How does your warehouse stack up?

By Maida Napolitano -- 11/1/2006

Much is expected from today's warehouse managers. Many have to ship orders within hours instead of days. Some must comply with changing customer and government mandates. Almost all are dealing with fluctuating energy costs. And let’s not forget the day-to-day need to track people, product, and information—all on a limited budget. In September 2006, Logistics Management, in partnership with Gross & Associates, a Woodbridge, N.J.-based consulting firm specializing in materials handling and logistics, launched the First Annual Warehousing Trends Survey. The survey was designed to help today's warehouse managers get a clearer picture of the challenges they face today and give them an opportunity to see how their warehouse operations compare with the industry average. "We wanted to find and define the critical trends that are moving the warehouse and distribution-center market," says Don Derewecki, president of Gross & Associates and a member of the research team. The results of the Warehouse & DC Trends Study are based on the responses of 485 participants involved in making warehouse-operations decisions at North American companies. At a 95 percent confidence level, results have a margin of error of +/- 4.4 percent. Here is an overview of the information this group of warehouse managers shared with us. Typical characteristics If you were to paint a portrait of a typical North American warehouse, it would look very much like this: It is privately owned (77 percent) with either an end consumer (32 percent) or a manufacturer (26 percent) as its primary customer. It is less than 250,000 square feet, and it receives and ships a wide variety of products, such as electronics, computers and software (25 percent); paper, packaging, and office supplies (24 percent); and chemicals and raw materials (21 percent). Within its four walls, the most common units handled are pallets (87 percent) and cartons (79 percent), with rack storage (86 percent) as the primary storage module, followed by floor storage (62 percent). (See Fig. 1 below.) Over 90 percent of warehouses still pick orders manually using carts and pallet jacks, while 20 percent have evolved to some form of mechanized picking to a conveyor. Only 3 percent of warehouses have fully automated picking requiring no human intervention. The typical warehouse uses some form of warehouse management system (WMS). Thirty six percent of respondents developed their WMS in-house, 22 percent purchased a stand-alone package, and another 22 percent purchased their WMS as part of an ERP module. Surprisingly, 23 percent of all warehouses still have no WMS, relying mostly on spreadsheets and order-pick sheets. This last statistic may seem less surprising when you consider that 35 percent of respondents have annual budgets of less than $25,000 for continuous-improvement programs—and 8 percent don't even have such a budget. Of the warehouse managers who have a budget of less than $100,000 (59 percent of all respondents), 37 percent said they would spend some of it on materials handling equipment, while 23 percent planned to invest in information management systems. Warehouse managers with budgets of $1 million or more (7 percent of total respondents) focused more of their spending on IT. Of the respondents in this category, 41 percent reported that they would spend on information management systems, while only 21 percent planned to buy materials handling equipment. Warehouse goals The top objective pursued by warehouse decision-makers this year was increasing customer satisfaction (40 percent). Reducing costs came in second at 32 percent, validating the continuing cost-control burden on today's warehouse manager. Only 7 percent of respondents reported that they were expanding their operations, while 1 percent said they primarily focused on maximizing efficiency by buying new equipment and systems. (See Fig. 2) When asked what their customers expected of them, warehouse managers were plain and clear: Customers demand accurate orders delivered on-time and without damage. In fact, 97 percent of respondents said order accuracy was most important. On-time delivery came in second at 94 percent, and damage-free shipment was in third place with 91 percent. (See Fig. 3.) Need for speed Judging from their responses, warehouse managers' need for speed is readily apparent. Some 82 percent can ship orders in one day or less, while an impressive 23 percent said they can ship in less than four hours. At the other end of the spectrum, 4 percent of warehouse managers reported that they are still taking more than one week to ship merchandise. This group appears to be handicapped by a lack of technology: 50 percent said that they don’t use bar coding, 56 percent do not have a WMS, and 67 percent don’t use radio frequency (RF). Compare this with warehouses that can ship orders on the same day they are received: 80 percent use bar codes; 82 percent use a WMS; and 61 percent have adopted RF technology. Considering that only 22 percent of the worst performers have a continuous-improvement budget of more than $100,000 for next year, it’s likely that they'll continue to achieve sub-par results. Dissecting the operation Since all warehouse managers face many of the same operational challenges, we asked respondents to identify the most critical elements that make their operations run smoothly. For receiving and shipping, carrier reliability—defined as the ability to depend on truckers being at the appropriate dock door when needed—was deemed most critical by 43 percent of respondents, while 40 percent reported that shipping productivity was another critical issue. Most warehouse managers appear to be properly managing their docks, as only 19 percent of respondents reported that dock congestion was a critical issue. For storage, maintaining accurate inventories (60 percent) was viewed as far more critical than storage capacity (36 percent). The prevailing attitude seems to be that it’s easier to find extra space but not as easy to find missing inventory. In keeping with the need to deliver correct orders, the majority of respondents (64 percent) rated order accuracy as a highly critical issue for picking. This isn’t surprising, considering that incorrect orders ignite a downward spiral of costly returns and even costlier deterioration of customer relations. When asked what metrics they are using to track order accuracy, 42 percent of respondents said that they track the percentage of orders with errors, while 40 percent