How has the warehouse changed?

The warehouse started off as a building where goods were stored prior to distribution. Companies spent limited time analyzing warehouse efficiency and productivity. The warehouse was seen as mere black box in a much larger supply chain network. Today, companies expect warehouses to carry less stock and to be much leaner. Efficiency is the order of the day. They have recognized that excessive stock levels often masked forecasting and demand errors.  No longer.

In the modern warehouse, there is an emphasis on speed, as product flow is of great importance. One of the key objectives is to move goods at great velocity along the chain. To do this, companies are looking beyond the four walls of the warehouse for stock holding, dispatching and receiving. Of note, cross-docking is increasingly playing an import role in current warehousing strategy. According to a Maltz survey, best-in-class warehouses cross-dock an estimated 50 percent of incoming goods.

Warehouses also provide companies with opportunities to be greener. Warehouse design has been propelled to the forefront of a green movement. Green technology makes use of natural light and renewable energy. In addition, the modern warehouse is smaller and narrower, making better use of allocated space.

Warehouse functions used to be focused on execution.  Today’s warehouses often offer additional customer services, such as customization and in some cases, even light manufacturing. Warehouse management is becoming a highly specialized field, and companies are increasingly looking at third party operators (3PLs) to own and manage warehousing operations.

How has warehouse technology changed?

The warehouse is being transformed into an information hub. Technology is improving visibility in the supply chain and allowing greater opportunity for collaboration.  In the past, warehouse technology was limited to electricity. Today’s warehouses require advanced technology to deal with the increased complexity in the business. Warehouses need to handle vast amounts of data and companies are demanding increased accuracy. With companies increasingly applying lean principles in warehouses, the acceptable margin of error is getting smaller. With regards to warehouse operations, it has been acknowledged that Enterprise Resources Planning (ERP) systems have some limitations. This is particularly so when considering yard management and the growing importance of cross-docking. Today, companies are looking beyond stand alone ERP system. The implementation of Warehouse Management Systems (WMS) provides companies with increased functionality and visibility in the supply chain.

In the internet age, warehouses need to interface with customers directly. Small parcels and increased customization is commonplace. Companies like E-Bay and Amazon have spent vast amounts of money and resources to optimize their warehousing solutions for an ever more expanding and diverse customer base. Companies are demanding solutions that can adapt to the agility of the modern supply chain, where real time information is increasingly important.

Where are areas of opportunity?

Several aspects of warehousing are receiving attention, one of which is worker’s productivity and how it can be maximized. For example, workers traveling in a warehouse can be responsible for performing certain duties on their way to a specific location. Workers can be trained to be multi-skilled.  Companies can now measure the total distance traveled by employees in the warehouse.  Movements are tracked. Non-value adding activities are identified and corrective actions are taken.

Lean also needs to be considered for warehouse layout. Reconfiguration and redesigned layouts can provide real cost benefits to the organization. For example, companies can employee lean tools such as value stream mapping to evaluate the information and product flow of information in the warehouse. By better understanding the flow of information and products, companies can identify potential bottlenecks and delays in the system.

While the entire system is important, in any warehouse operation, the goods receiving area is a critical part of the operations. Companies need to evaluate processes and systems and ensure product receiving is done in the most efficient way. For example, a good benchmark for receiving goods is a maximum of two moves, but preferably one move. Companies need to constantly evaluate process metrics and determine waste in the system. In the modern warehouse, information replaces inventory. Companies need to evaluate how integrated their systems and processes are with their collaboration partners. It is critical to develop standardized processes and systems to be used by all in the supply chain.

In addition to goods receiving, companies should evaluate storage and stacking techniques.  Techniques may include making better use of overhead space. By elevating the packing space, companies can increase the overall warehouse space, without the need for additional storage space. Companies can also assess the warehouse aisle and make use of wide angle warehouse handling equipment. Companies need to assess picking techniques and identify the methods that work best for them. Picking techniques might need to be altered for seasonality and changing consumer demand.

For warehouse operations, compliance, such as labeling and documentation, is increasingly important. For example, customers such as Wall-Mart require radio frequency identification (RFID) compliance even in their emerging market operations such as China. Companies need to evaluate ways to standardize documentation and simplify processes.

