Looking at the next ten years, we can be sure that warehouses will continue to play a critical role in the logistics supply chain, just as they have done since Venice served as the international hub of commerce to the civilised world. And we can be just as sure that warehousing will continue to be a dynamic function, driven by market forces toward continuous improvement. The trends that will take European distribution centres into the next decade include what I have identified as ten key changes, which I will deal with here, under separate cross headings. Let us first consider the changing way that warehouses will be required to meet changing customer expectations:
Focus on the customer: The European market consists of many different cultures and, thus, customer service expectations. The most successful, fastest-growing, most profitable organisations have already spoken with – and listened to – their customers. They know what the customer wants – value, at low cost with high functionality. They understand that quality must be a ‘given’. Their focus on quality goes beyond production, with consistently accurate and on-time shipments. They also understand that the warehouse can add value.
Meeting expectations
The expanding European market has boosted customer requirements, expectations and cultural differences across the countries. Business now must meet these expectations while managing shipments around differing daily work and holiday schedules, as well as invoice and create paperwork in multiple languages for multi-national customers. These are and will continue to be critical to business success in the future.
Cutting-edge organisations welcome special customer requirements as opportunities to differentiate themselves from their competition. They know how well they are doing because they have established relevant performance measures. These are the hallmarks of customer-driven companies. As competitive pressures increase, customer service will be the competitive advantage of the future. The warehouse will be critical to making this happen.
Consolidating operations: Historically, warehousing has serviced a single country or several countries to simplify local compliance issues, handle documentation in a single language and avoid transportation costs and issues associated with border crossings. As the European market has slowly opened up, many of these issues are disappearing. The cost and effort to operate the existing smaller, geographicallyfocused operations is no longer justified. This will continue to drive businesses to consolidate operations to take advantage of centralised operations, improved technology and the ability to reduce redundant inventories.
This will mean a more sophisticated facility and a more educated workforce that is capable of working with multi-lingual product labels and paperwork and increased throughputs. In addition, an efficient deregulated transportation infrastructure has enabled higher and more reliable levels of customer service from fewer distribution points. This development allows economies of scale that can reduce operating costs including inventory, space, equipment and labour, as well as transportation efficiencies of increased loadpooling and better volume discounts from carriers.
Fewer distribution centres
The result will be fewer distribution centres (DCs) with greater individual mass. For some companies, the trend will be due to attrition, for others, consolidation will be due to strategic decisions. The end result, though, will be the same: fewer operations of greater scope and efficiency.
Information technology: Just as material flow is becoming more ‘continuous’ in the supply chain, so is the flow of information. Online and even real-time information systems are replacing batch systems. As the number of materials handling transactions increase within and between warehouses, so will information transactions. In this age of technology, information flow in warehouses will represent the greatest area of change.
Tracking goods in and out of a warehouse from receipt to put-away, to order picking and to shipping is the function that warehouse professionals consider to be the most critical. Because it requires the most non-value-added resources and is the most errorprone process, of all the warehousing functions, tracking is the biggest obstacle to obtaining timely data. One powerful trend that can be implemented is to simplify and streamline the material tracking function is moving to the paperless warehouse environment.
The paperless warehouse
In principle, the paperless warehouse simply implies that all product movement is tracked electronically rather than through the old-fashioned paper trail. This eliminates the traditional errors associated with product recognition, location confirmation, data entry and picking accuracy, while increasing tracking capabilities and reducing overall labour requirements and training.
Paperless warehousing begins at purchasing, through the process of ordering materials through electronic communication (EDI/XML) to suppliers and pre-receiving products with electronic shipment notices from suppliers. This eliminates the need for files of paper sitting on the dock for product check-in. With purchase orders and/or supplier ship notices online, receiving becomes a keystroke entry rather than multiple handwritten and data entry exercises.
Having eliminated the delays associated with secondary data entry, inventory is updated and available at the time of receipt. This allows a computerised warehouse control system to allocate inventory either to pick locations or bulk storage locations immediately upon receipt confirmation. Inventory location moves, forward pick location replenishment and inventory cycle counting may then be directed by the warehouse control system through a variety of human interface devices.
