Today's warehouse

The role of warehouses in modern organisations has changed greatly, and so have the skills needed to run them. Chris Werling, president of Cornerstone Solutions, outlines these changes and how to meet the new challenges.

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By  Chris Werling Published  March 27, 2005

|~||~||~|Thirty years ago, virtually every organisation looked at their warehouse as a necessary evil. It was simply a building to keep the weather off their merchandise. Today, with the emergence of such concepts as carrying cost, JIT, FIFO, ‘optimising the cube’ and license plating; the increased demands brought on by complex vendor and customer compliance requirements, charge backs, value-added processing and kitting; and new technology contributing tools such as advanced analysis algorithms, automated data collection, materials handling automation and access to realtime information, today’s distribution centre has become a much different place. To borrow an old expression, ‘This isn’t your father’s warehouse’ any longer. As the warehouse has changed, so has the calibre and skillsets of the people needed to run it. Yesterday’s warehouse manager was often a guy with a short-sleeved shirt and polyester tie who had worked his way up through the ranks of the warehouse so that he could enjoy the fruits of his success by standing around and drinking coffee while others did the actual work. Today’s director of distribution must bring a wealth of skills and experience to the operation. Along with relevant experience and exceptional analytical skills, the DC director of today must be a great communicator with outstanding people skills, have an understanding of technology, as well as the discipline to manage a multi-million dollar annual budget, and be a top-notch project manager to boot. The changing perception of the warehouse means that companies are now viewing their distribution operations as profit centres rather than a necessary direct expense. Nobody today can argue that the DC does not have a significant impact on the profitability of an operation. By reducing direct costs, such as handling expenses, freight, spoilage and damaged products, the distribution operation can often add millions of dollars to the bottom line. Add in the ability to minimise customer charge backs and garner additional revenue dollars from value-added processing, such as kitting and price-stickering, and the impact of a DC becomes all the more impressive. Further incorporate the distribution operation’s ability to influence, positively or negatively, customer goodwill and future revenues through their ability to execute, and anything less than perfection in the warehouse can become a major crisis. Today, everyone understands that the ability to execute efficiently and effectively in the DC can make or break a company. With this in mind, here are seven tips to optimise the efficiency of a distribution operation: Remember the basics: While there are a number of high profile things that you can do to improve the efficiency of your operation, none of them mean a thing if you do not have a handle on the basics. Automating bad processes simply means that you will be doing the wrong things more efficiently. Is your building laid out correctly? Is your product flow efficient? Are your processes set up to meet your customers’ needs? Is your staff deployed optimally? Do you have the right ‘culture’ among your staff? Automate: There are a tremendous number of products available today to automate the distribution of products and information, as well as to optimise the efficiency of your staff. You should look at many of them. If you are not using a type of automation, you should have a good understanding of the technology and a compelling explanation for why you are not using it. A good rule of thumb is that additional ‘touches’ are opportunities for disaster, and any information that is manually kept, keyed or entered is an opportunity for error and an obvious inefficiency. Analyse: One of the best signs that I have seen in the office of a DC director read: Whoever said ignorance is bliss obviously never ran a distribution centre! Be a tireless analyser and reviewer of any and all data that you can get your hands on. How much does it cost to touch a product? How do individual workers stack up to each other for productivity? What percentage of your shipments does your biggest customer represent? What percentage of expenses does freight represent? What is your return on investment for implementing a warehouse management system? A traffic management system? How closely does your organisation follow the Pareto Rule (20% of SKUs represent 80% of the velocity)? How long has it been since you had orders for your least active SKUs? What is your carrying cost? Remember the old saying: Knowledge is power. In a DC, accurate realtime information provides you with the power to make critical decisions correctly. ||**|||~||~||~|Do not forget your employees: In all of the talk about analysis, information and automation, do not forget the folks in your warehouse. While they may not have the most challenging or complex of jobs, they are people with goals, hopes and dreams like everyone else. For the most part they want to do well, and will respond positively to training, feedback and encouragement. I once visited a manufacturer who was falling about 10% short of its goal for units produced per day. The father and son owners were quite skilled at designing and marketing their products, but a little short on management experience. Instead of sharing details, they simply told their manufacturing staff that they were not meeting goals and to work faster. On our suggestion, they (sceptically) began posting the goal and each day’s production totals. They offered their line workers each a jacket embroidered with their company logo for meeting the production goal every day for a week straight. Within three weeks, they were handing out jackets. For a total investment of around US $1000 and some communication, they dramatically improved morale and increased manufacturing throughput by 10%. Benchmark: You can spend hours on analysis and have the most accurate and timely data in the world, but it does not mean much if you have no idea how your operation stacks up compared to the rest of your industry. You need to network with your peers in other companies who have similar operations (obviously, you may not want to share information with direct competitors). See how their automation, throughput, inventory turns, freight discounts, labour costs and compliance charge backs compare to yours. Visit their operations and invite them to visit yours. Some industries have information services that can anonymously pull your data together with that of other companies and do this comparison for you. If your sector is one, then you may want to look into this. Seek additional opinions: One misperception that many distribution executives have is the old standby: “My business is so unique and unusual that other operations, skill sets and experiences do not apply.” While it is easy to see how someone can fall into this line of thinking, it is totally inaccurate. The most effective distribution executives are not necessarily one person with an individual wealth of knowledge and experience, but are almost always great facilitators of multiple sources of knowledge who can ‘borrow’ and apply the best ideas without feeling intimidated or threatened. Accept the fact that today’s distribution centres require so much specialised knowledge that no one person will ever be the definitive expert on every process that goes on within the four walls. If you are a solid generalist and have the necessary facilitation skills you can make your mark, but if you try to do it all yourself you will almost certainly fall short of your goals. Communicate: Last but certainly not least, communicate with everyone around you! This article has already touched on the need to communicate with your staff, but you also need to be in constant communication with everyone else; your boss, your peers within the organisation (especially, finance and sales) and, in particular, your customers. When a disaster comes along with a customer (and in case you were wondering, one will come), nothing helps to smooth things over like the equity that you have built by regularly communicating, meeting their needs and working with them in the past. Even a regular phone call to check on how you are doing when nothing unusual is going on can pay huge dividends. Remember, when your customer tells you ‘everything is fine,’ the conversation is reinforcing just that fact in their mind. When disaster does strike, do not hide — overdo the communication! Remember that a problem is also an opportunity to build customer loyalty; in fact studies have shown that customers who have had a problem and had their expectations exceeded in the resolution of that problem are far more loyal than those who never experienced a problem in the first place. In a nutshell, as business has become more fluid and sophisticated, so have the skill sets needed to run an effective distribution operation. While some see ‘lifetime learning’ as just a buzzword, it is the reality for any upwardly mobile distribution executive. ||**||

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