For any modern day warehouse to survive, it needs to engage in a continuous improvement program. The modern day warehouse need must strike a balance between need and cost. Warehouse improvements go beyond technology, and technology is still a long way from replacing all employees in the warehouse. The modern day warehouse requires a multi skill workforce, with employees responsible for more sophisticated tasks. Gone are the days of mere stock holding and delivery.

The Indian Leather industry is vital for the Indian economy with its substantial export earnings and strong growth potential. Revenues have grown from $2,495 million in 2004-5 to $ 3,598 million in 2008-9 and, the industry employed 2.5 m people rising to an estimated 3.5 million this year – most of whom are in the highly fragmented primary processing and flaying phase. An estimated 75% of this production capacity is from small scale cottage and artisans – the informal sector; and this needs to be addressed in terms of skills and the financing of much needed technological and environmental improvements.

In terms of ouput, the footwear segment is the driver of the industry and India is second only to China with a market share of 13 per cent of the global total of16 billion pairs. Overall, India produces 2 billion pairs and exports an estimated 115 million pairs. There are aggressive plans to increase footwear production and exports from $1.53 billion to well over $3 billion by 2013-14. This will take a significant effort to build on recent upgrades of machinery to world class equipment manned by highly skilled technicians.

India produces over 2.5 billion square feet of leather per year – which is 10 per cent of the global market – and is the 5th largest exporter of leather goods and accessories.  Currently, the industry is being transformed with fresh thinking on business development split into two areas – strategic and operational.

In strategic terms, there is a significant need for a more professional grasp of design requirements overseas. Having said that there is clear evidence that various players are building capability to match the very best. Years back, I used to buy my business bags from Coach in the USA and recently, I replaced it with a terrific design from Fabindia – a brilliant exponent of things Indian and, inclusive growth strategies. Hidesign is another illustration of innovative design as is output from Auroville – both from Pondicherry. All of these brands pay increased attention to detail in production techniques and add quality of accessories to the superb finish of the leather itself. Couple with innovative packaging the look and feel is of a more sophisticated offering set to match any brand on the world stage.

Hidesign is a recognised leader in the research of the ecological use of vegetable tanned leathers for its leather goods. Their website illustrates how they have learned from the centuries old skills of tanning with natural seeds and barks. This has a significant ecological impact. Almost all leathers today are chrome tanned and coated by heavy finishes which is one of the worst polluters. Vegetable tanning greatly reduces the hazards of environmental pollution. This process uses natural extracts from barks of Wattle trees and Myrobalam seeds found in local forests of South India. It takes almost 30 days to cure these leathers while chemically treated chrome leathers are made in 4-5 days. Then, to finish the look off accessories have been upgraded and these are made of solid brass instead of zinc alloys. This minimises electro plating.

The Hidesign factory at Pondicherry is another element in this quality and ecologically sound platform. Designed and built by Ray Meeker, the well known low cost ecological building expert who has built ponds, waterfalls and streams into the layout of the factory. No asbestos is used anywhere in the factory and all waste water at the factory goes through filtration and is reused. All waste material is also separated and reused or sold for reuse.

In operational terms priorities start with optimising the sourcing of raw materials and closer collaboration with the meat processing industry has been developed to ensure quality raw materials and, increase levels of import substitution. In parallel, the industry is addressing a range of environmental issues in terms of effluent and, energy utilisation – though the key issue is to standardise across the States and clear up current fragmentation. This project is coordinated by the BDS (Business Development Service) and Entrepreneurship Development of India (EDI) and supported by SIDBI.

The leather cluster in Tamil Nadu accounts for 60 per cent of India’s output with Chennai generating 25 per cent of the total and the rest coming from areas such as Ambur, Vaniyambadi, Pernampet, Vellore and Ranipet near the City and over 50 per cent of production concentrated in the Palar Valley in the northern part of the state. In revenues, this represents over £500 million and is considered by UNIDO one of the most dynamic clusters worldwide. The region employs over 50,000 people directly working in or for 150 small tanneries and nearly 300 SMEs. The tanning process employs about 15,000 and footwear over 25,000 people and women accounting for 70 per cent of the workforce.

The industry has seen a significant shift in recent years from exporting raw materials to added value design based products and, as the work of various pioneering brands featured above illustrates Indian leather goods have been transformed and this will provide a significant platform to develop the industry and, hopefully, for this to become a beacon of global standards for other industries with a significant formal and informal mix in their operational roots. In particular, there is no better example of how going green can be part of the added value that will raise India’s profile on the world stage.