Space compression: Space as a scarce resource is nothing new to warehousing. If anything, it will be more of a problem in the future than it is today. The value of the warehousing function is less understood in traditional manufacturing organisations than elsewhere in industry. Because of the continuing focus on customers and the expanding European and global marketplaces, the SKU proliferation that has already taken place will continue. The same product will be packaged for more markets, with more languages, and even for specific customers. The more unique the SKUs, the more storage locations and the more space required all impact space requirements. This is accentuated where consolidation takes place. Greater emphasis on throughput often results in more dock, staging, buffer and sortation system space. Without adequate planning, the allocation of space can have adverse consequences on efficiency and service.
Crossdocking: The ever-increasing requirement to reduce inventories and a trend toward smaller and fewer warehouses will transform the majority of warehouse operations to predominately crossdocking operations in the next 10 years.
The simplest crossdocking operations will consist of areas that focus on the fastest moving products and eliminate the majority of putaway and picker travels throughout the warehouse. This will be accomplished through smaller and more frequent deliveries of product directly received into pick zones rather than storage zones, while slower moving products continue to be stored long-term and picked as required.
Co-ordinated moves
The second level of crossdocking will incorporate the terminal crossdocking techniques currently utilised by the transportation industry. The pre-planning of both incoming product and out-going shipments will be coordinated to move all goods directly from receipt to shipment with minimal staging. This may occur for any size load but will be most effective with case and pallet unit loads.
The third level of crossdocking will incorporate high levels of automation to move case and piece unit loads between product receipt, product breakdown, labeling, re-configuration or packaging, and finally shipping. Little to no personnel travel and decision-making skills will be required and paper tracking will be eliminated.
The final level of crossdocking will simply be the lack of materials handling. The movement of goods directly from the source to the end-users through electronic information exchange will replace many warehouse operations. In order for any of the crossdocking operations to occur, the proper information, information processing systems and coordination of incoming product must reflect the technological advances available in the coming years.
‘Customised’ warehousing: Millions of dollars will be lost by companies who don’t prepare their warehouse( s) to support their customers’ customised packaging requests. Providing customised services in the warehouse is one of the fastest-growing trends redefining the role of the warehouse, as direct shipments increase. Customised warehousing services are defined as; any packaging or assembly enhancement to the product or improvement to the services provided by or in the warehouse. This is becoming ‘business as usual’ for many manufacturers as Europe moves towards ‘big box’-style retail outlets with more sophisticated customisation requirements such as displays. Increasing demands on the warehouse to provide these services has significantly impacted on warehouses’ daily operations. To maintain a competitive edge, the various opportunities for providing customised services must be evaluated. The following services will be required to maintain a competitive advantage: customising generic products in the warehouse (on-demand packaging); compliance labeling; ticketing and bagging; dunnage and palletisation
Value added services
There are many benefits to performing these services. The concept of floor-ready merchandise allows retailers to implement rapid stock-replenishment strategies that reduce inventory, while increasing stock turns. The warehouse will continue to evolve into a ‘customer service centre’ that performs numerous value-added services.
Third-party warehousing: Due to the consolidation of distribution operations across Europe, many companies will move to outsourcing their operations. These companies will focus on their core competencies and others will lack the resources to construct large distribution operations while working to expand their markets across multiple borders. In the future, the need to leverage capital and increase service levels will feed third-party growth. As the market continues to grow and third-party warehouses become the technology and automation standard for all warehouses, more and more small- and medium-sized organisations will be compelled to use these services to compete effectively.
Major players using third party services to leverage their core competency and to handle seasonal and peak inventory overflow will continue to become a larger percentage of the marketplace. The demand for specialty services, the ability to reach the next level with little or no capital investment, the need for flexible staffing and need for multi-language and regulatory compliance will be the keys driving the growth in outsourcing.
Some of the key advantages that a third party warehouse offers over internal warehouse operations include: reduction in capital assets and investment requirements: reduction in permanent labour force; improved levels of technology; improved customer service; overall distribution cost reduction and compliance.
Performance measurement: In the warehouse, it is hard to take risks because reputation and customer satisfaction are on the line. Therefore, it is important to closely monitor operations, especially as they become larger and more complex, in order to find deficiencies as quickly as possible. As the rate of change and demands on operations shift, so should the procedures and tools. The best way to monitor this process is through daily and self-administered performance measures.
