Warehousing is one of the core functions of logistics, and yet more often than not it tends to be the forgotten stepchild in a company's supply chain. In the SCOR model of plan, source, make, deliver, return, and enable, warehousing is implicit in sourcing (after you've purchased the products, you have to store them somewhere), delivering (products loaded onto a truck had to have first been stored somewhere), and returns, which encompasses the reverse logistics process (see Chapter 10). And yet, according to the 2020 Third-Party Logistics Study, 73% of companies outsource at least some of their warehousing to a third party, a clear indication that they do not consider warehouse management to be one of their core competencies.¹

However, the biggest company in the world—retail giant Walmart—built its discount empire largely on the efficiency of its distribution network. By strategically locating regional distribution centers (DCs) in close proximity to its stores, Walmart broke with the long-standing retail tradition of maintaining just one or two DCs to serve the entire United States. As a retailer that got its start by opening stores in small, rural towns and offering a tremendous assortment of products for the lowest possible price, Walmart found that transportation and replenishment were too expensive and too time-consuming under the traditional retail plan. Thus necessity begat the concept of strategically locating warehouses to provide more timely and economical inventory replenishment. As a result, Walmart could keep its shelves stocked more often, because each of its stores was being serviced more frequently than its competitors.

More products on the shelves translates to happier customers, if you're a traditional brick-and-mortar retailer. If you're an e-commerce retailer—like Amazon, but also like Walmart, Target, Home Depot, and other major big-box retailers—having more products in your warehouses that may never even see a store shelf translates to even more happier customers. Welcome to the world of omni-channel distribution, the latest game-changing trend in warehousing.

Omni-Channel Surfing

The premise behind omni-channel is pretty simple: No retailer wants to lose a sale to a customer ready to purchase a product. Whether it's at a traditional brick-and-mortar store, or at a kiosk inside that store, or on a retailer's website, or an app accessed via smartphone or tablet, wherever a customer is interfacing with a retailer, the goal is to make sure there's a product in the customer's hands ASAP—within a few minutes if the product is in a store's backroom, within a few hours if the product is across town at another store, or within a day if the product needs to be shipped from a nearby DC. The idea is simple, but executing on the promise of omni-channel isn't simple at all.²

According to consultant Ian Hobkirk, president of Commonwealth Supply Chain Advisors, there's a distinct difference between “multi-channel,” which refers to the various ways a consumer can make a purchase, and omni-channel, where “a consumer can experience a company's brand across multiple channels within a single transaction.” Omni-channel requires companies to adapt their distribution capabilities to fulfill a higher number of smaller, more frequent orders—but still fulfilling the demands of traditional commerce as well. That's a tall order, to be sure, and Hobkirk recommends that companies practice real-time warehousing, using wireless mobile devices to direct and confirm whenever orders are picked, whether using vehicles, conveyors, or goods-to-picker systems such as automated storage and retrieval systems (AS/RS) or robotic picking systems (an area where Amazon excels).³

When retailers began catching on in the early 2000s that e-commerce wasn't just a passing trend but was becoming a preferred shopping method for rapidly increasing numbers of consumers, a typical strategy was to build new or convert existing facilities into dedicated e-commerce fulfillment centers. These facilities would only carry inventory that would fill e-commerce orders.

American Eagle Outfitters, a retailer of apparel and accessories, operates more than 1,000 stores under the American Eagle and Aerie brands. When the company saw the growth trajectory of e-commerce on its own business, it opted to build a new distribution center (it already had two North American DCs) that would integrate inventory and picking operations for both e-commerce orders and traditional brick-and-mortar store replenishment.

“As with other retailers, omni-channel is a critical part of our business,” explains David Repp, American Eagle's chief technology officer. With customers continuing to cross-shop between e-commerce and brick-and-mortar stores, the retailer shifted its strategy for how it managed its inventory and fulfillment processes. With one of its DCs already nearing capacity for handling orders, American Eagle took a close look at its distribution network, ultimately deciding that a new DC was the optimum answer. “We found that we could reduce our inventory, operating costs, and in-transit delivery time to our customers by combining our DC e-commerce and store inventory and fulfillment operations,” Repp says.