This is an important argument against those who think of environmental concerns adding cost to the process when, in fact, improved infrastructure, logistics techniques and skills can transform economic, social and environmental outcomes in a significant way. In terms of world trade, these developments in the Indian leather industry are demonstrating how to add value in an emerging economy and not rest content to be the raw material supplier for more developed economies. And this trickle could become a flood.

Article by: Rob Bell, Transformational Logistics Blog

AHL: Could you tell us a bit more about the background of this project? Why was it initiated?

MV: We have been involved in supporting the government to implement malaria prevention programmes like bednet distribution in Zambia since 2005. However, over the course of our programmes we realised that, although the government was quite successful in preventing malaria, the people who still were infected could not get adequate treatment due to a lack of malaria treatment drugs at the rural health centres. Our analyses showed that those drugs were available at the central level and district level; but somehow they did not arrive at the health centres. Clearly, there was an issue with the supply lines between MSL (the central medical store), the districts, and the centres. We partnered with other major donors like the UK and US governments as well as JSI and Crown Agents as implementers, and with MIT to ensure academic support. Our joint analysis pointed towards placing commodity planners at the district level as the most promising option. When we discussed this with the Zambian government, we were given a strong commitment for for a pilot project to try this out.

AHL: So what exactly did the pilot entail?

MV: The pilot included 24 districts, 8 of which were used as controls (continuing the use of the ‘old’ system), and in 16 districts we implemented either of two models. Those 24 districts represent about a quarter of the whole country, so especially for a pilot project we had very good coverage. Model 1 involved the placement of a commodity planner at each of the districts. Their tasks were to facilitate communication with the health centres about commodity needs and levels and to prepare orders to MSL. Once the orders were filled and had arrived at the district warehouse, they would also be responsible for packing and dispatching the orders to the health centres.

Model 2 was very similar to model 1, but in this model the separate orders for the health centres would already be collated at the central level and would arrive pre-packed at the district level; the commodity planner was only responsible for preparing the order and for forwarding the packed order to the health centres.

AHL: And the results?

MV: They were spectacular, especially in the districts that used model 2. For example, availability of the main drugs for artemisin-based combination therapy (ACT) improved from an average of about 50 per cent to nearly 90 per cent. If we would extrapolate this to the whole country, this alone would prevent more than 16,000 deaths a year. But, of course, the effects have been much wider than just ACT; although the commodity planners concentrated on malaria supplies, availability of other supplies like antibiotics and contraceptives has increased as well.

When I started on this project, I did not know much about the logistics side of public health, but these results have made it very clear to me how important supply chain management really is for the people’s health.

AHL: So what do these results mean for other programmes? And perhaps other countries?

MV: Of course you cannot translate the results one-on-one to other programmes or settings, but what this trial has made clear is that a relatively modest investment in supply lines can deliver spectacular results. In most developed countries, supply chain management takes up more than ten per cent of the cost of the supplies themselves; in Zambia this was less than half that percentage. Whether you should aim for a similar proportions as in developed countries remains an open question, but it seems to be clear that a modest increase could lead to greatly improved health outcomes. However, I must say that we have not yet finalised our cost-effectiveness analyses; although it was fairly easy to to quantify the extra costs involved, it was not so easy to calculate cost savings, e.g. in model 2 the cost of labour that was no longer needed for repacking at the district level. Nevertheless, even if the cost savings turn out to be very modest, we expected that the improved access to medication and the resulting lives saved would make it more than worthwhile.

I think it is important in this sense to think of integrated supply lines. Although this project was initiated as part of the malaria support, the focus was on supporting the supply of all essential drugs.The results for other pharmaceuticals as for example antibiotics or contraceptives was positive as well. I think that shows that we could make even more gain if we could move away from the disease-based silos and work on approaches to strengthen an integrated supply chain

AHL: What happened after the trial ended? Are the commodity planners still active?

MV: Yes, they are; and, in fact, the districts that were not included in the trial as well as the model 1 districts were so impressed with the results that they are now requesting the country-wide implementation, and the Ministry of Health now has committed to a phased roll-out across all districts.