‘If you can’t measure it, you can’t manage it’ is a saying that has deep roots in modern management methods. It reflects the understanding that people want to succeed, but without objective feedback, they lack the ‘compass’ that can help them find their way when they wander off the beaten path. There are at least seven ingredients for success: goals, standards, feedback, opportunity, means, competence and motivation. Too often, the link between leadership goals and individual motivation does not exist, and standards of performance are ambiguous and unstable. And too often, feedback is infrequent and not focused on the stated goals. It is critical to effective management, whether it be traditional or team-based, that there is a performance measurement system in place.
The scary part
Reduced order size: So many factors are driving the reduction of order sizes and the increase in order frequency. Better information availability, higher levels of technology, vendor managed inventory programs, quick response and efficient consumer response initiatives, along with the elimination of the on-site retail warehouse, not to mention the direct-to-store and direct-to-customer programmes, have made the days of mixed pallet shipments seem like a utopia. As the retail outlets become increasingly ‘chain store’ driven, a larger portion of the customer base is adopting the higher level of technology. The scary part is that the changes during the past few years are only the first steps in the information explosion that will occur early in the next decade. Home shopping (via internet or similar technologies) is in its infancy
To further complicate matters, the cost of retail outlets and manufacturers carrying inventory will continue to diminish. The move to continuous flow will force inventory back to the vendor and further reduce the order size to a week’s usage or less in most instances.
Automation: The trend toward more frequent shipments – and more receiving, put-away, picking and shipping activities – will put greater demands on the materials handling systems used in warehouses. Demands on storage systems are sure to be different. The sizes of loads that are handled and stored will shrink. At the same time, SKU proliferation will require more storage locations, not less.
‘Technology in the next decade will replace the human workforce with robots and automation’ was the promise of technology in the 20th Century and yet we still have a human workforce. Automation has taken over the heavy, repetitious and dangerous jobs in the warehouse, but the flexibility and decision-making capabilities of a human being have yet to be replaced.
More use of automation
In order to handle consolidated facilities with ever increasing volumes and complex multi-national products, the answer for warehousing will not be to simply continue to add labour. The expanded use of automation such as conveyors, sortation and automated vehicles will increase in the next decade. In addition, the use of automated picking equipment such as A-frames, robotic pickers and dispensers will improve throughput capacity of existing centres without building additional space. Automation will also continue to replace humans for heavy lifting, non-value-added movement of goods and in limited access areas of the warehouse.
Automated equipment continues to improve, and although no new, major technology is expected over the next decade, the steady improvement in capabilities and the reliability of existing equipment will be significant. The majority of innovation will be focused on controlling information between trading partners and tracking goods within the operation.
In Europe, unlike the US, the justification for larger and more complex automation will continue. The focus on equipment and system-based solutions will increase, which will drive further innovation. The ability of organisations to have capacity on demand that is not labour-powered and the ability to meet increasing customer expectations will lead European operations to more sophisticated automation and technology solutions. These technologies will include AS/RSs, automated loading equipment, robotic palletisers and automated pick equipment and order dispensers, as well as technology solutions including WMS, pick-tolight, voice recognition, RFID and various transportation management systems.
The greatest advances will be in order picking itself where these technologies and automation will be applied. Whenever overall throughput requirements are high, the need for order accuracy is critical, and/or the human effort required to handle the product causes ergonomic concerns, automation of the order picking process must be considered. In Europe, the limitation of ‘industrial’ sites, labour retention laws, vacation and work hour limitations and international product identification makes this need even more pronounced.
Automated systems all operate under computer control, receiving line-by-line instructions for each order and retrieving the required quantity of the correct product without human interference. In most cases, stock-keepers are required to replenish the stock in the order picking systems, but sophisticated control systems are required to both control them and to interface order and customer information back and forth for tracking.
We’re still needed
However, the human workforce will continue to be required to complement automation, for as we have learned, a computer can think logically and adapt to pre-defined changes in the requirements, but only the human mind can operate efficiently during the chaos of a system glitch.
Obviously, warehouse managers face some pretty big challenges during the next decade. But those same challenges also present an equal number of exciting opportunities. If companies can capitalise on these challenges and trends, prospects for improved logistical opportunities look excellent.
Jim Tompkins is the CEO of Tompkins Associates, a provider of total supply chain solutions from supply chain planning to the design and implementation of hardware and software. www.tompkinsinc.com.
