From a simple place to stock goods, warehouses have developed in many ways, function and form included. Affected by changes in production, procurement and distribution methods, warehousing has been pushed and pulled different ways. Just-in-time techniques have led to more products arriving directly from manufacturing to the end-customer, shrinking warehouse use. On the other hand increases in offshoring have increased the need for warehousing as part of the elongated supply chain. Furthermore, by making the warehouse a retail centre in its own right, warehouses are getting a new lease of life as end-customer distribution outlets, whether or not just-in-time methods are being used.
Where to Do Your Warehousing
Some of the impacts of geography on warehousing are stable to the point of being immutable. For instance, cold storage warehousing for fresh agricultural produce should normally be close to the growing or production area and close to the end-customer market as well. Transport optimisation considerations dictate that warehousing is used at the end point of a one transport system to amass enough products for a full load for the subsequent transport system.
Products that are best transported in high volume (like agricultural products) will need to be warehoused in locations that make access easy for large vehicles, and so on. Consequently, networks of large, central warehouses and smaller, decentralised warehouses (supply or delivery warehouses) will need to be designed and implemented according to the span of distribution and location of customers. What works on one continent will not necessarily be suitable on another. Australia and Europe have similar surface areas, but very different customer densities and concentrations. In addition, while rivers and mountains stay where they are, other geographical features like conurbations change over time; associated factors such as labour availability and customer buying habits may change even faster. Warehousing locations therefore also need to be chosen with evolving and future needs in mind.
Some choices, made with these different factors in mind, can be surprising at first glance. Logistics services provider TNT runs a large distribution hub in Belgium. Instead of using space at the international Brussels Airport that handles over 19 million passengers a year, TNT chose the much smaller airport of Liège with just 300,000 or so passengers annually. Yet the logic is clear. Less passenger traffic and reduced congestion means flexibility for TNT in scheduling onward transport, whether by air or road. In addition, Liège is equidistant from the major cities of Amsterdam (Netherlands), Frankfurt (Germany) and Paris (France). In fact, two thirds of all TNT’s European customers are within four hours driving time.
Who Will Do Your Warehousing?
As a vital component yet without being a core competence for many organisations, warehousing is a natural candidate for outsourcing. However, simply slinging it out of the door to the first likely outsourcer would be to neglect the links that exist – that must exist – between a warehouse and other parts of the supply chain, notably logistics and sales and operations. Although some problems in warehousing are endemic, others are symptoms of malfunctions in other departments. For instance, missing targets for on-time shipments may be due to poor warehouse management of product storage, picking and packing.
However, the problem could also stem from the sales department withholding orders until past the due date for shipment or the transport team letting trucks overrun the loading docks causing backlogs or inefficiencies in putting products away. Any decision to outsource must be planned properly, taking into account not only cost-efficiencies and basic warehousing skills, but also effective information management to ensure customer satisfaction and overall profitability. The trick is to make the right choice in a way that ensures warehousing is still properly integrated with the rest of the organisation.
Technological Advances and Benefits
Technology continues to grow in importance for optimal warehousing, whether in itself or as part of the larger supply chain. Outsourcing providers use advanced technology to make their operations more efficient and to safeguard their own margins, but the same tools are available to all those prepared to invest in them. Current trends include:
- RFID tagging to know automatically which product is held where or moving to which destination.
- Pick-to-light systems in which visible displays positioned on a storage slot show where the next item is to be picked and how many of that item.
- Voice-activated receiving, picking and packaging for warehouse operatives to receive instructions from the warehouse management system (WMS) software.
The benefits are principally in the acceleration and increased efficiency of operations, plus improved tracking and optimisation (reduction) of the total amount of inventory. Information technology allows the WMS to then be connected to other systems in the organisation. Transportation management systems can input information on goods and their delivery ahead of their arrival to allow for better warehouse organisation. Warehouse inventory levels can be automatically taken into account by ERP and procurement systems, while sales and CRM systems can query the WMS in order to confirm orders placed by customers and run sales promotions.
Automation has also become significantly more popular. Products, cartons and pallets can be moved automatically by conveyor or forklift, according to instructions given by the automating IT system. Two situations in particular motivate enterprises to invest in automation. One is the need to use the footprint of a warehouse as efficiently as possible by extending warehousing vertically: automated systems can work to heights of as much as 40 metres. The other is in environments that are more difficult for human beings to work in, such as refrigerated warehouses for fresh products and certain pharmaceuticals.
Now There are Data Warehouses Too
While data warehouses are often considered to brainchildren of the IT department, they and their physical counterparts are moving closer together. Consider the case of Wal-Mart, the biggest retail organisation in the world. Its excellence in supply chain management was achieved in parallel with the development of its data warehousing to collect point-of-sale information on what its 100 million customers were buying and how its 25,000 suppliers were supplying.
