2010warehousedc_benchmarkstudy

8/8/2019 2010WarehouseDC_BenchmarkStudy

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Brighter days aheadBy Maida NapolitaNo, Contributing Editor

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Things are nally looking up. In act, the results oLogistics Managements 5th Annual Warehouse &Distribution Center (DC) Operations Survey areshowing clear signs o recovery. Inventory turns haveincreased ater three years o continued decline;companies report that more expansions are being

planned to distribution operations; and more managers are tellingus that theyre re-installing incentive plans as company coers arestarting to slowly, but surely show signs o new lie.

Designed to gauge activities and trends in U.S.-operated ware-houses and DCs, our annual survey investigates how todays man-agers are currently running their distribution operation. In Sep-tember 2010, a survey was sent via email invitation to LogisticsManagement (LM) subscribers. A total o 521 qualied responseswere received rom CEOs to upper-level logistics and supply chainmanagers who are personally involved in decisions regarding theircompanys warehouse and DC operations.

Most participating companies came rom the manuacturing sec-tor (40 percent), ollowed by distributors (25 percent), third-partyproviders (14 percent), and retailers (9 percent). A wide assortmento products handled in the DC was once again well represented,with ood and grocery leading the pack at 15 percent, ollowedclosely by general merchandise at 11 percent, industrial/chemicalat 9 percent, and electronics at 8 percent.

In an economic recovery tempered by a lack o consumer con-dence and spending, how have managers responded? Most aresticking with conventional, low-cost, tried-and-true solutions ortheir distribution problems. To realize transportation savings, manyare adding satellite DCs and renegotiating reight rates. And to keepa lid on operational costs, a majority o respondents are improvingwarehouse processes, tightening inventory controls, and adoptinglean and green strategies.

Over the next ew pages, well share all o the detailed results onhow warehouse and DC operations have changed over the past year.

42 LogistiCs ManagEMEnt WWW.LOGISTICSMGMT.COM | nveme 2010

w e b c a s t e v e n t

2010 Warehouse/DC BenChmark stuDy

Tuesday, November 3o 2:00 Pm eT

regisTer: www.lgiicg.c/wdcbc2010


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Source: Peerless Media Research Group

Figure 1A: Profile of Todays Distribution Network

Buildings in distribution network

1 building

2 buildings

3 building

More than 3 buildings

TYPICAL PROFILE: Distribution network made up of morethan 3 buildings

30%

20%

12%

38%

2M+

1M to 1.99M

500K to 999K

250K to 499K

100K to 249K

50K to 99K


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And with yet another year o results inour database, denitive trends in ware-housing and supply chain managementover the past ve years can now be iden-tied. Its time to dive into the results tosee how your warehouse and DC opera-

tions stack up to some o the top organi-zations in the country.

Clear treNdsOne o the clearest trends that

weve seen unold over the past several years is an increase in the number oDCs that make up todays distributionnetworks (Figure 2). The number onetworks with more than three DCsincreased rom 33 percent in 2007 to38 percent in 2010.

On the fip side, one-acility net-

works are decreasingrom 39 percentin 2007 to 30 percent in 2010. Theresa trend to move away rom a single dis-tribution point to multiple points closerto your customer base, says DerekSorensen, senior consultant or Tran-Systems, a supply chain consulting rmand LMs partner or this survey. Notonly does this move help achieve highercustomer service levels in a competitivemarket, but it also helps to cut down ontransportation dollars.

Norm Saenz, an assistant vice presi-

dent with TranSystems, agrees withSorensens assessment, but also pointsto another phenomenon thats enablingthis trend. While there are companieslooking to add DCs, other companiesare consolidating and closing acilitiesto reduce operating costs, says Saenz.And as a result, theres plenty o avail-able, inexpensive warehouse space inthe real estate market today. He addsthat many companies are taking advan-tage o this availability to add satelliteacilities or temporary, seasonal stor-

age, and perhaps relieve storage issuesin their main DCs.

Another clear trend has been thecontinued leaning o the supply chainas more respondents implemented thisstrategyrom 39 percent in 2009 to44 percent in 2010. Why does leanremain so popular? According to Saenz,lean has had considerable and provensuccess in manuacturing; and as aresult, its quickly making its way intowarehousing and distribution opera-tions. Its also a low-cost approach that

can bring high-value savings throughthe elimination o waste in the supplychain.