AHL: This project involved a large number of partners: besides the World Bank, people from DFID, USAID, JSI, Crown Agents, MIT, and of course the Zambian national and district governments were involved. Was it difficult to coordinate such a big group of actors?

MV: I think we were lucky in that that Zambian government gave us a clear commitment and took ownership of the pilot. What also helped was that we all had fairly clearly defined and complementary roles with a minimum of overlap. Thirdly, sufficient funding for the whole project duration was safeguarded from the start. And finally, monitoring and evaluation were integrated into the trial from the start, making it possible to present a result that could be accepted by all parties. All this meant that we could work very well together with a minimum of conflicts; it also meant that we could draw upon each other’s strengths to get things done.

A long and winding road

Globalisation has forced companies to develop better, cheaper and faster routes to market – continuosuly. This has generated huge pressures on companies to shorten lead times; place smaller orders with few longer term commitments and, become footloose in search of lowest cost operators. We have seen the growth of Corporate power – many of the majors bigger than the countries they source from and, the move to outsource non core operations creates layers of suppliers that add capacity to Tier 1 but reduce any chance of transparency and challenge ethical consistency down through the tiers.

In the 90s consumers started to question working conditions; then, environmental concerns challenged process, products and packaging design and generated a clear sustainability edge to consumer behaviour. Fair Trade initiatives started to open peoples eyes to the options available such that today, despite the Recession, an estimated 60% of UK consumers think it is right for supermarkets to withdraw non sustainable branded products.

Being an Ethical company is no longer enough. Brands have become aware that consumers want more information on the goods they buy and a failure to respond can trigger serious business risks. Amartya Sen’s On Ethics and Economics (1987) raised the idea that economics can be made more productive by paying greater and more explicit attention to the ethical considerations that shape human behaviour. These days, supply chains and not companies compete so, in terms of business, what happens from end-to-end (source to consumer) matters way beyond price.

Globalisation, as Mauro Guillen’s important work – The Limits of Convergence – elaborates, can suffer from what Habermas has called the “project of modernity” or, what Guillen has termed the “revolt against the normalising functions of tradition”. In other words, the remorseless surge for growth in developing and emerging economies can steamroll diversity; blindly imposing conformity to global standards. Remote rural districts empty as magnetic urbanisation accelerates and a whole raft of ethical questions emerge. Does globalisation impose one best way or, allow for diversity based on ethical considerations?

So, what is ethical trade or, ethical sourcing all about? As with TL, some see it as an umbrella term to cover all types of business practice that use or promote more socially and, increasingly, environmentally responsible trade. The Ethical Trade Initiative highlights the responsibility of buying companies for the rights of the workers in their supply chain such as a living wage; to be able to join a trade union and, to be free from harassment or discrimination. Gender considerations are of key importance here. The work of WIEGO is a superb source of realities, desired outcomes and procedures.

Unethical stuff happens:

Toshiba were fined when it was discovered that inflamable batteries had been used in their laptops; Del Monte had to recall all the petfood that was discovered to have poisonous wheat gluten in the recipe and when, in 2007, Mattel were fined for toys they sold being contaminated with lead; the damage to their brand was devastating. After all, consumers would find it impossible to boycott the products of Yip Sing – the invisible supplier responsible for the paint job in the first place.

The media has covered a number of high profile supply chain exposures such as Primark. The discount retailer owned by Associated British Foods were discovered to be buying from suppliers who had subcontracted work to home workers who had employed children. A survey covered for Drapers after the June 2008 BBC Panorama programme that exposed this practice highlights that 44% of Primark customers were likely to switch to other retailers.

We are moving fast from a “trust me” to a “show me” world where business practice has to be open to scrutiny and this generates the need for better statistics and insight into the end-to-end process as a means to focus action needed.

We cannot ignore the reality on the ground where some of the actors have to deal with barriers to ethical decision making:

* Cost oriented Ethical and Environmental management. Decision makers see any regulations or best practice as being a prohibitive cost of doing business. For example, equitable rather than survival wages; safety procedures in the workplace or using forced or slave labour to deliver products to market and reach unrealistic price points. The responsibility here is to ensure that the benefits of ethical and sustainable business practice improves ROI and not the reverse.
* Crisis oriented Ethical and Environmental management: Actors play a wait-and-see game doing nothing until a crisis hits. Take the lack of preventive procedures in place all around the Indian Ocean prior to the Tsunami; a cavalier attitude to any process or service to a customer.

