Across the board, the rate of change today in business is rapid and unrelenting. It hasn’t escaped the supply chain, and it is likewise impacting one of the supply chain’s last bastions of stability: the warehouse.

“In the 21st century, more companies are recognizing that warehousing is a strategic business consideration, so they are viewing warehouse operations as an opportunity to gain significant competitive advantage,” says Mitch Rosenberg, Vice President of Marketing at Kiva Systems (www.kivasystems.com), a supplier of automated material handling order fulfillment systems.

This sharply contrasts with 20th century thinking, when the warehouse was seen as a “necessary evil.” While some companies have maintained their 20th century warehouse philosophies, continuing with the same systems and processes that they started in the 1940s and 1950s, others are moving forward by incorporating their warehouses as pivotal distribution centers in their supply chains that can move them ahead of the competition.

Some of the pressures for change are due to increased global competition for customer wallet share, but equally important is the continuing growth of e-commerce, which thus far in the 21st century is seeing an annual growth rate of 12 to 14 percent. E-commerce growth will impact warehouse operations, and also the logistics that move goods into and out of warehouses.

“It will entail an integration of multiple freight channels in real time with the warehouse to present many different logistics options to customers,” remarks Brian Hodgson, Chief Marketing Officer at Kewill (www.kewill.com), which develops B2B e-commerce and e-fulfillment solutions.

Meeting new demands for customer fulfillment

Perhaps the largest sea change involving the warehouse is philosophical. Systematically, companies are moving their warehouses to the “front lines” of the customer experience, recognizing that instantaneous order fulfillment (and customer gratification) are crucial (and difficult to achieve) in e-commerce—and are only attainable with 21st century warehouse technologies. “Investing in your warehouse is not just about cost reduction anymore,” explains Kiva’s Rosenberg. “Twenty-first century consumers are different than their 20th century predecessors, so the warehouse must also be able to contribute to a positive customer experience.”

Delivering the right goods at the right time to an expectant customer in an e-commerce setting means that increasingly the warehouse distribution center will become the “store”….and the end customer experience will become the experience that is happening within the warehouse. This transformation won’t happen overnight (industry experts forecast that by the mid-21st century retail transactions will still comprise 70 percent of all sales)—but companies planning for the future are already funding and incorporating new technologies that improve warehouse efficiencies and responsiveness to market demand. “It’s all about giving the customer the instant gratification they want from a shopping experience,” says Rosenberg. “In the 20th century, companies worked on this by ensuring that stores were never stocked out of any item, so customers could expect to walk out of the store with all the items they had purchased. Now, people want this same kind of instant gratification when they shop at Internet retail stores, but this is harder to get online. For e-commerce to compete with traditional brick and mortar retail in an area like instant customer order fulfillment, warehouse distribution centers must be optimized to deliver on that promise.”

Rising to the challenge

Changes in consumer demand don’t alter the fact that most warehouses were originally created with the goal of replenishing inventory in physical stores, with an accompanying practice of consolidating warehouses into larger and larger distribution centers, and then shipping goods to wherever they had to go.

Now, however, there is a new ground war emerging. It involves using smaller, geographically distributed warehouses so goods can be located close to geographically dispersed customer bases. In many businesses, there has also been internal consolidation of physical and e-commerce sales channels and operations to where they are now under the direction of a single manager and a single corporate division. All of this is leading to revised warehouse practices that contribute to improved customer order fulfillment for competitive advantage.

These 21st century warehouses will eliminate “batch and wave” operations where orders are batched up during picking to improve labor efficiency, but whose side effect is to lengthen order cycle time. Elimination of batch and wave processes does two things. First, it reduces the latency factor that now exists when orders have to be aggregated for a batch. Second, it improves the overall performance of the distribution center as warehousing and distribution acquire a greater responsibility for making “Web site to doorstep” order fulfillment happen. Mobile robotic pick-pack automation lets you eliminate batch and wave process latency while simultaneously reducing the cost of picking the order.

“We’ve already seen early results from this mode of operation,” notes Rosenberg. “Some distribution centers using mobile robotic order fulfillment experience a four times reduction in the time from when a customer places an order to its arrival at the outbound shipping dock. That goes a long way toward delivering instant gratification.”

Warehouse revisions also address the flow of goods in and out of facilities. “In this area, companies want inbound visibility of goods coming into the warehouse from suppliers, and they look to their logistics partners to assist in this area,” says Kewill’s Brian Hodgson. “They integrate their logistics directly into their warehouse and supply chain operations, so that if the marketing folks launch a campaign, everybody understands that ultimately the success of the campaign will come down to customer fulfillment, which is where the warehouse fits. Formerly, supply chain demand was determined by history, but today it is and must be done in real time, balancing transportation and other costs with customer service levels. Based on this balance, the corporate supply chain might use a mix of transportation channels, such as water transportation from Asia with a mix of air to expedite shipments.”

The technology solution set

Technology provides answers to the 21st century warehouse transformation, although different industries employ different rates of technology innovation and adoption. In high technology and computing, major changes happen every six months, so there is a need to be extremely aggressive in order to remain competitive. In other areas of industry, supply chain-related transformations may take as long as six years. This is why in the warehouse space, it will take a long time for many companies to absorb the implementation of new business directions, even while early adopters are aggressively moving forward.

