Why is Financial Loss in Warehousing Not Recognized by Traditional Accounting?
While the profit and loss account seems good enough, and the operations staff is actively involved, money is slowly slipping away from the business in the time interval between these two events.
The warehousing managers understand the problem of shrinkage, damaged products, and delayed shipments. The problem leads to an investigation, process adjustment, and changes in the accounting data.
On the contrary, there are losses that are not measured; in other words, if one does not measure these losses, their number will only increase over the years. Such losses will not appear in any row of the balance sheet and continue to exist due to the difference between theoretical and real performance of the business.
These are the places where the financial leakage occurs.
The Five Invisible Drains
01
Unproductive Equipment Unmonitored
In regular warehousing procedures, equipment usage averages between 60–70%, which means that the leftover percentage of equipment remains unutilized at the warehouse site. Otherwise, there could be extra costs associated with the rental of the forklifts and the pallet jacks due to the lack of tracking. Owned equipment is simply idle in a specific bay of the company such as bay #7. Lack of tracking hampers any improvement processes since the purchases are done based on hearsay.
02
Hours Spent by Employees Looking Instead of Working
According to some research studies, employees waste about 1–2 hours daily on the search for equipment and tools in warehouses that do not use real-time tracking. In a workforce of 50 people, up to 100 hours daily will be lost. This cost is not shown as an expense but is manifested as busyness among the staff.
03
Cost of carrying inventory because it cannot be located
When inventory cannot be located immediately, the default procedure is to reorder it. This way, there will be two identical items: located and ordered one, hence, double spending on it. The first item will become accessible, become overstocked, and will either be stored or written down. Phantom inventory ordering is one of the most popular and undertracked sources of losses in medium-scale warehouse businesses.
04
Reacting to problems that could have been predicted
If an unexpected stoppage occurs on a conveyor belt, then the cost does not include only the expense of repairs but also the loss of every hour of disruption — undelivered orders, trucks waiting, and labor wasted. Reaction to problems is three times more costly than preventive maintenance. Without usage meters, preventive maintenance can only happen either calendar or reactionary.
05
Inefficient cycle counting, causing production time loss
To conduct a full cycle inventory count can take up to 2–5 days when it comes to a big warehouse, which causes significant downtime. Thus, many warehouses decide to conduct such a count once a quarter or once a year because of the disruption it causes. With continuous monitoring, this count can be done routinely, and inventory will always be visible.
The biggest expenses incurred in a warehouse aren’t the ones listed on any official report; instead, they’re the ones that go unseen.
Why are these losses invisible?
The underlying issue with them not being reported in the first place is very simple: Reporting is based on measurement. Hours worked are not recorded as “time spent looking for a pallet jack.” Costs associated with reordering products are not reported as “phantom inventory.” Repair bills don’t differentiate between repairs that could have been prevented and repairs that were inevitable.
Therefore, the income statement can reflect a realistic picture of how well or poorly the company is doing financially while completely ignoring an entire category of operational loss. Financial experts will see the numbers and think they make sense, while the operations department sees problems constantly cropping up, yet nobody sees the need to analyze the situation because there are no integrative processes in place to identify the cause-and-effect relationships.
In other words, real-time visibility into assets doesn’t just reduce the losses but allows them to be seen for what they are so that steps can be taken to address them.
What happens when you can see it all
Warehouses that can monitor assets in real time see gains in all five areas: utilization rates increase as idle equipment is reallocated, labour hours are moved from searching to productive work, reorder decisions are made using actual inventory data, maintenance is planned instead of reactive, and cycle counts are reduced from days to hours.
The compounding effect is what counts. If a warehouse gains just 30 minutes per worker per day, across a team of 50 people, it gains 25 hours of productive labour weekly — the equivalent of one full-time employee’s work, every week, forever. That was never listed as a cost on any report. It won’t show up as a saving either, unless you start measuring it.
AssetTrackPro enables warehouse and logistics operations to build real-time asset visibility from the ground up. RFID, BLE and IoT sensor based tracking that converts invisible losses into measurable, fixable numbers. How it works ->
Where to begin
Choose any one of the five drains above, whichever takes your fancy, and spend a fortnight measuring it by hand. Count the hours, record the incidents, monitor the reorders. No matter what number you come up with, it is almost certainly larger than you think. That is your business case. So build the tracking system around closing that gap first and then grow from there.
There have always been losses. Now you know where to find it.
Ready to find out what your warehouse is really losing? AssetTrackPro develops real-time tracking systems for warehouses and distribution centers, beginning with the metrics that matter most for your operations.
> Learn more about AssetTrackPro
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