Much work has been done to develop Ethical approaches and prescriptions. The following is not an exhaustive list. Here goes:

1. Purpose: What are we seeking to achieve? Ethical considerations MUST not be seen as a cost to business but a means of levelling the playing field and, opening allcomers to global markets.

2. Triple bottom line expectations: John Elkington’s work on extending the spectrum of corporate values to People (Human Capital); Planet (Natural Capital) and, Profit should be developed to emphasise an ethical dimension – Corporate Social Responsibility. And then, with C3 – the challenge becomes to move byond one company to cross company CSR.

3. Mapping: Process. We need to understand the route to market from end-to end:

- Source to Consumer. This needs to be laid out from end-to-end. This resembles early history writing – what happened next. Then, comes the Hegelian twist – why? In my experience Archomai’s Kipling covers the ground best. Have a look!

- The Green Supply Chain. Professors Lenny Koh and Lynne Frostick are leading important work on Low Carbon futures. There can be no doubt that energy outcomes have an ethical dimension. Of this more later.

- Managing waste. This is an ever more crucial element to any supply chain. Given the skill with which the informal market deals with waste and recycling – it makes sense to explore more inclusive strategies from which Major Corporates may even learn!

- Reverse Logistics. Product recovery is big business and sets a challenging ethical agenda. Professor John Cullen’s work at the University of Sheffield highlights that up to 30% of products can be returned by customers with UK retail returns worth an estimated £5.75 billion. For example, internet clothing and footwear purchases that “don’t fit” as well as defective products. Managing these returns generates signficant costs through inventory and disposal. What happens when customers return a product to a company that sourced from a supply chain built on several tiers of supplier – each characterised by varying degrees of formality / informality.

- Security: We live in a world challenged by those who make it their business to dislocate, or destroy, other lives. Security needs to protect us but, if it is not integrated into end-to-end movements it will destroy business continuity and, with it ruin any chance of the small player reaching global markets. At worst, corrupt regimes use terror to their own cynical advantage. Security is not axiomatically an ethical consideration. It can only be so if administered with proportion and fairness to all.

- Ethical behaviours: This is where ethical considerations need to explore relationships at every point along the chain of events. For example: Buyer and Seller; Provider and User. Years ago, I worked in Sweden and marvelled at the coherence of the work of Jan Carllson at Airline SAS. Rooting out shoddy performance he concentrated on every moment of contact between customer and SAS. each “event” or “contact” was monitored closely and best outcome sought. T L suggests an Ethical approach inspired by this idea.

- Ethical consistency: Corporate Social Responsibility has become, for some, a brand imperative triggered less by ethical considerations and more by pragmatism. In any case a single company initiative is rarely enough to sustain ethical behaviours. The C3 approach recognises the need to explore ways to sustain CSR between companies. See Post.

4. Security. This could be an unlikley source of impetus as US and EU regulations force stringent cargo security procedures on ALL Ports – without exception. These measures will force greater transparency in the supply chain facilitating many of the above Ethical Considerations.

5. Back to an Ethical campaign. From the tectonic four-hour speech given to the House of Commons by William Wilberforce on 12 May 1789 to the imaginative and remorseless campaign that it triggered and the legislative victories it achieved the Anti Slavery Movement has much to offer a drive to deliver ethical and inclusive movement of goods and services to market.

In recent years, many companies such as Lehman Brothers; JP Morgan, New York Life, Freshfields and Rothschilds have admitted involvement in the Atlantic Slave Trade. As Niall Ferguson of Harvard University has emphasised: “slavery was pervasive in the structure of British wealth in 1830″. The campaign and, public opinion were instrumental in undermining an industry built on slavery and, the same momentum can be built in relation to Ethical Supply Chains.

Recently, Professor David Richardson of the University of Hull’s WISE (Wilberforce Institute for the Study of Slavery & Emancipation) and Dr Joel Quirk led a fascinating Conference bringing together historical slavery and modern forms of human bondage. Take this further and there are clear insights that can assist an understanding of ethical supply chain issues. Here are three thoughts drawn from the literature on slavery.

