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Hidden Costs of Poor Facility Security for Distribution Centers & Warehouses

Operations managers of warehouses and distribution centers are constantly tasked with finding cost-saving opportunities. After all, these facilities play a critical role in the success of the supply chain and the health of the bottom line.
Managers are challenged by increased competition, tight margins, strict deadlines, and a constant turnstile of employees. Seemingly simple problems can have major financial consequences.
Security is one of these problems.
The value of cost-saving technology and processes will be diminished if goods are disappearing off warehouse shelves, or if production rates slow due to security problems.
In fact, the lack of quality security can have many hidden costs that add up over time. Ignoring these problems only compounds them.

Shrinkage Costs

Shrinkage is the cost of poor security that is hidden in plain sight.
Supply chain security should be a top priority to protect the bottom line.
Whether employees are slipping products out an unguarded backdoor or your warehouse is burglarized, theft can cause significant financial losses. Internal warehouse theft alone has cost US companies nearly $16 billion per year in losses.
Internal theft is more likely to occur when you don’t have proper warehouse and distribution center security protocols in place. Operations managers should work with an established security company to implement:

These and other security measures that can help reduce and stop theft.

Employee Retention, Hiring, and Training Costs

Warehouses and distribution centers have a notoriously high turnover rate of nearly 14%. This turnstile of employees is an expensive cost to a business. Recruitment, background checks training, HR costs, insurance costs, and other expenses for replacing employees can add up to 50%-60% of an employee’s salary.
Turnover is higher if you don’t create an environment where employees feel safe and valued. Therefore, security plays an important but unsung role in employee retention for warehouses and distribution centers.

Security increases employee sense of safety

Safety is a basic human need. Employees will be happier if they feel safe in their work environment. An established security presence will help employees feel protected from external threats or possible employee aggressions.

Third-party security improves the relationship with management

A common problem in warehouses is that security enforcement measures are placed into management’s hands. This creates tension between employees and management.
With management “watching” every movement in the name of security, employees don’t feel valued or trusted. Investigations can feel personal and aggression can escalate.
However, a third-party security presence is more impartial and doesn’t interfere with management’s relationship with employees. Also, a professional security company that specializes in warehouse and distribution centers will be more effective in identifying and handling problems.

Insurance Costs

Your insurance company weighs many risk factors into your insurance premium.
For example, your location, inventory value, and security measures can all affect your insurance costs.
You can reduce your insurance costs for your warehouse or distribution center with specific and measurable security protocols.
Quantifying guard tours is a good start. Choose a security company that can provide detailed documentation on how many guards are present, how they are positioned, when guards are scheduled, and why that benefits your location. Quantifying guard tours, whether at a cadence or randomized, shows you are protecting your property.
On the other hand, Inadequate or unproven security can increase your insurance costs.

Lost Production Time Costs

Sometimes operations managers try to implement security measures that simply shift costs elsewhere. Lost production time is often one area that suffers.
A DIY mindset is often a culprit. For example, we’ve seen companies that are dealing with shrinkage problems try to implement their own security measures.
One company implemented employee check-in and bag check procedures that caused bottlenecks during every shift change.
When you’re checking 200+ employees in and out during three 8-hour shifts daily, that lost time can really add up. Not only are you losing man hours, you are frustrating employees. And frustrated employees can raise your turnover rate.
A qualified security company can help you implement better security measures and monitoring. A better monitoring plan can reduce shrinkage without creating a shift change bottleneck in the first place.

A Warehouse Security Investment Will Save Money in the End

There is never going to be a time where your warehouse doesn’t need a security presence. Cameras and a watchful manager are not enough.
Investing in security will not only keep your employees and inventory in your warehouse or distribution center safe, it will improve your bottom line.

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