Warehouse Budget Planning 101: How to Optimize Your Materials Handling Finances and More
Warehouse budget planning is a key step in managing an efficient warehouse. End-of-year budget planning creates a roadmap for profitability for the year ahead and lays out a strategic plan for how you intend to operate. By analyzing your past performance and accounting for new initiatives and changing economic factors, you can get insights into your financial situation for the coming year and track your performance during the year.
The Benefits of Efficient Warehouse Budget Planning
For warehouse operations and materials handling, your budget also provides insight into your costs, which can help you manage your finances better. When creating your budget, you get insights into:
Cost control
You get visibility into your major expenses, helping you find areas where you can reduce them. It is helpful to look at where you started the year with your projections and how you ended the year to look for places where your forecasts did not align with actual performance. If you see discrepancies, you can identify root causes to see if adjustments are needed for the future.
Efficiency
Warehouse budget planning also provides an opportunity to analyze your workflow, staffing needs, inventory turn, and equipment utilization to improve operations. As you prepare your budget, you should look for areas where you can improve performance and increase efficiency. For example, can you use material handling equipment end-of-year budget spending to purchase automation equipment to reduce labor costs and streamline throughput?
Managing Cash Flow
If you are thinking about new initiatives, operational changes, or adding equipment, the budget is where you need to reflect these changes. You also want to examine cash flow throughout the year, especially in warehouses that are impacted by seasonality. This can help you plan when you need to preserve cash, take profits, or spend.
Accountability
Another important role that warehouse budgets play is providing departments with financial targets and expectations, holding them accountable, and giving warehouse managers and staff incentives to maximize cost-effectiveness and efficient operations.
Types of Budgets with Examples for Warehouse Planning
Typical warehouse budgets include various categories of expenses and revenue, including:
- Operations: Day-to-day costs like labor and utilities.
Example: Budgeting for an increase in warehouse staff wages. - Capital: Major expenditures like facilities and equipment.
Example: Budgeting for a new conveyor or mezzanine. - Cash flow: Cash left over after expenses each month.
Example: Forecasting payroll and rent payments. - Project: Costs for a specific initiative.
Example: Budgeting for a new high-density storage rack system. - Revenue: Projected revenue from operations.
Example: Estimating revenue by month based on seasonal factors.
Types of Budgets for Material Handling Equipment
There are also different types of warehouse budget items for materials handling equipment. While new purchases typically fall into the capital budget, depending on company thresholds, there are also budget line items that should be included for:
- Operational costs: Ongoing equipment costs such as maintenance and repair
Example: Costs to maintain forklifts annually - Replacement: Planning for replacement cycles for equipment
Example: Replacing worn-out pallet jacks, forklifts, or lifts - Leases: If you lease equipment, you need to account for this in your budget.
Example: Leases for floor scrubbers or power washers
Warehouse Budget Planning: Costs to Consider
Assembling an accurate warehouse budget provides an understanding of all the costs that go into operations and the variables that can affect them. Some of the major categories include:
Labor
The biggest cost in almost every warehouse is the labor force. Beyond payroll, there are also costs involved in recruiting, onboarding, training, and retaining warehouse workers. In an industry with turnover often approaching 50% annually, these costs add up quickly.
Your budget needs to account for any potential growth or reduction in staff, accounting for any increased wages or changes in benefits programs.
Materials Handling Equipment
Equipment is a significant capital expense. You need to evaluate your current materials handling equipment and look for items that need replacement or updating. There have been significant improvements in warehouse equipment and practices in the past few years, so it is well worth the time to talk to materials handling experts about how you can modernize your facility to improve efficiency and reduce costs.
Major retailers like Amazon and Walmart are investing heavily in automation, including high-density automated storage and retrieval systems. For example, Walmart is opening more next-generation fulfillment centers using advanced automated materials handling. Amazon now has about 750,000 robots in its warehouses.
Technology
You will want to take stock of your current technology. Budgets should reflect any new purchases or upgrades you are planning and review ongoing support and licenses for existing systems. One of the warehouse planning trends for 2024 is a shift from buying and owning software to subscription services for cloud-based software. This can reduce upfront investments and relieve warehouse operators of the need to manage and maintain IT systems.
Warehouse operators are deploying new technological strategies and solutions. Consider consulting with experts like Conesco Storage Systems, who work with operators nationwide, to get ideas on evolving trends and innovations that increase efficiency.
The right technology and materials handling equipment can dramatically reduce costs by:
- Optimizing warehouse space
- Improving inventory visibility
- Reducing labor expenses
- Minimizing workplace accidents
Facilities
Whether you own or lease your warehouse, there are other costs you need to consider, including rent, utilities, insurance, and property taxes. You will want to budget for these expenses as well as any facility upgrades you need.
Safety and Compliance
There are more than 250,000 on-the-job injuries in the warehouse and transportation industry each year. Not only do you need to be concerned about the health and safety of your employees, but you also need to worry about the costs associated with safety or compliance violations. You will likely see an impact on insurance policies, legal costs, and potential OSHA fines or penalties.
Your warehouse budget planning needs to include a review of your current safety policies, warehouse operations, and training practices.
