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A rebirth of interest in warehouse management points toward accelerated change and growing opportunities for electrical distributors.
Weird as it may sound, warehousing is hot. Business strategists are finding that, in many industries, one of the most lucrative spots to look for additional cost savings and competitive supremacy is in material handling and supply chain management. It's to the point that a recent study by a prominent management theorist proposed that the fast track to the top of corporate America for the next generation of executives will not be through finance or sales or research and development, but through supply-chain management. At the same time, look at the growing interest on Wall Street in investing serious capital in distribution companies. This means your world may be on the verge of becoming far more competitive than it already is, but as a professional distributor, you have some advantages.
Why is the warehouse suddenly so fashionable? The reasons are simple. Over the years, the American business world has pursued and captured considerable efficiency in manufacturing, finance and administration. With these areas squeezed as tightly as possible, companies began looking for other places in their businesses where they could improve profitability in a price-hike-resistant market by cutting costs and at the same time capture a competitive advantage by rethinking old practices. Someone stumbled into a warehouse and recognized the disorganized face of opportunity.
The quality-management movement of the early-to-mid 1990s added its own shine to warehousing's rising star. The ubiquitous feel-good total quality management (TQM) placards and slogans may now have grown stale in some business sectors, but TQM's tight focus on customer service and the pursuit of ever-higher levels of customer satisfaction has had a lasting influence on the way business is done. Companies have been forced to realize that no matter how brilliant their research and development teams and no matter how clever their marketing campaigns, the trench warfare of customer service happens in the distribution channel. Winning the war requires wringing all avoidable costs out of the channel and shifting those that remain to the point in the channel where they are best spent and recovered with the least waste.
Given the intense concentration of thought and resources being brought to bear on warehouse and logistics functions, you may expect innovations. EW talked to some warehouse wizards in the electrical and other industries and combed the Web for warehousing-related intelligence to bring you the following insights on where warehouse management and operations are headed in the future, as well as some practical tips you can put to work today.
The ever-rising quality standard. Most of the changes and innovations in warehouse management that are underway today are oriented to a single goal: Customer satisfaction. Trick is, that goal keeps moving higher. "The customers are asking for more," says Tom Butkovich, vice president of distribution at Thomas & Betts Corp. (T&B), Memphis, Tenn. Among his many duties, Butkovich oversees T&B's huge distribution centers, making sure they're prepared to meet the demands of T&B's customers, who range from electrical distributors to retail home centers. The increase in customer expectations is the most pronounced change Butkovich has seen in the warehouse, and it has increased more in the past two years than it did in the previous five years, he says.
"Quality is starting to evolve. Quality is becoming not just, 'Did I get what I ordered?' It's, 'Did I get what I ordered in the manner I wanted it?' That's a small phrase that takes on a vast array of meanings," Butkovich says. "As they (customers) take on warehousing themselves, it comes back full circle. We have to ship the product in a manner that they can put it away faster and they can expedite the inventory into their stock. That takes on physical form in the way we stack orders and the way we prepare them on the shipping dock. And it takes on electronic form too, in our DMI (distributor-manufacturer integration, T&B's variant of vendor-managed inventory) programs, in the way we can make it easier for them to electronically put product into stock."
Customizing shipping and delivery, as well as electronic communications of product data, to suit the customer becomes the added value generated by the warehouse, Butkovich observes. The distributors Butkovich works with are facing the same sorts of demands, and must respond by adding the same sort of value, he says.
Responses can take as many forms as there are entrepreneurs available to address it, and more options and ideas are appearing in the warehousing arena all the time. One such option that gets little attention from electrical distributors, but that could offer some insights into the future of the market, is third-party warehousing.
Outsourcing to an extreme. The search for better warehouse management is driving companies to outsource the function at an increasing rate, and at the same time the growing expertise of specialists and the growing sophistication of warehouse management systems are making outsourcing more attractive. Most distributors in the electrical industry would never consider outsourcing warehousing because it is their core competency. Doing so would seem incompetent. But it ain't necessarily so.
