizations lack.
Most firms inquire about their operational costs from 3rd party Logistics (3PL)
providers—by soliciting requests for quotations (RFQs). However, this does not give
an idea of what these principal activities really cost.
Lack of appreciation of true Warehousing Operations costs is one of the main
reasons for failure of most Transformation programs. Without this knowledge, the
leadership is unable to comprehend where the improvement areas lie and how much
value can be generated from those.
Source: Getting a Handle on Warehousing Costs, McKinsey, 2019

6
The most common approaches to Warehouse costing include
Benchmarking and Cleansheet Analysis
A Cleansheet Analysis facilitates in comprehending where the cost exceeds and how it can
be eliminated.
Warehouse Costing – Benchmarking vs. Cleansheet
Executives can estimate their Warehousing expenditure per functional area utilizing 2 methods:
Benchmarking Cleansheet Analysis
The Benchmarking method uses a top-down approach to
analyze costs based on industry benchmarks. However,
there are some issues with this method:
 Accessibility of benchmarks at lower levels is almost
nonexistent. Benchmarks for comparison are
predominantly available at high levels—e.g., total
warehouse cost as a proportion of cost of goods sold.
 Industry Benchmarking fails to take into consideration
distinct product or service offerings.
 A number of characteristics—such as diverse product
offerings, shipment standards, order type, and Supply
Chain obligations—influence Warehousing costs, no
matter if it’s for competitors in the same business.
 Cleansheet Analysis, or a Bottom-up Analysis, is a more
comprehensive method to estimate Warehousing costs.
 It is a numerical approach to ascertain precise costs of
critical components of Warehousing Operations,
including facility spread out, workforce, and equipment.
 This method allows the organizations to inspect the 3
cost drivers critical for a warehouse.
1 2

7
Contents
 Overview
 Templates

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Cleansheet Analysis is a comprehensive approach to identify cost
efficiencies for Warehouses
A Cleansheet Analysis helps in prioritizing plans for improvement.
Cleansheet Analysis – Overview
The focus of the Cleansheet Analysis is on determining the lowest possible cost of each major element, and
comparing it with the actual cost being paid.
Identifying the lowest costs of major elements allows the organization to determine the most problematic areas and
confront major cost inconsistencies.
The Cleansheet Analysis comprises of 3 main steps:
Ascertain Critical
Parameters
Perform
Bottom-up
Calculations
Determine Ideal
Throughput
Metrics
1 2 3
Volume drivers (e.g., number of
SKUs, orders, order lines) and
assumptions (e.g., packaging,
handling times, equipment)
Bottom-up model for each major
warehouse process (receiving,
storage, picking/packing,
shipping)
Determination of ideal operating
cost, number of FTEs, space,
and CAPEX, and measures to
close performance gap

9
The first step of the Cleansheet Analysis calls for appraising the
Warehouse infrastructure, work distribution, and volumes
This step also encompasses analyzing assumptions related to each item—packaging
requirements, equipment needed, and handling times.
Cleansheet Analysis – Ascertain Critical Parameters
DETAILS
 The first step of the Cleansheet Analysis entails scoping the warehousing facility’s
configuration, work, team, volumes, and orders. Specifically, this includes
evaluating:
– The workforce, accountability distribution, workloads.
– The actual warehouse activity levels.
– The volumes.
– The volume drivers—e.g. number of SKUs, order patterns, order lines.
STEP 1
Ascertain
Critical
Parameters

10
The focus of the 2nd step of the Cleansheet Analysis is on thoroughly
examining the processes
The Bottom-up Calculation Model aids in calculating the average processing time for each
Warehousing activity.
Cleansheet Analysis – Perform Bottom-up Calculations
DETAILS
 The next step calls for developing a Bottom-up Calculation Model for each major
Warehousing operation up to the activity level. This includes analyzing processes
pertaining to:
– Inventory / raw material receiving.
– Inventory storage.
– Items picking.
– Order packing.
– Order shipment.
STEP 2
Perform
Bottom-up
Calculations

11
The final step of the Cleansheet Analysis pertains to identifying the ideal
costs for Warehousing Operations
Factoring in the space and equipment costs assists in calculating the total warehouse
space required to manage annual volume at specific service levels.
Cleansheet Analysis – Determine Ideal Throughput Metrics
DETAILS
 The last step in the Cleansheet Analysis warrants compiling the results of the
processing times for each activity in the Warehousing Operations.
 The results are then translated into costs, utilizing a factor cost base with location-
specific average labor rates and full-time equivalents (FTEs) for individual types of
jobs.
 Critical elements, such as space and equipment, are then factored in to determine
ideal operating costs. These elements are critical in the analysis as processing
times in a warehouse involve:
– Moving or driving within storage aisles.
– Storage requirement of certain items needing a specific aisle width.
 The Cleansheet Analysis also entails calculating the Operational Expenditure and
Capital Expenditure required for specific material-handling equipment and aisle /
racks arrangements.
STEP 3
Determine Ideal
Throughput
Metrics

