How to Improve Warehouse Efficiency and Reduce Costs: 49 Best Tips for 2026

by Sarah Powers
Autostore, Space Optimization

Warehouse efficiency is all about getting the most out of your space and your business. For a deeper dive into space strategy, see Warehouse Space Optimization: 22 Ways to Maximize Every Square Foot. An efficient warehouse optimizes space, labor, and technology in order to maximize output, while simultaneously reducing mistakes, waste, and needless costs. Warehouse efficiency is a vital measurement of how well your business fulfills orders, maintains optimum inventory, and avoids bottlenecks to provide a smooth, consistent, and profitable flow. 

 

In the modern world, supply chain efficiency significantly impacts how competitive and profitable your business is. No matter how good the product might be, an inefficient supply chain is enough to cripple even the biggest companies. You might be able to make a fantastic product at point A and leave customers impressed at point B, but the logistics in between those two points dictates market position, savings, profits, and reputation.  

 

However, a significant growth in demand brings with it a whole host of new challenges. The need for new technology, limited space, labor shortages, inventory complexity and more can all lead to rising costs, slower order fulfilment, and a poor customer experience. So, let’s take a look at how to improve warehouse efficiency and reduce costs so you can get ahead of the game. 

 

How to Calculate Warehouse Efficiency 

 

You can’t improve what you don’t measure.

 

When considering how to calculate warehouse efficiency, it is important to choose the right key performance indicators (KPIs) for your business. Getting these right means you can put strategies in place to enhance efficiency, reduce costs, improve profit, enhance customer experience and speed up fulfillment times while acutely measuring the effectiveness of the changes. 

 

Establishing appropriate KPIs, along with a plan to calculate and track your warehouse efficiency, is essential in ensuring you gather impactful data to deliver meaningful improvements. Below is a list of foundational KPIs aimed to improve and monitor warehouse efficiency. 

 

 

Metric 

Formula 

Throughput 

Total units processed ÷ Time period 

Space utilization rate 

(Total storage space used ÷ Total warehouse space available) × 100 

Order accuracy rate 

(Total correct orders ÷ Total orders shipped) × 100 

Picking accuracy rate 

(Total correct picks ÷ Total picks made) × 100 

Inventory turnover ratio 

Cost of goods sold (COGS) ÷ Average inventory value 

Return rate 

(Total returned orders ÷ Total orders shipped) × 100 

Average order processing time 

Total processing time ÷ Total orders processed 

Cost per order 

Total fulfillment costs ÷ Number of orders 

Labor productivity 

(Total output ÷ Total labor hours) × 100 

On-time shipping 

(Number of orders delivered on time ÷ Total orders shipped) × 100 

Average number of items per order 

Total items sold ÷ Total paid orders 

 

An alternate well-known method of assessing warehouse efficiency is to calculate the Pareto curve of SKUs in orders. This is a statistical model based on the Pareto principle – often called the 80/20 rule – which states that roughly 80% of consequences come from 20% of the causes. 

 

Once you have established your KPIs, you’ll need to benchmark your progress, set realistic and achievable goals, and leverage insights to deliver new improvements. 

 

 

49 Foundational & Advanced Strategies to Increase Warehouse Efficiency

 

The following strategies are specifically designed to enhance warehouse and supply chain efficiency, focusing on how to improve warehouse efficiency and reduce costs—from adopting game-changing technology to improving layout and efficiency.

 

The strategies marked ‘foundational’ are easy to implement for all operations, while the ‘advanced’ are for businesses that already have an efficient foundation. 

 

 

Optimize layout and flow

 

  1. Implement ergonomic workstations (foundational)

    Implementing ergonomic workstations for picking orders reduces strain on workers’ bodies, speeds up fulfilment, and creates a better working environment. AutoStore has picking ports that are ergonomically designed.

  2. Reduce unnecessary walking (foundational)

    Not so long ago, workers in less-automated warehouses were known to walk 10–15 miles per day. Optimizing the layout and flow of a warehouse, as well as automating it, can reduce that physical labor while also cutting any wasted time. Strategic layout designs are all about eliminating non-essential movement. For more on designing layouts that maximize available square footage, see our guide to warehouse space optimization.

  3. Group fast-moving SKUs near shipping (foundational)

    An efficient workstation should store fast-moving SKUs near shipping, and lower-frequency items further away. This reduces the amount of time and labor needed to get the most popular items out the door. For example, AutoStore automatically places recently purchased products at the top of the Grid for ease of access, enabling natural slotting of fast-moving items.

  4. Map process flows to identify bottlenecks (advanced)

    In order to find a solution, you must first identify the problem. By accurately mapping your process flows, you can judge where time is lost and where bottlenecks are created. This gives you the opportunity to develop more specific, long-term fixes.