Kevin Bales work on Contemporary Slavery is an inspiration. In Understanding Global Slavery ((2005) he highlights the big shift in the nature of political action over the last fifty years; away from established political parties to nonstate, issue-based campaigning groups, and away from nation state politics to global politics. In terms of the ethical supply chain this perspective allows us to explore the real challenge of the legal polarities between the formal and informal market. Conventional governments are not sympathetic to those who don’t on land and pay taxes. Does this place the majority world beyond the pale of ethical consideration?

Joel Quirk’s recent book Unfinished Business (UNESCO 2009) surveys historical and contemporary slavery. For me, his conclusions contain a chilling observation on release, rehabilitation and restitution that extend into thoughts on the ethical supply chain. He writes: “Historically, escape from slavery has been confined to release with slaves receiving little assistance beyond a formal change in legal status”; and then, the challenge. He continues: “When slaves do come to official notice, they regularily end up being detained, returned, deported or hastily discharged, with little or no concern for their overall welfare of past history.”

For example, where there have been instances of the use of child labour; the test for an ethical supply chain is not so much that the company stamps it out but whether ethical sourcing creates an environment within which the supply chain and producers that will support an equitable and sustainable industry. Close down a factory full of children and you may close down a village with disastrous consequences. More needs to be done to ensure that this is not perpetuated. This is ethical sustainability.

This perspective raises the caveat of Hernando de Soto when championing the value of the informal market – the issue of legal title. In his various books, de Soto highlights the problem of the Majority World and those who live in favelhas or slums. They do not own their land. Simply put – this means that no enterprise can raise funds from conventional banking and, this consigns them to the margins of society. However, even if they could afford to buy the property the arthritic and too often corrupt Legal system renders any transaction slow and opaque. A reform of the Legal system is as long overdue as that of the Banks. I make the point but wil have to develop it later.

Finally, the Anti-Slavery Movement taught the world some significant lessons on the strategies of protest and, the mechanics of campaigning in the modern world. Mobilising with the use of pamplets; engineering Corporate endorsement – Wedgwoods famous tableware with Anti Slavery themes – and, the ability to mobilise support around an issue beyond self interest.

Article by: Rob Bell, Transformational Logistics Blog

I guess that it will be clear how important the public sector is for health logistics in developing countries. But how about the public sector? What could be its role?

Combine the words “logistics” and “private sector” in one sentence, and obviously third party logistics (or 3PL) will jump immediately to mind. However, there are very few logistics companies (or, for that matter, health ministries or health NGOs) in developing countries who would be able to implement the necessary visibility; so I am afraid 3PL lies rather further in the future than one might wish.

An existing example of more or less successful inclusion of the private sector in the health system, are the private retail pharmacies you can find almost everywhere in developing and middle-income countries. In many of those countries, it would be (almost) impossible to get the necessary medical supplies to the patients without this private initiative.

For example:

* There are serious questions about the quality of the supplied medications by private retail pharmacies in developing countries. Not only can this be extremely harmful for the patients themselves, but it can also contribute to the further spread of resistant strains of viruses, bacteria, and parasites.
* Likewise, the quality of advice given by private pharmacists is not always the best. Research shows that not only is this advice not always up to par due to a lack of knowledge, but there is the obvious problem that the pharmacist wants to sell items on which he can make a (larger) profit; and so they would be clearly tempted to advice e.g. anti-diarrheals instead of ORS.
* Private pharmacies will go where there is profit to make. This means that sparsely populated areas or especially poor populations are more likely not be served by any pharmacy.
* Likewise, private pharmacies will not give away their goods to their poorest customers either. This would mean that the poorest parts of a population that is served exclusively by private pharmacies might not be able to access the necessary medicines.

None of these issues are insurmountable; e.g., quality of supplies and advice can be increased by better supervision and training, incentives can be given to pharmacies to establish themselves in sparsely populated areas, and a voucher system can be instituted to safeguard the needs of the poorest. However, all this costs money too, and in the end it might actually be more effective to have a public (government-owned or sponsored) pharmacy than a public one. This is not something that can be decided on a system-wide level; more likely, the most effective and efficient solution is a mix of private and public pharmacies, supplemented with adequate supervision, training, and financial incentives. Finding the right mix is not an easy task, and probably finding this right mix will include a number of painful mistakes. Don’t forget that the most successful systems in developed countries are the result of many years (and sometimes centuries) of ‘tinkering’.