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Contents
 Overview
 Templates

13
The gaps unearthed through the Benchmarking of the ideal and industry
costs help identify top improvement areas for the leadership
No matter what improvement initiative an organization selects—the benefits can be
maximized by applying it across all facilities.
Deriving Savings – Overview
The estimation of ideal warehousing costs per facility allows the organization to benchmark it with the
respective industry and market warehousing costs.
 The priority areas and costs derived through the Cleansheet Analysis
should be corroborated using facility inspections and critical review of
the core Warehousing processes.
 The improvement initiatives can range from revisiting business model,
restructuring, processes improvement, performance optimization, or
Automation.
– Automation can be beneficial but the associated implementation
costs and constantly-changing technology and market landscapes
preclude it from becoming a viable option for every enterprise.
 It is up to the Senior Leadership to evaluate and prioritize the most
suitable program for their organization.

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A clear understanding of the problem areas in Warehousing is imperative
to optimize throughput and reduce costs
Cleansheet Analysis and careful facility inspections facilitate in realizing cost
transparencies fairly quickly.
Deriving Savings – Savings Potential
Cleansheet Analysis is useful not only for firms having in-house Logistics and Warehousing Operations but
also for those that outsource these operations to 3rd Party Logistics (3PL) vendors.
 Cleansheet Analysis facilitates in
contract negotiations.
 It isn’t necessary that every 3PL
vendor has state-of-the-art
facilities and processes in place
that can guarantee cost
efficiencies and enhanced
productivity.
 3PL vendors can have
inconsistent cost and
performance levels.
 These external vendors usually
carry out short-term agreements
that do not obligate them to
invest in transforming / improving
the structure of the facility.
 A Cleansheet Analysis can be
valuable in identifying problem
areas as well as improvement
opportunities both for the firm
and the 3PL vendor.
Typical improvement identified
Percent of total warehouse costs
5
10 8 10 6
11 7 6
Auto-
motive &
assembly
Process
industry
58
3PL1
Health-
care
Retail
Consumer
goods
25
High
tech
Pharma
27 27
32
36
32
56
Industry
sector
Avg savings
potential
13 16 13 14 18 30 16 28
Max
Min

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To drive additional cost savings, consider investing in ways to automate--
or further automate—processes in the Warehouse
One of the most impactful way to drive down costs in Warehouses is through Automation.
Deriving Savings – Warehouse Automation
Shortage of labor, intensified demand from e-tailers (online retailers), and technological disruption is forcing
many organizations in the Logistics and Warehousing sectors to embrace technology, particularly Automation.
Automation is facilitating Warehouse operations in 2 major streams:
 These technologies include automated guided
vehicles (AGVs) to move cases and pallets.
 Equipment and software used to retrofit
standard forklifts and make them
autonomous.
 Swarm robots to move shelves with goods to
picking stations.
 Advanced conveyers are able to move goods
in any direction.
 Advanced automated storage/retrieval
systems (AS/RS) to store goods in racks.
 Robotic shuttles with 3-dimensional
movement on rails.
 Handling devices include automated picking
systems having robotic arms with sensors to grasp
goods. Fixed devices with AGVs working to bring
goods to them, and movable picking and retrieving
systems.
 Efficient Sorting through advanced conveyor
systems that use scanners to read bar codes on
packages and act accordingly.
 Autonomous Palletizers with robotic arms to build
pallets from units and cases. These systems use
advanced analytics to decide the ideal placement
for each case package.
 Drones doing inventory and yard management.
 Devices that augment human motion through
electric motors to transport heavier goods.
DEVICES ASSISTING THE MOVEMENT OF
GOODS
DEVICES TO IMPROVE THE HANDLING OF
GOODS (PICKING, SORTING, PALLETIZING)

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Traditional Warehouses can benefit immensely from adopting these
contemporary technologies
For more information on these automation technologies, refer to this framework:
https://flevy.com/browse/flevypro/warehouse-automation-10-technologies-5465.
Deriving Savings – Warehouse Automation Technologies
Specifically, these 10 Technologies are game-changers for the Warehousing and Logistics industry:
Automation has the potential to totally disrupt the dynamics of Warehousing operations, resulting in
significant Process Improvements and Cost Reduction.
Source: Automation in Logistics, McKinsey, 2019
Analytics &
Algorithms
Conveyor
Connection
Smart
Storage
Swarm AGV
Robots
Picking
Robots
Multi-shuttle
System
Optical
Recognition
Warehouse
Management Systems
3-D
Printing
Smart
Glasses

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Contents
 Overview
 Templates

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Cleansheet Analysis – TEMPLATE
Ascertain Critical
Parameters
Perform
Bottom-up
Calculations
Determine Ideal
Throughput
Metrics
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Cleansheet Analysis – TEMPLATE ALTERNATE
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Ascertain Critical
Parameters
Perform Bottom-up
Calculations
Determine Ideal
Throughput Metrics
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PowerPoint Templates.
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find reference or comparison materials, or
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Warehouse Costing: Cleansheet Analysis

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