Many accidents can be avoided by adjusting your warehouse layout to remove potential friction points such as dangerous intersections. You may want to consider whether warehouse planning to improve your workflow in the new year can make your warehouse safer.
Other Warehouse Budget Items
Other budget items to review include:
- Inventory management
- Shipping and transportation
- Packaging materials
- Taxes
- Professional services
- Equipment rental
- Security
- Insurance
- Capital investments
- General administration
While much of the budgeting focuses on expenses, you should also look at your budget in light of incoming revenue to ensure profitability. For investments in materials handling equipment, you want to look at the total cost of operation (TCO) to determine your return on investment (ROI) before making purchases.
Warehouse Planning Trends for 2024
As you are working through your warehouse budget process, there are some warehouse planning trends for 2024 you should know about.
Labor Costs
While the average warehouse worker now earns $39,707 annually ($19 per hour), wages continue to rise. A survey of 2,000 U.S. businesses showed the average salary increase for 2024 is 4%. That’s after a 4.2% increase in 2022 and a 4.2% increase in 2023.
Competition for employees is increasing as well. Not only are you competing with other warehouses—a significant challenge for operations located near other warehouses or fulfillment centers—but you are also competing with other industries that are increasing wages.
Companies are increasingly looking at ways to automate processes and improve efficiency to reduce labor costs. Amazon recently said it worried about running out of available warehouse workers in 2024 without major changes to operations.
Regardless of the economy, warehouse planning should focus on boosting throughput and efficiency. Financial modeling and ROI analysis for materials handling investments should be part of your 2024 warehouse budget planning. Efficiency gains through optimized layouts and streamlined processes can provide measurable benefits.
Automation
Clearly, the future of warehouse efficiency is in automation. The warehouse automation market is projected to grow by 15% annually, reaching $51.4 billion in spending by 2025. Operators are looking at investments to improve operations as part of their warehouse budget planning, including:
- Automated storage and retrieval systems
- Collaborative robots
- Articulated robotic arms
- Autonomous Mobile Robots (AMRs)
- Automated guided vehicles (AGVs)
- RFID tags for tracking and monitoring
Other IoT solutions like wearables, tracking beacons, and sensors are on the agenda for many operators. 2024 may be the year to evaluate emerging technologies for more efficient operations.
Sustainability
Sustainability is another focus area. Automated equipment like AS/RS can significantly reduce greenhouse gas emissions and fuel use by minimizing forklift needs. However, sustainability reaches beyond automation.
Companies can incorporate eco-friendly practices into warehouse planning to lower costs. 2024 planning should examine viable sustainable options such as:
- LED lighting
- Solar panels
- Reduced packaging
- Compact storage systems
Optimizing warehouse layouts and storage can boost both efficiency and sustainability.
Materials Handling
Warehouse operators are taking a close look at their materials handling equipment and processes to eke out cost savings.
Operators should look closely at points where bottlenecks or redundancies occur. Reorganizing layouts, adding automation, or installing new pallet racks and conveyors can help streamline workflows. For example, travel can account for up to half of total picking time and over half of labor costs. Creating a more efficient layout or implementing the right equipment can provide a quick ROI.
As you develop your 2024 warehouse budget, specifically target equipment upgrades or layout changes that can boost throughput and lower labor expenses.
If budgets are tight, consider purchasing high-quality used warehouse equipment. Conesco is an industry leader in decommissioning warehouses and handling liquidations, providing a significant inventory of used equipment. Some pieces are almost brand new.
Investing in the right used equipment can improve operations without breaking the bank. Conesco offers a cost-effective way to upgrade conveyors, pallet racks, automated systems, and other warehouse gear to boost efficiency. The savings over buying new equipment allow you to maximize your budget.
Contact Conesco Storage Systems for Warehouse Planning
The Conesco Storage Systems team has an in-depth understanding of complex warehouse, materials handling, and inventory management challenges. Our experts have hundreds of cumulative years of experience in pallet racking, material handling, and warehouse operations.
We can help you assess your operations, look for areas of improvement, and recommend equipment upgrades, process changes, and workflow to improve your throughput, labor costs, and operations.
Contact the materials handling experts at Conesco today to request a consultation.
Frequently Asked Questions (FAQs)
What are the first steps in creating a warehouse budget?
Gather data on current costs, inventory levels, staffing needs, and business goals. Use historical data as a guide to forecast future needs, accounting for any changes you foresee. It is important to focus on your largest expenses to look for ways to reduce costs. For example, replacing labor costs with automation.
What are 5 common kinds of warehouse budgeting expenses?
The biggest warehouse budgeting expenses include the following:
- Labor
- Facilities
- Equipment
- Technology
- Inventory management
Does Excel have a budget template for material handling equipment?
Excel does not have a pre-built template specifically for material handling equipment budgets. However, Excel has budgeting templates that can be customized to track your expenses.
How often should you review and update the budget?
Budget reviews are an ongoing process. While you want to create a yearly budget, you should review trends on a monthly and quarterly basis, updating projections as necessary.
What are some signs we need to adjust our warehouse budget?
When you start to see sudden increases in labor costs, equipment downtime, safety incidents, or other operational expenses, you need to take a closer look at cost controls.