At one million square feet, the new DC, located in Hazleton, Pennsylvania, integrates automated sortation, picking, and conveying systems. Unlike most DCs, the new facility doesn't rely on forklifts or pallet storage to move products throughout—everything moves by conveyor, in cases and totes. Enabling that automated strategy is a warehouse execution system (WES), a software solution that coordinates not only all of the material handling equipment and processes, but also the DC's workforce. The WES works in conjunction with American Eagle's warehouse management system (WMS) and enterprise resource planning (ERP) system—the end result is that the company can identify where every SKU is located at any given time, at all of its retail stores and in its DCs. And the new DC is able to process and fulfill orders no matter where those orders originally came from.⁴

A Great Idea in Theory

Omni-channel is a great idea in theory, but when nearly 800 retailers, manufacturers, and logistics companies were asked in a survey conducted by Penn State University and consulting firm Infosys about their readiness to embrace this style of distribution, 35% said they weren't prepared to handle omni-channel fulfillment. Also, half of the respondents said they weren't currently testing any new fulfillment strategies (such as home delivery from local stores, Sunday delivery, or locker pickups). That was in 2015. You might expect that situation to have changed dramatically over the next several years, as e-commerce exploded in popularity, but by 2019, in a similar study, the number of shippers who said they had no capability to handle omni-channel fulfillment actually increased, to 36%. Also, while in 2015 27% rated their omni-channel performance as inconsistent and another 28% as competent, those numbers got worse four years later: 38% in 2019 said they were inconsistent at omni-channel, and only 18% rated themselves as competent. And in 2019, 54% still hadn't tested any new fulfillment strategies to answer growing demands from their customers for more products sooner. What happened, or more to the point, what didn't happen?⁵

One of the biggest stumbling blocks preventing companies from achieving even basic competence at omni-channel is lack of talent. There just aren't enough supply chain professionals skilled at enabling omni-channel capabilities to go around, leaving too many companies at a severe disadvantage when it comes to competing against rivals who have a deeper bench of talent. These rivals also are willing to invest in technology at the beginning of a shift in consumer demand rather than waiting to catch up later. For the omni-channel laggards, the biggest challenges are: gaining the flexibility to handle last-minute order changes; inventory visibility; inventory control; order management; and technology. For instance, just over half (56%) of the respondents in 2019 had invested in a WMS, which is almost unchanged from the 54% who had WMS capabilities in 2015. And again, while part of the hesitation to invest in technology is obviously budgetary, another reason is not having people on staff capable of deploying and managing that technology.

“The continuous transformation of the supply chain due to technology, regulations, or other factors only exacerbates the talent challenges in an already tight labor market,” says Meredith Moot, principal at management consulting firm Korn Ferry. “Whether you're looking for an innovation leader or a frontline employee, you have to think about attracting, retaining, and training talent to build your workforce in a new, dynamic way.” Looking at the results of the 2019 study, Moot observes that 43% of respondents say they typically have to look outside of their companies for help any time an innovation or new technology emerges because they just don't have a resident supply chain tech expert on staff.⁶

Virtual Inventory

Another one of the warehousing best practices that retailers like Walmart, Amazon, and Target have adopted is cross-docking, where inbound products are unloaded at a distribution center, sorted by destination, and then reloaded onto trucks. The goods are never actually warehoused at all—they're just moved across the dock (hence the name). This strategy allows a retailer to unload, say, a truckload of high-definition TVs at a regional DC, and then load a single TV onto different trucks headed for different retail stores. Ideally, the trucks should be timed to arrive and leave at roughly the same time. Cross-docking has lately developed into a best practice for manufacturers, too, thanks to the needs of companies to consolidate and reduce their inventory as much as possible.