Within the our walls, we askedhow theyve been keeping operationalcosts manageable. Seventy-two percent

o respondents say they are improv-ing warehouse processes (Figure 4,page 46). The cheapest thing to x in

your warehouse is your processes, saysSaenz. Sorensen agrees and suggests youstart by looking at those steps that hap-

pen every day, a hundred times a day. I you can save seconds here and there,that translates into real dollars withoutmaking a million dollar investment.

To reduce transportation costs,over 60 percent o respondents have

re-negotiated reight ratesa taskSorensen believes companies shouldbe doing regularlyespecially whenimplementing any sort o changes suchas opening satellite acilities or reduc-ing truckloads (Figure 5, page 46). In

44 LogistiCs ManagEMEnt WWW.LOGISTICSMGMT.COM | nveme 2010


Figure 2: Increase in multi-building networksfrom 2007 to 2010

40%

20%

0


One building Two buildings Three buildings More thanthree buildings

2007 2008 2009 2010

39%

30%33%

38%

Departure from one-building networks

Trend towards multi-building networks

Figure 3: Warehouse managementsystems in use


Full-featuredWMS

25%

30%

32%

Basic WMSfunctions

30%28%30%

ERP used asWMS

21%

17%16%

Labor planningfunctionality

5%4%5%

None orminimal

19%21%

18%

Increasinguse of ERP

as WMS

About 1-out-of-5 distributioncenters are still not using

any form of warehousemanagement system

2008 2009 2010


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such a dynamic business, you wouldwant to stay as current and as up-to-date with your carriers as possible, hesays.

Green initiatives remain a popularchoice with 92 percent o respondents

having implemented some kind o envi-ronmental initiative (Figure 6). Whilerecycling remains at the top o the initia-tives list, theres a considerable increasein acilities that have implementedlighting fxtures and/or controls (53 per-cent in 2009 to 66 percent in 2010).These lights not only use less energy,says Saenz, but combined with motionsensors they turn o when theyre notneeded. Benefting the environmentmight be great, but Saenz believes it iscost and utility savings that are driving

the adoption o these initiatives.

the 2010 dC NetworkWhile the number o buildings may

have increased, other properties o thedistribution network have stayed essen-tially the same (Figure 1A and 1B, page43). Typical building size remains inthe range between 100,000 to 249,999square eet with clear heights o 20 to29 eet.

Fity-six percent o respondentsreport that theyre handling less

than 5,000 SKUs, but the over-all mean o total SKUs continues toincrease14,600 in 2009 to 15,315in 2010 (Figure 7). Saenz believes thisSKU prolieration is a marketing push,not logistics. Its marketing looking orthe magic bullet trying to fgure outthe next best thing, trying to be com-petitive, trying to get sales up, he says.Sorensen agrees: I doubt there arewarehouse managers who want moreitems, more SKUs in their DCs.

This year, inventory turns are fnally

on the upswing, with managers keep-ing less on hand (Figure 7). Whileincreased demand rom a recoveringeconomy is partly the cause, Sorensenalso speculates that managers may havegotten better at modiying their buyinginventory practices to better match thelandscape o the new demand thats outthere.

the Nature of operatioNsThe use o the DC or value-added

services continues to be a common

46 LogistiCs ManagEMEnt WWW.LOGISTICSMGMT.COM | nvember 2010


Figure 4: Actions taken to lower operating costs


Easy, low-costmethods to loweroperating costs

Taken any action (NET)

Improving warehouse processes

Improving inventory control

Changing rack/layout configuration

Reducing staff

Improving information technology

Consolidating/closing warehouses

Re-negotiating leases

Using 3PL

Other

97%

72%

65%

43%

36%

36%

29%

20%

15%

3%

Figure 5: Actions taken to lowertransportation costs


Request customer to order lessoften, in larger quantities

Taken any action (NET)

Re-negotiating freight rates

Shifting the mix ofcommon/contract carriers

Re-routing trucks/Using TMS

Using more rail includingpiggyback/ TOFC/ COFC

More local/regional sources

Using 3PL warehouses

Change inbound/outbound ports

Collaborate with companiescloser to customer

Adding internal with housescloser to customer

Other

89%

66%

28%

24%

17%

16%

15%

13%

9%

9%

8%

5%

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Derek Sorensen,Senior Consultant,TranSystems


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occurrence. Eighty-three percent orespondents report doing some kind ospecial labeling (54 percent), promo-

tional packing (33 percent), and kittingor production (29 percent). Theres amarked increase in the deerred cus-tomization o products rom 3 percentin 2009 to 13 percent in 2010.

