For small businesses, material handling decisions stem from a need to know with cash at hand going only so far. Small businesses fail to run the numbers in terms of how much material handling equipment will actually cost or save them in the long run. They buy a pallet; they buy a forklift; they buy based on operational need without realizing or accounting for how such equipment can assist or hinder employee efficiency, product safety and financial sustainability. This equipment that moves product from receiving through shipping directly correlates to how many employees are needed, efficiency in order fulfillment, and how often products come in damaged.
The more that businesses are aware of how much material handling equipment will impact their bottom line in the long run, the more likely they’re to invest in something that saves them money over years rather than making decisions that plague them financially. The options that seem least expensive up front aren’t necessarily the least expensive down the line. Conversely, options that may seem to be increasing expenditure up front may decrease expenditures down the line, expenditures that are never considered, over a long time.
The Labor Cost No One Includes
Material handling equipment has a direct correlation to how many employees are needed and the efficiency at which employees can do their jobs. Manual pallet jacks exert human energy. They have small manual hand trucks that don’t have the strength of powered hand trucks. Goods are moved more slowly; it takes longer to accomplish; a warehouse that could have three average workers now requires five just to keep up with productivity.
Where this becomes interesting is when running the numbers per year. Two extra workers at $20/hour 40 hrs/week comes to about $83,000 per year. This is money that could’ve gone to better material handling equipment that would have eliminated that position. If three workers could run a warehouse but they were mandated to make sure they had four on every shift because of manual material handling they’re working inefficiently, that’s an additional wage burden that could’ve been avoided if $5,000 for a forklift had been procured on Day 1 relative to the $83,000 annually the forklift would save.
Additionally, with more moves comes overtime. Hourly workers don’t want overtime. However, when material handling takes too long, workers are forced to stay on for receiving, putaway and order fulfillment. When one annualizes these numbers, they complicate labor costs. If these come out to additional thousands per year for a growing business, it’s best to have upgraded equipment before keeping workers experiencing overtime at every payday.
When Cheap Equipment Fails Sooner
Cheap material handling equipment fails sooner; while this is an obvious observation to make, it’s the occurrence cycle of replacement that companies fail to see. A cheap hand truck that lasts 18 months at best costs more in five years than a good one that lasts five years even though the good one is three times more expensive at first. Without assessing costs through time, cheap and broken options become valueless compared to quality investment.
Pallets are no different; cheap pallets break as they’re handled; they create product damage via broken pallets and safety concerns via unstable product placement. Companies believe they’ve saved themselves 30% by buying used low-grade pallets and while they feel they’re saving money using cheap options available, more often than not they’re paying for fractured pallets and damaged product and workplace injuries. When looking for the basis upon which everything else will be placed, especially in operations where pallets are a primary material handling requirement, companies should seek sources for Wooden Pallets in Melbourne as reliable alternatives.
How Wrong Equipment Creates Product Damage
Wrong material handling equipment for products creates damage that eats away at profit margins. Pallets with nicks catch edges of boxes; forklifts without load stabilization drop boxes; small dollies for heavy weight drop boxes; big dollies topple over when employees apply too much force.
Product damage has immediate direct costs, damage assessments based on products no longer worth selling, but it also includes the hidden costs of inventory replacement. Replacing inventory ties up cash; returns frustrate customers who create complicated customer service issues; insurance premiums increase as claims become commonplace. Wrong handling can create 2-3% annualized damage over inventory which totals thousands for many operations.
Certain products require certain types of handling material which costs more but not as much as using general material handling equipment. Fragile products require special handling; heavy products require lifting equipment; even awkwardly shaped products require their own handling solutions. Materials should be bought with specialty handling in mind so that proper equipment can be acquired instead of trying to save money using machinery that’s just not equipped to handle them. This false sense of cost efficiency guarantees a higher damage percentage than what ultimately saves on procurement costs.
Space Efficiency Changes Everything
Material handling equipment determines efficiency of space and space costs money. The larger the turning radius from larger forklift arms means wider aisles; this means reduced usable space to place items and unnecessary expansion where safety-conscious steps have to be taken across additional space gaps since you’re only working as best as you can with bigger equipment.
Without proper movements executed by appropriate machinery, companies waste 15-20% usable space of their warehouse which means either high rent for bigger warehouses or waste of storage capacity for operating sufficient inventory. The cost of wasted space is increasingly higher for many companies, especially warehouse spaces at $8-$15 per square foot per year in urban areas. Losing 1,000 square feet unnecessarily runs $8,000-$15,000 per year for each company renting it, which averages $40,000-$75,000 over 5 years. Companies have better options when adequate machinery fits their stable space needs.
Better machinery allows taller storage that takes up less width within aisles appropriately shaped for ideal movement execution. Space costs too much in warehouses; anything that accommodates more storage for same-space use offers cost-cutting efficiencies for companies who benefit with better access.
Impacts on Throughput Volume Capability
Material handling capabilities dictate speed which dictates volume potential in a warehouse operation. The faster something gets into receiving, the more it can cycle through the operation by volume per day. The faster putaway occurs, the more products can cycle faster as they will be needed elsewhere. The faster items are picked from the floor, the more orders can be fulfilled with existing personnel.
These throughput increases create direct impact on revenue potential because companies expand because they reach potential capacity limits, not because there’s an excess of inventory or space, but because their material handling cannot keep up with anything beyond what it currently handles. They feel compelled to expand through added shifts or secondary warehouse space when better equipment could meet relevant needs at a fraction of the cost.
The lost opportunity costs presented when slow machinery is used are detrimental during peak seasons. If companies cannot fulfill orders when they’re most needed because their demand exceeds what they currently have at their disposal, they’re forced to hire temporary workers or inevitably work their internal workers into overtime stress they didn’t need to experience.
Maintenance Costs Between Equipment Types Vary Greatly
Different machinery requires different maintenance standards. Simpler manual machinery requires less effort but powered machinery has known costs associated based on fuel type and component complexity. However, while there may be different preventative maintenance costs based on power source (battery versus combustion powered), perceived early stage costs or operating costs relative to life cycles often help balance line items over anticipated use periods.
Different components exist with battery operated versus combustion engines where they might cost more in purchase value but operating costs may lessen over their lifespan if it’s clear they meet performance requirements better.
Conversely standardization allows for less maintenance needs and fewer replacement considerations. If three styles of forklifts require parts inventory for all three pieces, specialists are trained on each component along with operator training for different models. It’s less expensive when standardized across fewer equipment options.
Making Decisions That Make Sense
When larger decisions take place for equipment acquisition, calculating helpfulness over time makes sense. Total cost analysis should include purchase price, financing considerations, operating costs, preventative maintenance projections valued alongside labor and material efficiency benefits, which might outweigh initial cost factors.
Material handling may not seem like a strategic business decision but these choices affect operational costs for years down the line..