  5. Conduct process time-and-motion studies (advanced)

    A time-and-motion study is a systematic process used to examine how long it takes your workspace to fulfill each task, and the movements required to complete those tasks. The study itself is designed to identify areas of inefficiency that can be streamlined.


      Maximize Every Square Foot of Your Warehouse   Discover 22 proven strategies to optimize space, improve efficiency, and reduce costs in our in-depth guide.


 

Improve inventory management

 

  1. Forecast demand to avoid stockouts (foundational)

    Keeping track of stock and order rates over the long term allows you to forecast demand at different points of the year. The more accurately you can forecast, the better chance you have of perfectly meeting demand without the wasted potential of stockouts.

  2. Track inventory in real-time (foundational / advanced if integrated with WMS)

    Tracking your inventory in real-time not only allows you to keep on top of what is in stock and available for purchase, but it can also influence necessary restocks. If you link real-time inventory data with a Warehouse Management System (WMS), you can even automatically trigger restocks once inventory reaches a pre-determined ‘low’ point.

  3. Optimize warehouse slotting (foundational)

    Optimizing warehouse slotting allows you to arrange items strategically based on sales data, re-slotting data, and picking paths. You can use your WMS to further streamline the process.

  4. Conduct regular cycle counting (foundational)

    Cycle counting is when a warehouse regularly counts a small amount of inventory—usually every month or quarter—rather than carrying out a full physical inventory count. Cycle counting ensures goods match inventory records and enables you to spot any errors early in the chain.

  5. Perform ABC analysis (foundational)

    ABC analysis is a technique that creates an inventory hierarchy based on the significance of each item. Category A is made up of your most valuable items, B contains those with moderate impact, and C is your least valuable items. The idea is to optimize warehouse storage by placing the most important items, which need most control and visibility, in strategic areas to make them easier to pick.

  6. Develop a custom replenishment strategy (advanced)

    A custom replenishment strategy allows you to restock based on your specific data, trends, and requirements. This reduces the risk of excess stock while maintaining optimum inventory, especially with seasonal items that may change throughout the year.

  7. Refine slotting with advanced analytics (advanced)

    You can use advanced analytics and real-time data to optimize the placement of your products depending on demand patterns and trends, making for faster fulfillment.

  8. Optimize inventory strategies across multiple facilities (advanced)

    If you have multiple facilities, you can optimize inventory strategies by implementing centralized data. This links all real-time inventory and order information to optimize replenishment and delivery.



 

Adopt technology

 

  1. Implement a Warehouse Management System (foundational / advanced for large-scale features)

    A Warehouse Management System is software that allows you to manage day-to-day inventory, picking, packing, shipping, and more. You can integrate your WMS with more advanced software for additional large-scale benefits like optimized slotting.

  2. Use barcoding & RFID (foundational)

    You can scan barcodes and RFID tags on all goods to maintain real-time inventory data and provide up-to-date supply chain tracking.

  3. Invest in automated storage & retrieval systems (advanced)

    Automating the storage and retrieval process reduces the physical strain on warehouse workers and streamlines the process from picking to packing. For instance, AutoStore uses automated robots to collect, return, and store goods. Its high-density layout also saves warehouse space as there are no aisles or walkways between items stored.

  4. Enhance Warehouse Control & Execution System capabilities (advanced)

    Warehouse control systems (WCS) act as the traffic controller for automated equipment, and warehouse execution systems (WES) orchestrate tasks and optimize workflows to maintain efficiency. WES can be used to expand and enhance the capabilities of Warehouse Management Systems (WMS) and communicate with WCS, employing real-time data analytics and IoT-enabled devices to maximize robot utilization, improve inventory accuracy, increase equipment utilization, reduce bottlenecks, and adapt to changing warehouse demands. Learn more about WES vs WMS vs WCS.

  5. Automate packing & labeling (advanced)

    Using automated systems to pack and label orders can reduce the strain on your workforce, while allowing you to allocate employees to more critical and high-value tasks.

  6. Implement advanced picking strategies (advanced)

    Using automated systems to pack and label orders can reduce the strain on your workforce, while allowing you to allocate employees to more critical and high-value tasks. Advanced picking strategies can streamline efficiency, whether it is through the use of picking robots, voice picking technology, batch picking, or something else.



Expert Insights on Batch Picking

 

Batching is a powerful way to increase throughput without adding more resources. By grouping multiple orders that require the same product, a single product access can fulfill several order lines at once.