From the use of archived data on tapes for sales analysis, Wal-Mart went to a system that made each individual sale from each Wal-Mart outlet available for scrutiny in fewer than seven minutes. This in turn allowed Wal-Mart to replicate sales successes between outlets, creating and managing peaks in demand via its systems for buying, shipping and of course warehousing.
Everyday Challenges in Warehouse Operations
Tropicana Products, Inc. produces and ships ‘100% Pure Squeezed Sunshine’, or more prosaically, orange juice and other fruit juices. In the US, the company has four main distribution centres (DCs), one of which is located in Jersey City in the state of New Jersey. This DC uses an automated storage and retrieval system (ASRS) that is part of an overall automated warehouse system (AWS). Product references (SKUs) number over 200, relate to different packaging sizes, and are supplied to customers on-demand, meaning that demand is relatively unpredictable. The customer service department attached to the distribution centre also runs sales promotions and must find solutions for fruit juice batches that are close to expiry dates: premium orange juice for example has a storage life of about 65 days. The fruit juice products arrive at the warehouse pre-packaged and on pallets via refrigerated transport.
According to demand, the products are unloaded and moved into the ASRS, or they are cross-docked for immediate reshipment to certain customers or to a smaller, decentralised distribution centre in the neighbouring state of New York. While automation helps efficiency, the New Jersey DC must rely on good processes and timely information to manage a dynamic ordering and shipping environment. Daily warehouse management challenges include fluctuating individual retailer orders, orders placed centrally with the DC from Tropicana in Florida, and the need to store and distribute a highly time and temperature-sensitive merchandise.
High-profile warehousing initiatives have their hits and misses. Not all of them make the news: either for reasons of competitive advantage or embarrassment, some stories stay hidden away. Warehousing problems can come among others from insufficient space (often a vicious circle once stock starts to pile up in the aisles), stock discrepancies including negative inventory (goods shipped before being recorded as having entered the warehouse), slotting problems (too little or too much space allocated to given product lines) and even structural collapse (racks that collapse under excessive weight of products). Our warehouse disaster and success selection here has another factor in common: warehouse automation. First of all, we look at three large companies that either failed or came too close to failure for comfort, because of problems involving automation.
- Foxmeyer. This company was the second biggest ($5 billion in revenues) wholesale pharmaceuticals distributor in the US, at least in 1996. Often presented as an ERP system disaster, warehouse automation was also a large part of its woes. The goal was to move to a new IT architecture and a highly automated distribution centre with an impressive number of carousels for picking and conveyors for product transport. However, the automation failed to work properly. Expenses and losses soared as manual methods had to be used and tens of millions of dollars of products were erroneously shipped twice. To cap it all, Foxmeyer had aggressively bid to win new contracts on the assumption that it would make massive savings. The company ended up being sold to a competitor for (just) $80 million.
- WebVan. Whether bad marketing or huge investments in warehouse automation sank the online grocer is a moot point. However, spending to put up large automated warehouses to the tune of $25-30 million each, as a start-up company and without the demand that would allow a return on those investments, was a bad business decision. Did the warehouse automation work? Perhaps it did. Did it matter? Unfortunately not. WebVan went out of business in 2001 with a market value of close to zero after having initially raised billions in funding.
- Adidas. The sporting goods maker survived its warehouse automation debacle, but the cost was still high. After the first technology vendor it used went bankrupt trying to make the adidas DC automation work, adidas went live before the second provider had finished work. The system failed and a huge shortfall in shipments turned into major, long lasting losses in market share. Materials Handling magazine called the new adidas DC the “Warehouse of the Month” in late 1995 before it went live. Afterwards, Information Week magazine came closer to the truth by describing it as a “Meltdown”.
Does that mean that warehousing automation is bad? Not at all – many organisations use it effectively and efficiently. However, for our following success story, warehousing automation is kept to a necessary minimum rather than an ambitious maximum.
- Amazon. In 2012, with some 80 massive warehouses around the world to deliver to customers, online retail giant was still using human beings rather than robots. Despite miles of conveyor belts per warehouse, the company used barcodes and a system known as ‘chaotic storage’ to achieve and maintain its leadership position. ‘Chaotic storage’ means that products are stored wherever space is available. This optimises shelf space and avoids wasting employee time in extra organisation. Computer-generated listings then let warehouse personnel easily retrieve products, with barcodes helping in locating, shipping and tracking products.
What Will Come Next in Warehousing?
Developments in warehousing need to be driven by customer requirements. History is already littered with the casualties of companies that fell in love with warehousing technology or designs that were disconnected from real market demand. Driving factors already coming to the forefront include ecological awareness. Warehouses are being designed to handle reverse logistics and efficiently and ecologically return products from customers to the vendors that supplied them in the first place. Elsewhere, increased value is being added to warehousing as companies supply more to international markets. Foreign country warehouses are used as customisation or localisation centres to change packaging, labelling and price tags to meet local market requirements. In summary, to find out what your next step should be for your warehousing, watch your market and respond to what it wants!
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