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 continually been pushed and pulled in different directions.
Just-in-time techniques have led to more products arriving directly from manufacturing to the end-customer, shrinking warehouse use. On the other hand, offshoring growth has fuelled 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 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, when based on these factors, 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.
A closer look though, reveals the clear logic behind TNT’s decision. 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.
Although some problems in warehousing are endemic, others are symptoms of malfunctions in other departments.
For instance, missed 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 at put-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 of these tools are principally in the acceleration and increased efficiency of operations, plus improved tracking and inventory optimisation.
Information technology allows the WMS to talk 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. Conveyors or forklifts can move products, cartons, and pallets automatically, 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 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) in the DC number over 200, relate to different packaging sizes, and are supplied to customers “on-demand,” which actually makes demand 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 this dynamic ordering and shipping environment.
Daily warehouse management challenges include fluctuating orders from individual retailers, orders placed centrally with the DC from Tropicana in Florida, and the need to store and distribute a highly time and temperature-sensitive merchandise.
Major Disasters and Successes in Warehousing Projects
High-profile warehousing initiatives have their hits and misses. Not all of them make the news. Whether for reasons of competitive advantage or embarrassment, some stories stay hidden away. Warehousing problems can arise from the following root causes:
- 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);
- In extreme cases, 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, 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 fallbacks were initiated 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 was ultimately sold to a competitor for just $80 million.
WebVan: Whether bad marketing or huge investments in warehouse automation sank this online grocer is a moot point. However, investment in large automated warehouses, to the tune of $25-30 million each, as a start-up company, and without the demand to 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 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”.
Do these calamities mean that warehousing automation is bad? Not at all – many organisations use it effectively and efficiently. In 2018, Amazon represents perhaps one of the finest examples of successful automation in warehousing, having transformed from a company that automated only where necessary; to one that now pursues the latest and greatest in warehouse robotics.
Amazon 2012: Taking Orders out of Chaos
In 2012, with some 80 massive warehouses around the world to deliver to customers, Amazon 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.
Amazon 2018: Leading the Field in Warehouse Automation?
Today, Amazon still makes use of chaotic storage, but you’re just as likely to see robots picking products from the randomly assigned storage locations as humans. Indeed, Amazon is so intent on ramping up automation, that it now has its own robotics division, Amazon Robotics, which originated with the company’s purchase of a warehouse automation company called Kiva Robotics.
Amazon now has more than 100,000 robots operating in its fulfillment centres around the world, and is at the forefront of warehouse robotics development.
Amazon Robotics co-founder Peter Wurman believes that an important breakthrough is nearby, which will see robots able to perform warehouse piece picking with far greater efficiency than is currently possible.
In fact, Amazon is doing its utmost to drive such a breakthrough, with its sponsorship of a competitive challenge to improve robotic warehouse technology. The project, known as The Amazon Picking Challenge, awards a prize of $25,000 (USD) to the team that engineers the most efficient piece-picking robot.
What Will Come Next in Warehousing?
Developments in warehousing, whether robotic or otherwise, need to be driven by customer requirements. History is littered with the casualties of companies that fell in love with 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, dealing efficiently and ecologically with the increase in product returns generated by today’s omnichannel retail trends.
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, labeling and price tags to meet local market requirements.
Never a Dull Moment in the Warehousing World
Exciting times are ahead in the world of warehousing, but it’s not always easy to predict what the next steps should be in your own organisation. The key is always to keep a close eye on the market in which you operate, and try to respond promptly to what it wants!
This post was originally published in July 2015 under the title “Warehousing, the Rise of IT and the Sort-of-Rise of Automation.” It has now been revamped and updated with more comprehensive and current information.