Warehouses in North America incur about $500,000 in losses every eleven days due to unforeseen risks. Across the world, issues such as employee theft and product damage cost retailers and wholesalers billions of dollars every year.

When operations include the use of warehouses, it's important to consider all associated potential risks. Risk managers must lessen the likelihood of incidents and reduce the severity when they do take place. Otherwise, the warehouse will be vulnerable to significant losses that can have a serious impact on organizational performance.

Here are some of the critical risks to consider when assessing an organization's warehouse space:

1. Fire

Warehouses are generally large spaces tightly packed with stored goods - meaning even a small fire can be devastating. Aside from the obvious issue of extensive product damage from the flames and heat, there may be smoke damage, employee injury, or forced relocation to a new warehouse.

There are several effective methods to help mitigate warehouse fires, such as:

  • Installing fire suppression systems, such as sprinklers, fire doors, and fire extinguishers.

  • Installing and regularly inspecting fire detection systems, such as smoke alarms.

  • Ensuring buildings are up to code.

  • Training employees to identify fire hazards and practice fire safety.

In addition, organizations should implement well-functioning evacuation procedures. Procedures should be fully documented, shared publicly, and practiced on a regular basis. For more details on preventing warehouse fires, read our blog post on Fire Risk Management for Organizations.

2. Flooding

Flooding is a common warehouse risk, especially in areas prone to natural disasters and high water levels. A high percentage of inventory stored in warehouses is susceptible to water damage. Flooding also damages the warehouse itself. In order to reduce the impact of flooding and water damage, consider taking the following steps:

  • Be aware of flood warnings in the area.

  • Conduct regular flood risk assessments and inspections to identify any areas or goods that are particularly susceptible to flood damage.

  • Keep stock off the floor. Paper records and any damageable goods of high value should be stored on the highest level of shelving, on upper levels, or in sealed metal/plastic containers if possible. Similarly, move machinery and equipment to high ground when flood conditions are approaching.

  • Routinely clean external and internal drains of debris such as leaves, waste, and other vegetation.

  • Prevent water from entering the building by installing permanent or removable barriers to seal floors, doors, windows, and other openings.

  • Raise electrical sockets and wiring above ground level to keep them clear of possible flood water.

  • Train employees to recognize and report flooding hazards.

  • Install backup systems in the warehouse, such as water pumps.

  • After a flood, have a professional perform an inspection to determine the level of damage. Ensure the warehouse is fully clean and dry before resuming operations.

3. Security

Due to their high volume of inventory, warehouses and distribution centres are often at high risk for burglary and theft, especially if inventory is high-value. Security risks come from both internal and external parties. Internal threats are posed by employees and third parties hired by the organization, while external threats would involve anyone else who enters the warehouse without authorization.

To reduce the chance of security risks, consider the following:

A) Facility boundaries

  • Use separate areas for dispatching and receiving goods. Where possible, provide physical barriers between these two areas.

  • Install a barrier such as a fence around the exterior yard of the warehouse. Keep the gate locked at all times when the warehouse is closed. If necessary, risk managers may consider keeping the gate locked at all times and only allowing access to authorized employees.

  • Provide audible alarms on all emergency exit doors; and all doors when the warehouse is closed.

B) Visitor sign-in registers

  • Establish a visitor register so everyone who enters the warehouse is identified.

  • Do not allow visitors or delivery drivers to go through the warehouse unaccompanied.

C) Electronic security and surveillance systems

  • Electronic systems can control access into high-value rooms or cages. The access control system should be capable of providing an audit trail of who entered the cage, when, and for how long.

  • Use video surveillance systems to record activity in high-value cages and rooms. Cameras should be placed to view entrance points as well as interior areas.

  • Install intruder alarms in order to enable a fast and coordinated response in the event of theft or vandalism.

D) Employee checks

  • The above methods will protect a warehouse against external threats, but not those presented by internal parties. Employee theft can create staggering losses within warehouses.

  • Conduct thorough background checks of warehouse employees before hiring, paying particular attention to any accounts of theft or unexplained job loss in warehouse or storage jobs.

  • Set up an anonymous reporting system. This will allow employees to report a coworker they believe is stealing without fear of repercussion.

4. Handling of environmentally hazardous substances

All organizations have a responsibility to ensure that they’re handling environmentally hazardous substances correctly. Ensure that any warehouses are following the proper laws and regulations for dealing with hazardous substances.

Here are the key best practices:

  • Store all hazardous substances correctly.

  • Make sure that all hazardous substances are labeled correctly.

  • Segregate substances when required.

  • Use correct procedures when dispensing materials.

  • Isolate exposures with ventilators at the source.

  • Make sure you use the right safety equipment.

  • Have emergency plans in place.

  • Always dispose of hazardous waste in accordance with the law.

  • Conduct regular safety inspections to ensure safeguards are in-place and operational.

The Government of Canada provides mandatory guidelines for the handling of these substances. For full details, visit their website.

5. Employee safety

Working in a warehouse creates many potential safety issues for employees. When something goes wrong, organizations will likely be financially liable. Follow these guidelines to ensure employee safety at all times:

  • Take advantage of machinery wherever possible to avoid repetitive strain or manual labour-related injuries. For example, forklifts should be used instead of lifting that can injure employees’ legs or backs.

  • Train employees on the safe way to use all job-related machinery and equipment.

  • Keep an eye out for hazards that will cause slips, trips, and falls.

  • Encourage employees to report any hazard they identify or when they see an incident or near-miss take place.

  • Regularly conduct risk assessments.

6. Product damage

Aside from damages from fire, flood, and the like, warehouse inventory can also be damaged from its time in the facility. The following precautions should be considered by warehouse staff:

  • Ensure the warehouse uses proper storage techniques for each type of good. The temperature of the warehouse and amount of weight placed on top of an item are particularly important.

  • All items should be handled with as much care as possible, especially any marked fragile. Try to limit unnecessary movement.

  • Stack heavier items on the bottom shelves of racks and lighter items at the top. This will make the shelves less likely to tip.

  • Train employees on the proper handling of all types of materials.

  • Use security measures as discussed to limit the chance of sabotage.

  • Regularly review product damage claim reports to identify trends and implement corrective actions to mitigate the frequency and impact of future occurrences.

7. Equipment failure

Warehouses today rely on a lot of equipment and machinery to make them run smoothly. A single issue can cause a lot of difficulty, so prevention is key!

Effective incident management is imperative in identifying hazards and predicting potential losses in warehouses. By tracking near-miss incidents related to the concerns above, organizations can uncover high-risk areas which may not have been known.

It's been proven that by reporting on near-miss trends, organizations lower the likelihood and impact of losses, drastically reduce claims and insurance premium costs, and make the working environment safer for employees and visitors.

ClearRisk's claims, risk, and incident management system can help organizations with warehouses and numerous physical assets stay on top of their vulnerabilities and lower the cost of risk. For example, the City of Saint John lowered claims costs by 50% through the use of the system. Want more information? Learn more below. 

If you found this article helpful, you may be interested in: 

Editor's Note: This blog post was originally published in August 2017 and has been updated for accuracy and detail.