But for both those who are rapidly moving forward and those who are in early planning stages, there is plenty of new warehouse technology to think about. New modes of warehouse automation will improve responsiveness to customers and accuracy of orders. And, they will have the flexibility to respond to variable demands for goods.

“We are making mobile robots and moveable shelving units where the shelves come to the workers instead of the workers to the shelves,” says Kiva’s Rosenberg. “This makes a big difference when you are talking about warehouses that are city blocks long, where workers walk five to fifteen miles a day on concrete floors.”

In this type of automated system, robots the size of living room ottomans “walk” inventory over to the worker (instead of vice versa). The inventory identifies itself to the worker, and the worker picks and packs it. The end-to-end process is highly ergonomic, safer and faster. Even better, it reduces the number of times that the inventory has to be “touched” during the pick and pack operations.

New automation is also extending to forklifts and trucks used in the warehouse. “Data management in the forklift industry is an emerging field,” says Joe LaFergola, Manager of Business and Information Solutions for Raymond Corporation (www.raymondcorp.com), which provides material handling solutions. “Over the years, people have tried to apply metrics to understand what’s going on in the warehouse. In the early days, they used analog measuring devices. Lately, the degree of forklift integration has produced vehicle management with onboard computers. This makes it easier to extract data from the forklift, which can be transported over the internal wireless infrastructure of the warehouse to a centralized system over an open API (application programming interface) for ease of integration.”

The forklift vehicle manager sends a series of data codes that are actually hexadecimal data points. Each data point references a particular parameter in the truck, such as travel, lift, dead man hours, key hours, and so on. The data flows though a warehouse gateway that is Web-based, so all the warehouse manager needs in order to use it is a browser. “We produce graphical reports on a dashboard, and users have the ability to drill down into the details,” explains LaFergola.

On top of these technologies is the addition of full-scale analytics and real time reporting that enables warehouse managers and other supply chain professionals to see the entire supply chain and how it is flowing in and out of the warehouse. One of these enriched visibility areas is freight.

“There are tools that now go across all transportation modes and give you a consolidated real time picture of how your goods are moving,” says Kewill’s Hodgson. “One of the complications this solves is the different views of transactions that various supply chain parties require. There are customs brokers, freight forwarding companies, warehouses, and 3PLs involved. We now have solutions that cover all of these parties in the supply chain, with integrated systems that can integrate with companies’ backend systems. In other words, you have complete integration between the shipper orders and your ERP (enterprise resource planning) system. We integrate these systems to complement the company’s workflow. While some companies require extensive integration, others just need an interface to their order entry system.”

Kewill’s system in just one example of the new “smart analytics” tools and consolidated views of activities that warehouse managers are beginning to use. These systems are a major step forward in providing the elusive links that not only integrate systems, but also critical business functions like marketing, customers, suppliers, logistics providers—and the warehouse.

Overcoming the barriers to entry

To adopt new technologies and affect change in their facilities, warehouse managers encounter several areas of challenge that must be counteracted with effective strategies. One area, already discussed, is improved customer fulfillment. Other areas are:

•    Accuracy of orders;

•    Handling diverse inventory;

•    Variable demand;

•    Security;

•    Development of ROIs; and

•    Cost justifications that sell technology investments.

Accuracy

Physical stores periodically receive stock replenishment shipments that give them a wide variety of items for customers to choose from. Not all of these items are stocked in abundance, but at least they are available for the shopper who wants a certain style or model. When an item is wrong or defective, the discrepancy can be easily corrected, because there is a store representative there who can do the work. Unfortunately, this model doesn’t really work in e-commerce—and that frustrates customers. In the e-com world, the order you submit must be exactly what you want because there’s no way to make an easy adjustment or exchange. In the future, the warehouse supporting e-commerce must be perfect, because when orders go wrong, the risk of customer loss (and the cost of keeping customer good will) go up.

Diverse inventory

All warehouse managers understand the significance of the “long tail”—the point in the distribution curve for the product where there is very low probability that the item will be ordered—but it does get ordered by some customers anyway, and it must be fulfilled. For example, in traditional retail, you can’t afford to stock two hats for an infrequently ordered item at every store, and this impairs the ability to carry less popular items. But in an e-commerce operation that uses two or three warehouses, you can afford to stock unique hats that appeal to a smaller segment of the market.

“A good analogy is Netflix,” points out Kiva’s Rosenberg. “If you have a taste for Czechoslovakian art films, chances are that your local theatre isn’t going to be showing them—but you can order them through an e-com outlet like Netflix, which has a large catalogue. The present problem for businesses is ‘How do you design a warehouse that can handle this new development?’ The 21st century warehouse must be profitable for long-tail products as well as for very popular products. Customers may even be willing to pay more for unusual merchandise in the long tail.”

