Supply chain revolution could signal the death of the warehouse

Supply Chain Revolution and WarehousingAs corporations increasingly focus on the critical role of supply chain management for commercial success, the industry is facing a period of change that could see the death of multiple warehouses.

Products generally incur costs each time they are handled or stored. Change managers are therefore advocating the elimination of excessive storage, reduced waste and time compression across the supply chain – shortening the total time it takes a product to flow from one end of the supply chain to the other, where it is delivered to the customer.

Consultancies such as Sydney-based Logistics Bureau start with the assumption that in the perfect world, you do not need a warehouse. Director Maurice Sinclair justifies this by saying that warehouses add cost and not value. Each time product is stored in a warehouse, it takes longer to get to the customer and incurs more handling and storage costs.

“Costs are added each time goods are immobile in the supply chain,” he says.

“One day in the supply chain is equal to one day of inventory in the pipeline. Therefore, if you shorten pipeline time through eliminating non-value-adding time in areas such as storage of inventory, you reduce the amount of storage space needed, usually in the form of warehouses, and hence reduce logistics costs.”

“It is the goal of the supply chain manager to increase efficiency across the chain and eliminate cost while simultaneously improving customer service.”

“This process is made more simplistic if companies can gear their supply chain activity to market demand. There are many strategies to support this process – including using shipping time to replace storage time, or redefining customer service demands to better suit a make-to-order philosophy where possible.”

This scenario, while possible, is sometimes difficult to achieve.

“Each time there is an increase in variation of demand, the risk of a service failure is greater and hence the need for stock to buffer that risk is required,” says Sinclair.

“The magnitude of the variation and the sufficiency of the supply chain to meet that variation is a significant driver to inventory levels. There are also many strategies to ameliorate this type of situation, such as creating regional or global distribution centres where the risk created by variable demand is minimised.”

Several multinational companies are globalising their operations by having central administration and information systems as well as centralised logistics operations to cater for multiple countries and multiple global customers.

“This allows visibility of service and cost across complex supply chains and such visibility enables key decision makers to be more responsive and pro-active to changes in supply chain demand.”

Another enabler of efficient supply chain operations is e-commerce:

“By linking the supply chain to the point-of-sale data that is created when a customer purchases a product, it is possible that all players in the supply chain are informed in ‘real time’ that one unit of consumption has occurred and this will require one unit of supply. Matching the consumption to supply in ‘real time’ is the challenge.”