 

However, the efficiency gained at the system level often shifts complexity to the operator. Handling larger quantities and sorting them across multiple orders takes more time and introduces the risk of errors. Careful consideration is needed to ensure that the benefits of reduced system movements or travel time are not offset by slower picking rates, increased handling effort, or mis-sorts during distribution.

 

For example, when a company integrates a new warehouse technology, the system may be designed to minimize capital costs in order to win project approval. While this makes the initial investment look attractive, it can unintentionally shift costs to daily operations, requiring more labor, slowing throughput, or increasing error rates. That’s why it’s important to challenge integrators on both the upfront design and the long-term impact, ensuring that the true ROI accounts for both capital and operating costs.

 

Ryan Reed
Senior Logistics Consultant

 

 

 

 

Empower your workforce

 

  1. Conduct safety training (foundational)

    Safety training can reduce the risk of injury through warehouse accidents, while also improving morale and increasing productivity. You should conduct regular safety briefings and consistently ensure the use of PPE.

  2. Cross-train employees (foundational)

    Training your employees across multiple roles is a good way to ensure your warehouse keeps running smoothly, even when key employees are off work. It also reduces staff turnover, improves morale, and develops more effective teamwork.

  3. Offer incentives and rewards (foundational)

    Well-implemented incentive programs can increase individual employee performance by 22%. Not only that, but employees are much more likely to be engaged when they feel their incentives at work meet their needs.

  4. Hire & develop skilled frontline managers (foundational)

    You can’t micromanage every corner of your warehouse. Delegating leadership to skilled frontline managers is the best way to maintain high standards throughout your operation.

  5. Introduce gamification (advanced)

    Introducing game-like elements to work can be a great way to boost morale and engagement. Try turning routine tasks into competitions or challenges with a leaderboard and prizes to motivate and engage employees.

  6. Optimize labor planning & scheduling (advanced)

    Getting the most out of your workforce is essential. Labor planning and scheduling is all about allocating your resources efficiently, monitoring performance, forecasting labor requirements, and making sure employees are allocated to the right team for them to flourish.



Streamline receiving, shipping & returns

 

  1. Standardize & optimize a returns process (foundational)

    Warehouse work is about the goods coming back in as well as about the shipments going out. You should have a dedicated returns area in your workspace, optimizing the process with a clear returns policy to improve efficiency.

  2. Analyze returns data to identify and fix root causes (foundational)

    Finding out why returns are happening is of high importance. If a certain product is consistently faulty, you need to know. If a product is clearly misrepresented online, you need to know. Adjustments should always be made when dealing with regular returns.

  3. Collaborate closely with suppliers (foundational)

    Forging positive relationships with suppliers allows you to maintain timely deliveries and optimize inventory. You may even be able to share data to anticipate future stock needs.

  4. Implement cross-docking (advanced)

    Cross-docking is when inventory doesn’t utilize warehouse storage space. Instead, you simply unload it from an incoming shipment and then load it straight on an outgoing shipment. This takes planning but saves a lot of time, effort, and space.

  5. Implement appointment scheduling systems for dock efficiency (advanced)

    Much like a Warehouse Management System, an appointment scheduling system allows you to streamline and optimize every aspect of your docking process. That means managing appointments, reducing wait times, scheduling carriers, and efficiently allocating workforce.

  6. Optimize shipping & load building to reduce trips & costs (advanced)

    Combining smaller orders into larger ones allows you to reduce the total number of trips needed. You can also partner with shipping companies to combine your shipments with other local businesses.



Enhance security

 

  1. Implement damage prevention (foundational)

    Proactive damage prevention, including employee training, clear signage, regular safety and equipment inspections, and robust packaging can all reduce the need for repairs, replacements, and returns.

  2. Install access controls & surveillance (foundational)

    Install surveillance cameras, biometric scanners, PIN code locks, and alarm systems to ensure unauthorized personnel are not granted access to valuable stock and equipment.

  3. Monitor inventory to reduce shrinkage (foundational)

    Monitoring inventory in real time allows you to immediately detect theft, loss, damage, or administrative errors before they escalate. Advanced storage systems like AutoStore enhance security even further—inventory is securely stored and can only be accessed through designated picking ports, minimizing the risk of unauthorized access.



Improve sustainability

 

  1. Upgrade to energy-efficient lighting (foundational)

    Energy-efficient lighting not only saves you money, but it can also improve your brand as a company committed to sustainability. Conduct an energy audit to find out where you are wasting most money on lighting in your warehouse.

  2. Reduce packaging waste (foundational)

    Optimizing the packaging process saves money and reduces waste. By using tools like Paccurate, you can right-size every shipment to use less material and maximize truck and container space. This ensures packages are the correct size for their contents, cutting both packaging and transportation costs.