Variable demand

If you’re in the grocery business, your analytics data might tell you that you sell much more tomato sauce when you offer seventy-eight kinds instead of three—but optimizing this degree of choice can’t be handled in the warehouse. There is also variability of flow of goods through the supply chain. For example, your data might tell you when someone buys a $1.29 toothbrush, but the replenishment of that toothbrush can’t easily be handled physically in most warehouses with traditional automation. With moveable shelves, robotics, smart trucks and other technology, this degree of agility will be able to be achieved in the future.

Security

Some industries do not have major concerns about the security of their warehouse and supply chain data, and others do. Accordingly, a cloud-based technology solution, which is the form in which much technology these days is delivered, may or not may not fit the bill.

It is currently attractive for many companies to enter into cloud services agreements because they feel that technology implementation with a cloud services provider can be faster, and that they can also avoid having to take on hard costs for hardware, software, networks, etc. But in other cases, such as pharmaceutical or big box retail stores, tight security over both warehousing and the overall supply chain is very important. Some of these companies have policies that do not allow their data to reside in offsite data repositories, and they will opt to house their data on their own internal servers—run by their own IT departments. The challenge for companies is to understand where in the security spectrum they are. Once they do this, they can find out whether or not their security needs can be met with cloud-based solutions.

Development of ROIs

For over 100 years, companies have simply built warehouses and have considered them to be standalone cost centers. However, when modernized warehouses are linked into the overall supply chain to the end customer and customer satisfaction, the return on investment in new enabling technologies can be realized in two years or less. These ROIs involve the tracking of soft costs and how they add up to customer value and patronage. The challenge is that an area like marketing may be used to this type of cost tracking—but not the warehouse, where traditionally only the hard costs have been tracked.

Cost justifications

Traditionally, warehouse automation has had long investment justification cycles of five to seven years. It’s one of the reasons these systems have been slow to adopt. The return on investment expectation in the U.S. is one year. In Europe, it’s two years. Instead of abiding by these age-old formulas, companies and industries that are really serious about retooling their warehouses for competitive advantage are simply just doing it.

“No one buys our product on ROI,” says Scott Friedman, CEO of Seegrid Corporation (www.seegrid.com), facility automation specialists. “Instead, they have immediate problems to solve, but they always have to have an ROI stapled to the back of the proposal.”

Redefining KPIs

Improved automation and smart analytics will also change how warehouse performance is measured and evaluated. This means that warehouse managers will find it harder to rely solely on the suites of reports they have used for the last twenty years. Those planning to make the transformation to 21st century warehouse management will consider the following new sets of key performance indicators (KPIs) for their warehouses:

Labor cost per order on shipment

If you can get four times the shipments out the door without having to hire more personnel, your labor costs are down 25 percent.

Shipment accuracy

The costs in real and soft terms has risen substantially.

The cost of exceptions

Error will occur in any kind of system. If a conveyor belt breaks, what’s the mean time to repair (MTTR)? How much of your operation is affected? What’s the upstream and downstream impact? With robotic technology, it is easy to implement parallel processing. For example, if a tire flats on a robot, a wireless message can be sent to the system and another robot can be sent out. While you might have very slightly reduced your capacity for the moment, you don’t have a costly work stoppage.

Ratio of lift to dead man hours

The goal is to use the truck properly. Some customers use the forklift for horizontal travel, with not as many hours in lift. Also, many warehouses have 15 to 20 percent more trucks than they need. In the past, they operated on gut feel (“We’ve always had 20 trucks”). But, the technology of trucks has changed over the years to where there are fewer battery changes and higher travel and lift speeds. The result is that you need fewer trucks for pallet moves.

Manned versus unmanned travel time on trucks

Manned travel time is $30/hour. Unmanned travel time is $4/hour. With robotics, 750 miles a day in manned travel time can be reduced to 250 miles a day, according to recent field information. This is one way to document soft costs.

Planning considerations and recommendations

Business conditions are also driving the design of the 21st century warehouse. This includes making warehouses mobile with updated robotics that are not bolted into the ground like traditional conveyer belts—so that if you have to move a warehouse, you can do so with agility.

Demographics are likewise changing, and it is more than just customer demographics. People are getting older, which means that the warehouse labor pool is also going to get older. Hiring people who can walk miles on concrete every day will be tougher. It’s also going to help if processes can be kept simple and easy to learn and use.

New automation technology can solve this. This automation continues to get enhanced with technologies imported from the automotive industry, such as Bluetooth connectivity, GPS, and 40-megabyte built-in hard drives. Parallel processing is incorporated into warehouse workflows that can address failover and keep the warehouse moving. We are also reaching the point where there will be forklifts without operators (which companies are asking for)—and accompanying cost savings. These developments will be paired with evolutions in fuel cell and battery technology that “green” the warehouse and further improve cost efficiency.

Nevertheless, experts caution companies. “People still need to understand that new technologies are just new tools,” says Seegrid’s Friedman. “They aren’t necessarily glamorous, and they also have their business limitations. But, if companies have a sound understanding of both the capabilities and the limitations of the tools they invest in, they are in a good position to become effective users.” wt

Contributing writer Mary Shacklett is founder and president of Transworld Data based in Olympia, Washington.