Distributors who are more heavily focused on technical support than heavy inventory, who are more effective managing engineers and salespeople than warehouse workers, or who already have a lot of products shipped direct from manufacturer to customer, as well as those who rely on local manufacturer stocks to streamline their own inventories, may outsource some warehouse functions to third parties.
Even electrical distributors who have made warehousing excellence the center of their identity can find third-party warehousing useful. Keith Bennett, Birmingham Group manager at Mayer Electric Supply Co., Birmingham, Ala., has put stock in public warehouses, mostly just to handle inventories bought for huge special projects. Yet he believes down the road there may be more of a role for outsourcing.
"I think there are instances where I could see us becoming involved in something like that," he says. "Not necessarily for my warehouse right here real soon--I prefer that they are my associates and that I control the processes--but I think what you get down to is if someone else can provide the functions more efficiently and can run those processes better than you can, that's when you would consider outsourcing. Right now, we desire to be the best of class in running an electrical distribution warehouse. But your choice to outsource really revolves around (the question), 'Is there somebody out there who offers that kind of service who's more productive and efficient than I am?'" Distributors that do a lot of counter business, as Mayer does in Birmingham, have less flexibility to take advantage of outsourcing, though. "We sell a tremendous volume out of this warehouse right out the front door, and we need our inventory right here," Bennett says. "If you're in a business where you don't have a counter, all of a sudden it becomes easier to look at something like that."
In a group of articles on the Logistics Management Center Web site at www.logisticsedu.com, Edward Frazelle outlines some conditions in which outsourcing might be the preferred path. Frazelle founded the Logistics Institute at Georgia Tech University and is now executive director of the Atlanta, Ga.-based Logistics Management Center, an organization that offers training in logistics.
According to Frazelle, there are several conditions that suggest a company ought to consider third-party warehousing. Here's a few of them:
* If current warehouse performance and costs are middle-class and the cost to move to world-class is not justifiable; * If you are highly skilled at corporate relationship management as opposed to labor management; * If there are opportunities to achieve warehousing and transportation economies through consolidating warehousing from a number of operations; * If you are a small operator unable to justify an investment in advanced warehousing systems.
Third-party warehousing companies clearly offer a number of advantages. Because they don't have to feed as many inside and outside salespeople, technical specialists and other good folk, they are able to operate on different margins than an electrical distributor. They also are able to focus more energy and knowledge on the subtleties of managing warehouse systems.
Electrical distributors would do well to keep these advantages in mind for three reasons: First, because they represent advantages that could be hired by a competitor--or a vendor or alternate channel--to compete against you. You must be able to compete head-to-head with third-party warehousing firms and beat them at their own game. Second, there could come a time when your business or the market changes to the point that it makes better sense to outsource warehousing to a specialist. On the flip side, the third reason is because you function as a third-party warehouse service for your vendors, you must be keenly aware of the value you add for your vendors. You may need this knowledge to defend your place as the channel of choice and to recoup your investment in the systems you need to compete with these other channels.
Silicon wizardry. The sophistication of modern warehouse management systems (WMS) has given warehouse managers the power to do things that couldn't be done before, says Butkovich of T&B, and the systems will keep getting more advanced. "The focus for the future is on the software," he says. "It can make the difference between good, first-class and world-class. Mechanical systems can take you a good way. The design of the warehouse can take you a good way. But the real key is the software."
The latest bar-code-based systems can track products from the time they enter a warehouse until the time they leave, plan putaway and picking paths to maximize efficiency of motion, remember random bin locations, show where a worker was when and how long it took to fill a given customer's order, and many other kinds of data, processed through the distilled wisdom of the best of the best, and beyond.
"We now have information that we either didn't have, or we had to expend a lot of energy and time to collect," says Bennett of Mayer. "I'm talking about li nes pulled per man-hour, lines received and put away per man-hour." The more detailed, more reliable information helps Bennett and his staff make better decisions and working with that data has given them better intuition, a better feel for what will work and what won't.
