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10 warehousing trends to watch
Here we are in the middle of 2010, scrabbling our way out of the Great Recession and approaching the "Great Comeback." From an overall economic perspective, the Great Recession bottomed out in June 2009, and employment began to grow in March 2010.
However, the recession affected different industries in different ways. Food, beverage, pharmaceuticals, cosmetics, and medical products were less affected, while housing and automotive were hit hard. Likewise as the comeback progresses, results will continue to vary by sector. The overall recovery, however, will be strong. In fact, for companies that planned for the Great Comeback, the next four years will be good years.
One industry segment that will be profoundly affected by the economic recession and recovery is the U.S. warehousing industry. I believe that over the near term, warehousing in general will have to adapt to the following 10 major industry trends:
1. Overall inventory reduction. There have been huge reductions of inventory during the recession. These reductions were often accomplished by simply buying less, but now companies are managing inventory correctly. The high, prerecession inventory levels will not return. Meanwhile, inventory turns will remain at the recessionadjusted, elevated levels. As a result, warehouses will have excess storage capacity and will need to alter the density of their storage.
2. Greater pressure on employees. Even though warehouses are seeing increased volumes, they are still reluctant to hire. These hiring freezes put a lot of pressure on current employees to be more productive and to work longer hours. Eventually, as other industries begin to grow again, warehouses and distribution centers will hire again. Until then, some of the warehouse staff will buckle under the pressure and move on to less stressful jobs. This will have a negative impact on warehouses and further increase the pressure on existing employees. Management needs to understand these dynamics and proactively work to avoid their damaging effects.
3. Increased investment in material handling systems. For the last two years, companies have held off on replacing their old material handling equipment. This pent-up demand will result in many upgrades in the near future. During this period, the material handling space will see changes take place across the board—in everything from system design to vendor selection to implementation.
- System design: Systems will have increased flexibility, modularity, and agility, and there will continue to be a larger number of smaller orders placed with vendors.
- Vendor selection: Customers will base selection less and less on the brand of the equipment and more and more on the quality, reliability, and reporting capability of the control system. As most material handling equipment is now a commodity, purchases of material handling systems are more about controls than about the equipment itself.
- Purchasing: Fewer systems will be bought from material handling equipment vendors themselves. Instead, buyers will turn to independent material handling integrators that have the ability to select the best brand of equipment for each application as opposed to the equipment firm's own "house brand."
- Implementation: Companies will add capacity (in the form of equipment) when it is needed. Warehouses will no longer take five years to implement their requirements only to realize that they once again need greater capacity.
4. More cross-docking. We will see an increase in the percentage of goods that come into a warehouse but do not get placed into a storage location. These cross-docked goods will come into the distribution center ready to ship to the customer. Greater use of cross-docking will contribute to an increase in inventory turns and may require alterations or additions to material handling systems.
5. Wider use of logistics service providers. More companies will analyze their core competencies and their peak volumes and decide that some or all of their warehousing functions should be outsourced. At the same time, logistics service providers will begin to understand more about their own core competencies and will focus on opportunities in which their specific capabilities provide a value proposition for their clients.
6. Less predictability. The post-recession "new norm" is that there is no "new norm." The ability to forecast future levels of business will become so difficult that many organizations will simply give up trying. Instead of continuing to attempt to improve their forecasts, warehouses will need to become more agile and better able to respond to uncertainty.
7. Major changes to order profiles. Warehouses and distribution centers will see major shifts in order profiles (more lines per order, fewer units per line, and/or smaller, more frequent orders). These changes could result from new channels (e-business, wholesale, direct-to-store) or a shift in customers' buying patterns.
8. Increasing demand for value-added activities. When it comes to the type of value-added activities warehouses will be asked to perform, I see no end in sight. Some organizations seem to be doing more value-added functions in the warehouse than in their manufacturing operation. There is nothing wrong with a warehouse providing value-added services as long as the customer provides sufficient resources and compensation for these services. The warehouse needs to be open and honest about what it can provide as a "standard warehouse service" and what requires an additional charge. If the warehouse operator does not set some ground rules, requests for value-added services are likely to become more and more bizarre.
9. Growing recognition of warehousing's role in the supply chain. As the economic recovery picks up steam, warehousing will be viewed less as a process unto itself and more as a sub-process of the end-to-end supply chain. Because the end-toend supply chain of plan-buy-makemove- store-sell must focus on the customer, warehousing will need to define its role in this context. Succeeding in this business is no longer about having a great warehouse. It is about the warehouse doing all that it can to contribute to a great supply chain.
10. More mergers and acquisitions. There are a lot of strategic deals taking place these days. One of the synergies that companies are seeking from these deals is the integration of the supply chains involved and, thus, the integration of the warehousing functions. To integrate supply chains, companies often need to optimize their overall distribution networks and rationalize the number of warehouses. While that process is under way, the development of the newly merged organization must be documented and understood, and any problems must be addressed.
To successfully make it through the economic recovery and the Great Comeback, companies need to scrutinize and optimize the warehousing function as well as talent, while staying focused on strategy, cutting all unnecessary costs, and planning for the recovery.
As this roundup of trends makes clear, we certainly live in exciting times, and there is no single piece of advice that will work for every company in every circumstance. Nothing is off the table. Everything is in play. Best of luck.
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