By deerring customization, youreletting your customer speciy exactlywhat they want, says Saenz, ratherthan building up inventory o items youhope theyre going to buy.

The tide has also turned with the giv-ing o incentives (63 percent, up rom60 percent last year). Sorensen believes

incentive programs are how manag-ers squeeze the last bit o juice roma smaller workorce. People want tomaintain the workorce they currentlyhave because o the efciencies thatcome with that educated work orce.

teChNology doldruMsDespite a plethora o new tech-

nology, todays DC remains a conventional, paper-based, single-orderpick operation. This year theres

even more conventional, paper-basedpicking. In addition, 19 percent owarehouses still have no warehousemanagement system (WMS) o anykind (Figure 3, page 44).

Obviously, people are investing lessin automation because o the economy,says Saenz. But the more shocking sta-tistic to me is the act that paper-basedis still so highand Im wondering why

voice is so low when manuacturingand grocery is our highest percentage orespondents. Grocery, with its ull case

picking nature, can beneft greatly rom voice technology as it keeps workershands ree as they assemble cases on apallet or an order.

Sorensen points out another inter-esting trend on picking technologies(Figure 8). Radio requency, voice, andlight-directed picking with no scan veri-fcation have all grown slightly in thepast year while RF-assisted picking withscanning has taken a tumble rom 43percent in 2009 to 37 percent in 2010.

Individually, I dont know i we

can draw a defnitive conclusion, buttheres something with those threemoving together, says Sorensen. Per-haps people are getting comortablewith their quality control initiatives andtheir order accuracies and are cutting

nvember 2010 | WWW.LOGISTICSMGMT.COM LogistiCs ManagEMEnt 47


Figure 6: Environmental initiatives implemented


At least one green initiative (NET)

Recycling

Lighting fixtures and/or controls

Fans to circulate cool or warm air

Packaging and/or packing materials

Reusable shipping containers

Metal and/or plastic pallets

Water run-off controls

Upgraded insulation

Solar panels

LEED certification for new buildings

Other

90%92%

75%72%

53%66%

48%44%

44%42%

37%37%

14%15%

15%12%

12%

12%3%

7%

4%5%

2%2%

Biggestjump

2009

2010

Figure 7: Distribution

center size and scopetrends


Annualinventory

turns(mean)

# of SKUs(mean)

2007

2008

2009

2010

9.8

8.7

8.0

8.4

12,500

14,800

14,599

15,315

Figure 8: Picking technologies In use


Paper-based

RF assisted with scan verification

Light assisted with scan verification

Light assisted with no scanning

Voice assisted with scan verification

RF assisted with no scanning

Voice assisted with no scanning

Other

60%64%

43%37%

15%18%

5%6%

4%5%

4%5%

3%5%

1%2%

2009

2010


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lookiNg aheadThere is no clearer sign or economic

recovery than the increased plans orexpansion (Figure 9). Thirty-nine percento respondents report that they are planningon expanding in the next 12 monthsthats

up rom 33 percent last year.Although most are expanding byincreasing number o SKUs (54 per-cent) and the overall square ootage (53percent), the biggest percentage jumprom last year is the number o build-ings, up 48 percent rom 41 percent in2009. All these things are oten inter-related, says Sorensen. Additionalbuilding space may be needed to dealwith the purchasing departments moveto buy large quantities at a discountedrate or with corporate management

whos in the middle o an acquisitionand needing space or additional SKUs.Either way, its best to look at the bigpicture and be set up as best as you canto weather the storm. M

Maida Napolitano is a ContributingEditor to Logistics Management

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out some o these double checks as acost initiative to get more productiv-ity out o their workers by eliminatingthe need to scanhaving them do oneless step.

From a WMS standpoint, another

interesting trend is emerging. Morecompanies are using their ERP as aWMS. Saenz sees this rst hand. A lot

o companies are taking their entire ERPsystem and using it or everything, hesays. Im not surprised at allnot thatI agree that its the right route. I believethe best-o-breed WMS are still muchbetter. He speculates that ease o inte-

gration and the apparent cost control ohaving just one package are the top tworeasons or this trend.


Figure 9: Likelihoodof expansion inthe next 12 months


Number of SKUs

Overall square footage

Number of buildings

Number of employees

Area of service

Annual inventory turns

Height of buildings

Other

Planning to expand overnext 12 months

Planned areas of expansion

No61%

Yes39%*

54%

53%

48%

47%

38%

28%

11%

8%

*Up from 33% in 2009

2010warehousedc_benchmarkstudy

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