  3. Install motion sensors & zoned lighting controls (foundational)

    Installing motion sensor lighting ensures your lights are only on when employees actually need them. It also reduces the risk of lights being left on overnight, which can be expensive.

  4. Maintain equipment to avoid energy waste (foundational)

    You should keep a log of all equipment and ensure it is regularly maintained. This ensures you are getting the most out of every machine and reduces the risk of downtime from unexpected repairs.

  5. Optimize HVAC settings & maintenance (foundational)

    Optimizing the key HVAC systems you use all year round can be a huge money saver and reduces the risk of unexpected faults. Heating and air conditioning systems can be expensive if left on when they are not required. If you have an AutoStore system, you can cut your HVAC bills significantly for the area of the warehouse taken up by the Grid as it doesn’t need as much heating or ventilation.

  6. Reduce energy & maintenance costs (advanced)

    You can reduce energy consumption and maintenance costs by upgrading your lighting, optimizing HVAC, improving insulation, switching to renewable power and Energy Management Systems, reducing idle time, and preventing breakdowns through regular machine checks and employee training. Predictive maintenance solutions can ensure your machines are working optimally and maintenance is carried out before problems arise to reduce the risk of stoppages.

     

    Did you know?

    Just 10 AutoStore robots use the same amount of power as a single conventional vacuum cleaner. Now that's energy efficient!



Apply lean warehousing

 

  1. Adopt the 5S methodology (foundational)

    Your warehouse space should be maintained according to the 5S rule. The 5S principles are part of a Japanese lean philosophy and stand for Sort, Set in order, Shine, Standardize, and Sustain. It is intended to create a system that ensures people, tools, stock and processes are organized, safe and efficient so that warehouses run smoothly.

  2. Eliminate non-value-added activities (foundational)

    By eliminating the activities that add zero benefit to your workflow (a.k.a. non-value-added tasks), you save time, money, and energy. This could include unnecessary transport, needless employee movements, long waiting times, and over-packing.

  3. Promote a culture of continuous improvement (foundational)

    You should always instill the belief that everything can be done a little better. Continuous improvement, or Kaizen, is about instilling a mindset that you should never stop making small incremental changes to business processes. If you engage your workforce in this mindset from top to bottom, you will see real improvements in every sector of your business.

  4. Apply lean Six Sigma methodologies (advanced)

    Lean is all about reducing waste. Introduced at Motorola in 1986, the Six Sigma series of process management tools and techniques focus on using data to drive consistency and reduce defects.



Optimize yard and dock operations

 

  1. Enhance yard & dock management (advanced)

    By implementing a Yard Management System and an appointment scheduling system, you can streamline your yard and dock management to reduce wait times, schedule carriers, allocate workforce efficiently, and stay on top of loading/unloading.



Leverage data and analytics

 

  1. Leverage data science and business intelligence (advanced)

    Data and analytics are your friends. Using a Warehouse Management System, you can leverage business intelligence, AI and data science to optimize inventory management, maintenance predictions, stock trend analysis, and much more. Gather knowledge around your business and turn the data into meaningful, actionable improvements.



Measure & improve warehouse efficiency

 

  1. Define and track key warehouse efficiency metrics

    You should identify and regularly monitor the most effective warehouse efficiency metrics to assess overall performance of your operations and make adjustments to your processes and warehouses as required.

  2. Calculate warehouse efficiency using clear formulas

    KPIs can be used as warehouse efficiency metrics and the table earlier in this article provides some of the most commonly used KPIs and formulas.

  3. Benchmark and monitor improvements over time

    Set clear targets to hit, using your KPIs and warehouse efficiency metrics to monitor progress over time. If you are hitting your benchmarks, strive to do even better. If you are falling short, look into ways you could improve.

 

 

Bringing It All Together - How Efficiency Reduces Costs

 

Every strategy in this warehouse efficiency guide comes back to the same principle: doing more with less. By optimizing layouts, you reduce wasted travel time. By improving inventory management, you avoid costly stockouts, overstocks, and write-offs. By adopting technology, you replace repetitive labor and errors with speed and accuracy. By empowering your workforce, you boost productivity without adding headcount. And by streamlining processes—from returns to dock scheduling—you cut waste from every corner of your operation.

 

The result is a warehouse that runs leaner, faster, and smarter. Costs drop because every resource (space, labor, energy, and capital) is used more effectively. At the same time, service levels rise, giving you the double advantage of lower operating expenses and happier customers.

 

Solutions like AutoStore empowered by Kardex make this transformation possible, combining high-density storage, rapid fulfillment, and proven efficiency gains. Ready to explore what this could look like in your operation? Contact us today to start the conversation.