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.

What is VMI?

In short, VMI is the process where the supplier generates the order and manages the inventory level for the customer. Prior to shipment, the supplier sends a delivery notice to the customer. VMI normally includes a combination of hardware, software and the input of people. The system is not tied to specific communication protocol and companies can use EDI (e.g. Wal-mart) ,XML, FTP or any other reliable communications methods.  Emerging methods, such as GSM mobile networks, are significantly reducing hardware cost (see Tanzania’s “SMS for Life” example).

VMI is a collaborative process where suppliers and customers share data and jointly agree on forecasts for each stock keeping unit (SKU). The replenishment of stock is automated and software is used to analyze and adjust changing demand patterns, goals and constraints. However, in emerging markets working with SMEs, it is unlikely that such an automated system is required and human intervention will likely suffice. Once the customer receives the product, the retailer handles payment through their account payable systems. Mobile money such as M-PESA also holds great potential as a payment system.

What are some of the challenges?

Technology - Hardware and software cost are major stumbling blocks when servicing SMEs . Current cost effective mobile technology is reducing costs, as demonstrated by m-health models, but cost remains a stumbling block for many SMEs. Poor system integration can also have a severe negative impact on the system.

Product returns – With SMEs there is the possibility that the system will be crippled by high product returns as cash flow and priorities shift.  Agreeing on inventory guidelines is just the first step of implementing the system. Making the model work can be more challenging.

Buy-in – Getting buy-in from SMEs can be a challenging undertaking and VMI can be viewed with suspicion to force them to buy certain products and SKUs.

Sales force resistance – The sales force makes money by selling product and this can be viewed as an attempted to reduce staff and cut cost.

Production challenges – Where products or SKUs are in short supply, the system can quickly break down and suffer from a credibility loss.

What are the advantages of VMI?

In developed markets the advantages of VMI for upstream (suppliers) and downstream members (customers or retailers) are well documented. The same holds true in emerging markets.  VMI holds some major cost savings benefits for both the supplier and customer. VMI can eliminate the need of a sales person to call on the outlets and reduce cost.

Customers are not always available and fulfillment costs are high due to low drop sizes. By improving visibility suppliers can provide timely and accurate deliveries and, in the process, provide better customer service. VMI can also improve customer retention and reduce stock outs, critical issues for any supplier in emerging markets where demand fluctuates based on cash flow. By closely evaluating the demand, suppliers will also tap into local market insight and get a better understanding of demand patterns.

Partnership and value added services

Building strong partnerships, either through non-profit organizations or Self Help Groups (SHGs), could play a crucial role in identifying retailers and making the model more scalable. Non-profit organizations can also play an important role in capability deployment and organizing micro-credit groups.

Partnering with other organizations that provide value added services such as micro-credit, mobile money and insurance, can share costs and risk with other partners.  VMI technology can also be used to sell other services such as mobile airtime and electricity vouchers. However, companies need to pilot VMI to ensure obstacles are overcome prior to roll-out.  With the mobile revolution in full swing, technology such as VMI, holds great potential for SMEs in emerging markets.

With liquidity tightening, companies are increasingly looking for ways to cut spending. In a recent survey of Fortune 1,000 companies, 80% of respondents said that they look at supply chain departments for their cost cutting initiatives.  However, cost cutting in supply chains requires the right mindset. As with any crisis, cool heads are required to steer the organization and the supply chain through tough times.

When does cost cutting fail? Supply chain cost cutting should not only be included in the agenda during a downturn. It should be a continuous process in any department. Companies that have a culture of continuous improvement are likely to have more success in implementing cost cutting initiatives.

Working with suppliers. Putting pressure on service partners to reduce cost is one thing, but when service partners fail, it can have severe consequences to the whole supply chain. When partners fail, customer service levels will suffer, and customers will be more likely to jump ship. Companies must work with partners and identify mutual cost cutting opportunities. With supply chain collaboration, companies are more likely to succeed.

Reducing inventory. Cash flow and working capital are both key to any company.  Managers must evaluate ways to reduce cycle stock and delay payments. For example, companies can negotiate consignments and defer payments. Ownership of the consignment stock is not transferred until used.

Rationalize stock-keeping-units (SKUs). During the downturn, when sales are questionable, it can also make it easier for customers to make purchasing decisions. Also, during a downturn, companies can rationalize SKUs. Elimination of slow yielding SKUs will have a positive effect on working capital, often with limited impact on customer service levels.

The information technology crunch. For example, Transportation Management System (TMS) can reduce travel time and distance, and save on energy and fleet costs. Software, such as Business Intelligence (BI), can identify cost opportunities in the supply chain, including poor pricing principles and workflow processes. An investment in IT can help create the type of lean organizations that can keep companies running during the downturn.

Evaluate transportation. For example, companies can evaluate ways to reduce warehousing facilities. Companies can consolidate purchase orders from multiple distribution centers and cross dock. By making use of cross-docking, companies can reduce less than truck load (LTL) deliveries and improve efficiencies in the organization. Companies can also make use of postponement centers to reduce lead times and improve cash flow.

Evaluate contracts. During a slowdown companies must also evaluate compliance and contracts. Transportation departments should study contracts and payments carefully, and only pay for what they agreed on. Companies are normally in a much better position to negotiate better rates and request more flexibility. The downturn is a great time to get the transportation house in order.

To view the full article, please visit the supplychainworkz site.

1. Speed - move goods at great velocity along the chain
2. Cross-docking – best-in-class warehouses cross-dock an estimated 50 percent of incoming goods
3. Greener – green technology such as natural light and renewable energy
4. Size – smaller and narrower, making better use of allocated space
5. Additional services and functions – customer services such as customization and in some cases even light manufacturing
6. Outsourcing – highly specialized field and companies are increasingly looking at 3PLs to own and manage warehousing operations
7. Real time data – technology is improving visibility in the supply chain and allowing greater opportunity for collaboration
8. Vast data – vast amounts of data and companies are demanding increased accuracy
9. Increased complexity – increased SKUs and warehouses require advanced technology to deal with the increased complexity
10. Internet age – small parcels and increased customization is commonplace
11. Agility – solutions that can adapt to the modern supply chain
12. Productivity – increased productivity and multi skilled employees
13. Leaner operations – non-value adding activities are identified and corrective actions are taken
14. Product and information flow – better understanding  of the flow of information and products to reduce bottlenecks in the system
15. Compliance – compliance such as labeling and documentation is increasingly important

Poor execution and stock out – what happens in the last 10 yards of retail supply chains is really important. Customers often experience stock outs not because the supply-chain plans are poor, as we often assume, but because they are not executed well at the stores.

Cost cutting to extremes – If employees are spread too thin, they’re going to be rushed. Then they either make mistakes or take shortcuts to get their work done.

Consumer satisfaction is availability - retailers that sell undifferentiated products compete on the basis of product availability, having the right product in the right place at the right time with the right label and of course with the right price may be what really drives customer satisfaction.