WMS technology is making it possible to entirely rethink the physical organization of the warehouse, says Robert Footlik of the warehouse consulting firm Footlik & Associates, Evanston, Ill. Footlik has recently been working with clients on arranging products by family affinities and according to patterns in the way customers of an individual distributorship tend to buy their materials. RF systems and the real-time routing software that they interact with enable random bin locations, meaning a distributor can put product wherever it will fit, or possibly wherever it makes sense for any idiosyncratic local reasons. Random bin locations give warehouse managers the freedom, power and flexibility, possibly for the first time, to be really creative and innovative in finding the right solution for a local market.
The power in the people. As the systems and the subtlety of warehouse work grow, the people who work in your warehouse are going to become increasingly critical to the success of your operations. Contrary to the stereotypes most people still have about computer automation, computerizing the warehouse system will probably require that the people in your warehouse become more intelligent, more resourceful and better trained, rather than less so, say several of the industry's warehouse sages. Therefore, another challenge facing your company is to find a way to raise the level of performance among your warehouse crew.
Coghlin Electric/Electronics, Worcester, Mass., recently implemented a new cross-training program that Warehouse Manager John Rourke says has already produced remarkable improvements in performance. The company issued training cards to its warehouse personnel. Each of the people spend some time each week training on a different part of the warehouse operations. When they're confident about their grasp of the work, they are assessed by the instructors, and if they pass the test, they're certified for work in that area.
"When the card's complete, they get a quality stamp, and from then on they can check in any order, stop any order, and fill in anywhere they're needed," Rourke says. The employees still have job assignments, but they are free to move from one task to another at their own discretion. They know that certain parts of the warehouse need more help during certain parts of the day, so they tend to move around as the work flow requires. Not only has this cross-training strategy helped productivity at Coghlin, it keeps the workers from feeling tied down to the same task day after day, and makes them more valuable contributors to the operations of the warehouse. This value is reflected in their wages, Rourke adds.
Warehouse training could be taken further, and likely will be. Frazelle of the Logistics Management Center proposes in an article on "Warehousing Megatrends" that warehouses will become more comfortable and attractive environments in which to work, and that as warehousing and logistics become more complex, the world may find the need for professional warehouse training. Perhaps even certification, he suggests, such as a Certified Warehouse Professional designation based on formal education and the attainment of degrees in the discipline.
Maybe you thought that distribution was an old, slow, mature industry. Look out: it just got young again.
Online resources for logistics and warehousing:
Virtual Logistics Directory www.logisticdirectory.com The Virtual Logistics Directory bills itself as "An objective and comprehensive directory of logistics resources on the Web." It is a good collection of links to resources on logistics and warehousing. Its links are divided into 14 overall categories rangingfrom academic links to government, consultants, warehouse and logistics service providers, as well as resources for electronic commerce and EDI.
Logistics Management Center www.logisticsedu.com Edward Frazelle, Ph.D., who founded the Center for Logistics at Georgia Tech University, is director of the LMC, which offers training seminars and consulting on logistics and warehousing. The site has several useful articles on the future of warehousing and logistics.
Tompkins Associates www.tompkinsinc.com Tompkins is a consulting firm that does a lot of research on warehouse management issues. The site has many articles on hot topics.
International Warehouse Logistics Association www.iwla.com The IWLA site hosts both the American Warehousing Association (AWA) and the Canadian Association for Warehousing and Distribution Services (CAWDS). The associations' site has a number of resources for anyone interested in the subject.
Effective Inventory Management www.effectiveinventory.com This site has a variety of articles by Jon Schreibfeder, principle of the consulting firm for which the site is named. Schreibfeder's articles have occasionally appeared in EW. While the focus here is more on the closely related subject of inventory control, several of the resources address effective inventory counts and other warehouse functions.
Materials Management & Distribution www.mhbizlink.com/mm&d MM&D is a Canadian magazine that concentrates on the logistics and warehousing business. Their site contains article archives that can be searched by the keywords of your choosing.
In addition to these sites, there are plenty of promotional sites for companies involved in logistics and warehousing, especially companies offering third-party services. Just about every warehouse-management-system vendor has a site, though we found none that had reference information of a general nature. We will be putting a page on the EW Web at www.ewweb.com with further links to sites with good information on logistics and warehousing. If you have a favorite site related to this topic that's not listed here, send the URL to [email protected] and we'll consider it for inclusion among our links.