Over the years, 66% of the cash-to-cash improvements throughout all industry sectors have come from reductions in days of inventory, notes Ted Farris, a professor with the University of North Texas, and he credits cross-docking for some of those reductions. According to Farris, the cash-to-cash formula adds accounts receivable to inventory and then subtracts accounts payable:

So if companies are using cross-docking to actually reduce how much inventory they're holding, that's good. However, if they're only shifting inventories within the company and holding them elsewhere, that's not so good because there's no change in the cash-to-cash cycle, Farris points out. Since the inventory hasn't been sold, it's still considered accounts payable.⁷

“Most people define cross-docking as the process of rehandling freight from inbound trucks and loading it into outbound vehicles,” notes warehousing consultant Ken Ackerman, but there can be more to it than that. For instance, some of the merchandise for the outbound loads may already be stored in the DC, he points out. “In other cases, merchandise from a truck that arrived a few days ago is held in a staging area until the complete mix is available to fill an outbound order.” Some cross-docking facilities are designed with a large storage area and a cross-dock staging area because their requirements involve withdrawing product from storage as well as rehandling inbound freight.⁸

So the key is to use cross-docking strategically. Some retailers, for instance, position their inventory in several regional warehouses so they can cross-dock and provide next-day service to customers. Geographic postponement coupled with cross-docking can eliminate the need to have product inventory at all locations, Farris notes. Cross-docking can also be applied to less traditional situations, such as transferring a load from an inbound ocean container directly onto a truck. This tactic has become a popular way to circumvent congestion at the ports, particularly on the US West Coast.

Here's how cross-docking works, as described by supply chain consultant Jim Tompkins, chairman of Tompkins International:

• The supplier is notified of the shipping time, date, carrier, stock-keeping units (SKUs), and quantity for each order.
• The supplier is notified by the carrier of the arrival date and time for each shipment.
• The supplier receives the order details from the customer.
• The outbound carrier is notified of the pick-up time, load description, destination, and delivery date and time.
• The customer is notified of shipment detail, carrier, and arrival date and time.
• A dock location is selected for trucks involved in receiving and shipping.
• Labor and handling equipment are scheduled.
• Receipts are recorded and reconciled, and any receiving variances are noted.
• Labels are created, and cases and pallets are routed and tracked from receiving to dispatch.

Given all these steps, it's very important that a company collects performance measures on carriers and warehouse operations.⁹

Cross-Docking, Compliance, and Collaboration

Cross-docking tends to work most effectively with companies that have strong compliance programs with their suppliers and ship to their own DCs or retail stores, says Dave Gealy, a consultant with supply chain consulting firm Sedlak. “Retailers do it best,” he observes, “because their vendor compliance programs give more control and visibility into what's coming into their systems, and they control their own stores.” Unless your company is a Fortune 500 giant, it can be difficult to set up compliance programs with all of your suppliers. That calls for a close spirit of collaboration so that when information is exchanged, the suppliers will understand what the client wants to order and the receiver will be able to see what's being sent.

Cross-docking is directly related to timing, Gealy explains. You need to be able to receive and ship products with just a few touches in a limited time. It's also important to be able to quickly inspect inbound goods, which means a strong quality control program is essential.¹⁰

So how do you know if cross-docking is a good strategy for your distribution operations? According to a study conducted by logistics services provider Saddle Creek, 48% of respondents are cross-docking durable goods, followed by high-value products (25%), nondurable goods (19%), and perishable goods (17%). Tom Patterson, senior vice president at Saddle Creek, says that cross-docking is worth considering if:

• Your traditional distribution methods and current order cycles are not sufficient to handle customer needs.
• Your distribution network is outdated and inefficient, leading to extended cycle times and compromised shelf-life guarantees.
• Your transportation networks are overextended, negatively affecting your on-time delivery performance and requiring excessive reliance on expedited service.
• Your distribution costs are increasing faster than your sales growth.¹¹

Handle with Care

Warehouse management isn't exactly a recent phenomenon. Some say the practice dates back at least to the fifteenth century BC when Hebrew patriarch Joseph (the one with the many-colored coat) pioneered the use of grain warehouses to stave off famine in Egypt. Commercial warehousing can be traced back at least to fourteenth century Venice, and cross-docking has its roots in nineteenth-century transit sheds. So while the idea of warehousing may not be quite as old as Methuselah, it's pretty close.

