In the 3PL space, operators that previously ran a given warehouse for one client in a ‘dedicated service’ arrangement are now desperately trying to fill space freed up by lower volumes.
This has led to more warehouses becoming shared-user facilities, however there is clearly excess capacity and operators are under pressure to adapt their existing models.
“Recovering the fixed space costs has become a challenge,” observes Schenker Australia manager- Major Accounts Alain Brard.
“Poor utilisation also impacts on labour with a lower level of activity forcing a reduction in overall work hours and additional difficulties in managing month ends or quarter ends picks from a small the clients’ day to day requirements.”
“There’s a big drive towards setting up direct ship programs with major end customers for products coming from overseas suppliers or overseas manufacturing operations,” Brard says.
“For outsourced logistics operations, businesses are looking at renegotiating minimum space or volume commitments they might have had in place.”
Across all warehouses and DCs, 3PL-managed or otherwise, executives are being squeezed to reduce operational costs as companies seek to weather the downturn as well as ready themselves for the upturn when it comes.
According to Manhattan Associates managing director, Australia and New Zealand Chris Stephenson, integrated flow management will be the next industry ‘watchword’ as executives search for ways to increase the speed at which goods flow across the supply chain.
“The current economic circumstances are driving more people to the web, and consumers are becoming more demanding with higher expectations of service quality,” he explains.
“Warehouses have had become much more agile in terms of how they fulfil orders to effectively serve a multi-channel retail operation.”
“By integrating demand, supply and inventory strategies, companies can ensure that products are delivered to the right place, at the right time— optimising customer service and improving profitability,” he argues.
“Such an integrated approach will also, critically, enable companies to minimise inventory levels to meet a given service level and free up much needed capital.”
Given the importance of inventory velocity, Stephenson says there is a resurgence of regional warehousing.
“Such a strategy gives an organisation the ability to reduce transportation costs, particularly with oil prices edging higher again,” he says.
“Specifically, in the food sector, grocers are looking to make multiple deliveries per day, rather than one, to improve on-shelf availability and clearly a decentralised DC infrastructure facilitates this.”
By contrast, Alain Brard says he’s seen some focus towards greater centralisation of inventory. “Forecasts are down so supporting a decentralised warehousing network with lower volume is not cost effective,” he argues.
“It is also easier to react to continued changes in the market with stock centrally located rather than having to reposition and rebalance between numerous local stock locations.”
Moving forward, Chris Stephenson says companies will need to know where they make money by product, customer group and distribution channel.
“If they don’t already know the answers to these questions, they should make it a priority over the next 18 months to find out,” he says, “since focusing on some products, customer groups or distribution channels without understanding the current profitability or future profit potential of each can lead to huge inefficiency or even failure.”
Stephenson says companies want access to better quality information so they can react to events as they’re happening within the DC or warehouse.
“Firms are increasingly looking to business intelligence (BI) applications so they can get all the necessary intelligence from their supply chain technology to make the best decisions for their business.”
With labour typically accounting for 55 per cent of the total cost of warehouse operations, performance monitoring is an important way to compare activity levels and improve productivity as well as providing a feedback mechanism that rewards efficiency, quality and safety, in turn decreasing employee turnover.
“Defining, reviewing and documenting KPIs and processes including the identification of opportunities to streamline should be an ongoing process,” Stephenson says.
“Someone should be made responsible to continuously look at KPI’s and performance trends. As a minimum, it should be done once a month as well as every time a process is changed. Ideally staff should contribute to the process so executives get buy-in and support from the floor.”
“It’s also imperative for supply chain executives to consider warehouse layout and slotting optimisation methods as a sub-optimised layout will inevitably be very costly to an organisation,” Stephenson adds.
“Companies can adopt a number of other practices to minimise handling, including automation, cross-docking and flow-through techniques; and having WMS technology that has task interleaving functionality.”
While Stephenson maintains Manhattan Associates clients are increasingly deploying techniques like postponement, inventory optimisation, distributed order management (DOM) and total cost to serve analyses to optimise and balance inventory levels, service levels and distribution costs, he says companies will increasingly need to collaborate to compete.
“In today’s trading climate, in which companies are looking to minimise inventory to free up capital while simultaneously striving to maximise customer satisfaction, collaborating with trading partners is simply no longer a choice.”
“Over the last 18 months we’ve really started to see supply chain practitioners starting to put into place the plans, processes and systems that actually facilitate large-scale, supply chain ‘ecosystem- wide’ collaboration.
We expect this trend to accelerate in the next 18 months as companies in every sector start to realise the value of taking such a holistic approach.”