track the percentage of orders shipped complete. At the other end of the spectrum, value-added services, such as ticketing and customization, were rated as very critical by only 19 percent of respondents. As for overall warehouse issues, warehouse safety was considered most critical by 44 percent of survey respondents, followed closely by warehouse security (32 percent). Material control was also considered a fairly significant issue, given the strong emphasis warehouse managers have placed on inventory accuracy. And despite the government’s recent emphasis on the growing immigrant population, 68 percent did not consider immigration requirements to be an issue in their warehouses—at least not yet. Finding a Solution When asked how they planned to respond to issues plaguing their warehouses, 46 percent of respondents said they had purchased materials handling equipment. Meanwhile, 40 percent purged obsolete/overstock inventory—not surprising, since by purging out-of-date inventory, resources are focused on current products that do sell. Other popular responses to warehouse issues included the purchasing of storage equipment (35 percent) and reconfiguring existing facilities (35 percent). Other companies turned to labor management by retraining personnel (27 percent) in more efficient working methods. As a rule, however, companies would rather tackle operational issues in-house before asking for help. A full 78 percent do not plan to hire consultants, and 65 percent do not plan to contract third-party logistics (3PL) services. (See Fig. 4) Turning to technology With so much technology inundating the distribution marketplace, we asked survey participants to rank the importance of each technology in their individual operations. Bar coding led the way with 52 percent. By electronically capturing data with a simple "wave of a wand," bar coding has revolutionized the industry, reducing errors and increasing productivity. WMS followed closely with 48 percent of respondents saying it is very important to their operations. Other technologies that have yet to gain traction in today's warehouses are such high-ticket items as automated storage/retrieval systems (ASRS), automated guided vehicles (AGVs), and voice-directed systems. (See Fig. 5.) In 2006, continuous-improvement programs dominated as the leading strategy adopted by warehouse managers, with 56 percent of respondents reporting that they have implemented this strategy and 24 percent saying that they are making implementation plans. Strong interest in relatively new strategies such as "lean" warehousing (34 percent), RFID (33 percent), and Six Sigma certification (30 percent) is apparent, yet few reported implementing these strategies or technologies. Many warehouse managers are adopting a "wait and see" attitude regarding new concepts, and are waiting for further proof of their value for their own warehouses. (See Fig. 6). Overall, today's warehouses rate fairly well in terms of speed and accuracy, but their level of technology can vary widely. While many companies have recognized the impact of bar coding, RF, and WMS technology, others have yet to implement them. But change is inevitable, and as time goes on, managers will need to cope with new challenges. "The key is acknowledging that there is always room for improvement," says Derewecki. "The best-in-class warehouse managers will be those who continuously strive to improve their operations." Fig. 2 Top Warehouse-Operation Objectives Objective Most Important Second Third Increase customer satisfaction 40% 24% 16% Reduce costs 32% 34% 22% Maximize efficiency with existing assets 17% 24% 32% Expand operations and capacity 7% 9% 12% Consolidate operations and capacity 2% 6% 12% Maximize efficiency with new assets 1% 4% 6% Source: Logistics Management, RBI Research Fig. 3 Importance of Deliverable to Customers Deliverable % Rating among top two Order accuracy 97% On-time delivery 94% Damage-free shipment 91% Responsiveness to changing requirements 81% Order cycle time 81% Operating hours’ accessibility 66% Visibility of orders 55% Returns-processing capability 51% Value-added service capability 50% SKU integrity 46% Responsiveness to marketing trends 43% Deferred customization and/or postponement 33% Assembly of promotional displays 21% Source: Logistics Management, RBI Research Fig. 4 Responses to Operational Issues Response to issue Implemented Plan to implement Do not plan to implement Purchase materials handling equipment 46% 26% 27% Purge obsolete/overstock inventory 40% 40% 20% Purchase storage equipment 35% 28% 37% Reconfigure existing facility 35% 36% 29% Improve turns 29% 42% 29% Balance daily/weekly workload 28% 45% 26% Retrain personnel 27% 47% 26% Purchase information-technology enablers 26% 37% 37% Evaluate customer profitability 25% 28% 46% Hire more-qualified personnel 23% 35% 42% Cross-dock 22% 20% 58% Contract third-party logistics (3PL) services 22% 13% 65% Purchase new software 18% 35% 47% Open new facility 17% 20% 63% Expand existing facility 16% 27% 56% Revamp old software 16% 24% 60% Hire consultants 15% 7% 78% Increase operating hours 14% 19% 67% Source: Logistics Management, RBI Research Fig. 5 Importance of Warehouse Technologies Technology Very important Somewhat important Not important Do not use Bar coding 52% 22% 5% 21% Warehouse management systems (WMS) 48% 27% 7% 18% Electronic data interchange (EDI) 41% 28% 7% 24% Real-time order tracking 39% 27% 9% 26% Advance shipment notices (ASNs) 36% 30% 10% 23% Radio frequency identification (RFID) 28% 19% 13% 41% Automated print and apply 17% 26% 11% 47% Labor management systems 16% 27% 13% 44% Shipping conveyor/sorter systems 13% 13% 15% 60% Very narrow aisle (VNA) storage 12% 21% 13% 54% RFID solutions 11% 21% 12% 56% Receiving conveyor/ sorter systems 8% 11% 15% 67% Automated picking systems 7% 9% 14% 70% Pick-to-light 6% 9% 18% 67% Voice-directed picking 5% 8% 17% 71% Carousels 4% 13% 15% 67% Automated storage 4% 8% 15% 74% Automated guided vehicles (AGVs) 4% 8% 15% 73% Source: Logistics Management, RBI Research Fig. 6 Implemented Warehouse Strategies Warehouse Strategy Implemented Planned but not implemented Interested but not planned Not applicable Continuous improvement 56% 24% 14% 6% Benchmarking/work measurement 32% 23% 24% 21% Value-added services 31% 19% 23% 26% Cross-docking 26% 14% 17% 44% Workload balancing 26% 26% 27% 21% Outsourcing 26% 9% 17% 48% Lean warehousing 22% 20% 34% 25% Six Sigma certification 13% 12% 30% 46% RFID solutions 10% 16% 33% 41% Source: Logistics Management, RBI Research