Warehousing, which remains strong, is finally being understood as a key enabler of the supply chain. Meanwhile, logistics has become an increasingly important component of supply chain operations. Here we look at the state of warehousing in the U.S., then focus on what the top-performing supply chains are doing to better manage their logistics.

Businesses, stuck with higher transportation and logistics costs, not to mention shipping congestion, are adjusting. One popular solution lies in opening more warehouses around the country to reduce the need to ship. Meanwhile, warehousing costs — which account for 25 percent to 28 percent of total logistics costs — are not really going up all that much, despite the dramatic increase in transportation costs.

“If you can figure out ways to reduce transportation costs even slightly, it makes sense to let warehousing costs increase a bit,” Dan Sanker, president and CEO of logistics company CaseStack, told Inc.com earlier this year.

Indeed, warehousing is looking good. U.S. commercial warehousing revenues are $28.8 billion, according to a major warehousing white paper released last month. Richard Armstrong, author of the report “Warehousing in North America – 2006″, says the industry grew 9.5 percent last year. He forecasts “another strong year for 2006.”

“If you hear rumors that warehousing is a tool whose time has come and gone, don’t believe it for one minute, says Rosario Rizzo, VP of APL Logistics’ global warehousing and freight management services, in a recent Inbound Logistics commentary. “Warehousing is finally being understood as a key enabler of the supply chain.”

Today’s decentralized supply chain models demand myriad expanded logistics capabilities: more stocking locations, more frequent ordering, smaller order sizes, more costly modes of transportation, multi-channel distribution, configure-to-order capabilities, personalization and distributed responsibility. As such, the role of logistics has become a more important component of supply chain operations, helping to combat inefficiencies in warehouse labor, transportation and space utilization, and inaccuracies in inventories and customer shipments. Implementing expanded, yet cost-effective, strategies for supply chain logistics has become a mission-critical objective.

So let’s look to the top-performing supply chains for ideas.

To gain perspective on where supply chain management is today and the direction in which it is evolving, IBM Business Consulting Services completed a 2005 value chain survey in conjunction with IndustryWeek magazine and third-party research firm APQC (previously known as the American Productivity & Quality Center). The report, entitled “Follow the leaders: Scoring high on the supply chain maturity model”, and released late last year, identified current practices, captured significant trends and established operational performance benchmarks. The information was gleaned via 650 IndustryWeek subscribers, the majority of which are in the consumer products and industrial products industries.

According to the value chain benchmarking study, supply chain executives’ top three objectives remain as follows: 1) increased profitability, 2) reduced costs, and 3) improved responsiveness. The so-called supply chain leaders consistently measure their efficiency performance based on a handful of key factors: perfect order fulfillment; demand accuracy; time to value; cash-to-cash cycle time; and supply chain cost.

Leaders understand that supply chain effectiveness must be more than efficiency and low cost — revenue growth and profitability are best achieved by creating an integrated value chain with the mobility to condition demand and respond to supply chain shifts with innovative products and services.

As companies evolve up the supply-chain maturity model, progressing toward an on-demand supply chain, they develop robust global-logistics capabilities that are variable in structure and cost. These logistics networks are highly integrated and can fluctuate to accommodate varying customer demand.

According to the report, many of the leaders are implementing the following practices:

• Outsourcing of noncore logistical functions to leading third-party logistics providers;
• Integration of end-to-end processes with key service providers and other supply chain partners;
• Keeping a watchful eye on key events and performance criteria; and
• Managing the logistics network by monitoring events and exceptions.

More and more companies are developing a variable, global logistics network comprised of service providers to better manage end-to-end logistics costs while providing greater levels of on-time delivery, fill rate and other customer performance expectations. They are accomplishing this by outsourcing components of their overall logistics capabilities to transportation and distribution service providers. Transportation (inbound and outbound) continues to be the highest-ranking outsourced function (57 percent), with customs/export, warehousing and/or distribution centers (DCs) and transportation management services (TMS) following. Overwhelmingly, the respondents indicated that those outsourced functions are effective in meeting their desired objectives (transportation 93 percent, customs/export 87 percent, warehousing/DCs 88 percent and TMS 75 percent).

Based on the logistics survey’s findings, the report provides the following key recommendations:

1) Achieve superior customer fulfillment, e.g., the perfect order, by restructuring logistics processes from end-to-end to develop a variable network of partners and cost structure which are responsive to customer service requirements.

2) Outsource noncore activities to service providers to support supply chain flexibility and enable “plug and play” with systems of partners.

3) Adopt advanced technology to achieve end-to-end supply chain integration and synchronization with a greater degree of visibility and reliability.

Across the board, the top supply chains were found to share a common trait: all possessed “the ability to respond quickly to shifts in demand with innovative products and services.” To do this, the supply chains employ a variety of the above business strategies and models, coupled with leading management practices.

Conclusion
As APL Logistics’ Rizzo put it:

As long as raw materials and finished goods remain tangible, they must eventually be handled via tangible means. In many cases — especially in today’s world — goods must be moved and managed with the help of at least one warehouse along the way.

With warehousing “finally being understood as a key enabler of the supply chain,” coupled with decentralized supply chain models demanding additional expanded logistics capabilities, it is clear that implementing expanded, yet cost-effective, strategies for supply chain logistics has become a mission-critical objective. While following the leaders will not work for everybody, it cannot hurt to consider what they have done to have become leaders in the first place.

Resources

Follow the leaders: Scoring high on the supply chain maturity model
author: Karen Butner
IBM Global Services, Sept. 20, 2005

Global Outlook for the Logistics Market
Datamonitor, June 7, 2006

Warehousing in North America – 2006
Armstrong & Associates, Inc., May 22, 2006

Warehousing Bounces Back, Shows New Vitality
by Rosario Rizzo
Inbound Logistics, May 2006