Nevertheless, in today's world, thanks to the insistence by customers on perfect orders, just-in-time delivery, quick response, and fully integrated supply chain processes, “the role and mission of warehouse operations are changing and will continue to change dramatically,” observes warehousing consultant Ed Frazelle, formerly director of the Supply Chain & Logistics Institute at Georgia Tech. Companies are being pushed to minimize their inventories, which severely reduces the margin for error in their supply chains. As a result, Frazelle notes, “the accuracy and cycle time performance pressures in warehousing are immense.”¹²

Companies are being pushed in opposite directions simultaneously, as market pressures demand they increase warehouse productivity while employing fewer workers. More often than not, the solution to that operational tug-of-war involves the use of material handling technology (increasingly, a combination of hardware and software) within a company's warehouse operations. Material handling, as defined by the MHI, a trade association serving material handling and logistics companies, encompasses “the movement, storage, control, and protection of materials, goods, and products throughout the process of manufacturing, distribution, consumption, and disposal. The focus is on the methods, mechanical equipment, systems, and related controls used to achieve these functions.”¹³

Material handling equipment includes powered vehicles, such as lift trucks and automated guided vehicles (AGVs); conveyors and sortation systems; automatic identification (including radio frequency identification, or RFID) and data collection systems; lifting, positioning, and overhead handling equipment (including robots); automated storage and retrieval systems (AS/RS); order picking equipment; and packaging and shipping materials. This equipment is used in support of the eight main warehousing functions, as described by Frazelle:

1. Receiving happens when materials enter the warehouse, are verified as to the quantity and quality of these materials, and are disbursed.
2. Prepackaging occurs when products are received in bulk and are subsequently packaged in specific quantities.
3. Putaway involves the placing of materials in storage.
4. Storage refers to the physical containment of materials.
5. Order picking is the act of removing items from storage to meet a specific demand, whether for production or to satisfy customer requests.
6. Packaging is the step where individual items or assortments are containerized for more convenient use.
7. Sortation refers to the process of collecting picks into individual orders.
8. Unitizing and shipping encompass the preparation and packaging of orders into shipping containers, preparing shipping documents, weighing shipments, and loading outbound trucks.¹⁴

Saving on Labor

The focus of any distribution operation is inventory, but that's about the only thing that all companies will agree on. When it comes to inventory, how much a company should carry changes according to the time of year, the industry a company is in, the corporate philosophy of senior management, the flexibility of its suppliers, and most especially, the demands of its customers. No company wants to be caught short, but sometimes having too much inventory can be just as bad as not having enough. The short answer, then, to the question of how much inventory a company should carry is: it depends.

Knowing how much inventory your company needs is important, but equally important is knowing where that inventory is at any given time. The role of tracking product location within a warehouse is typically assigned to a warehouse management system (WMS), a software application that interfaces with supply chain planning, order management, ERP, and transportation management systems, and can track the whereabouts of a company's products by purchase order, bar code, lot number, pallet location, or other identification system. Thanks to the usage of RFID tags, urged on manufacturers by major retailers and the US Department of Defense, companies can already track at least some products in real time, and the end goal is being able to know exactly when and where those products were manufactured, packaged, and shipped.

Companies that used to rely on paper-based inventory systems have found significant labor savings by adopting a WMS solution integrated with handheld bar code scanners and other supply chain technologies. For instance, an order can be entered directly into an ERP system, which will send the order to the warehouse or DC for picking and shipping. The system will then automatically send an invoice to the customer. Order pickers in the warehouse use the scanners to check rack and shelf locations, and to verify every order that they pick. The scanner informs the picker exactly where on the dock to take the order.¹⁵

Companies that have adopted a WMS typically experience labor savings between 20% and 40%, observes Ackerman. Space utilization is typically 10% to 20% more efficient when using a WMS, inventory levels could drop by as much as 50% after three years, and the costs of conducting a physical inventory check can be reduced by 75%, he says.¹⁶

In addition to adopting WMS solutions, warehouses are increasingly going the wireless route, which includes voice recognition systems (pick-by-voice), RFID, handheld devices, global positioning systems (GPS), geofencing, wireless networking, and other solutions that facilitate real-time access to inventory data. According to analyst firm Aberdeen Group, 75% of the companies identified as best-in-class use real-time mobile devices to process transactions.¹⁷

For instance, Ace Beverage, a major beer distributor for Anheuser-Busch, has a wireless data system that communicates real-time delivery data throughout the day. This system has greatly improved delivery efficiency, helping the distributor to eliminate 15 to 20 hours per week that it used to spend on driver and loading dock worker overtime. Thanks to the wireless system, when retail orders are in-house by 2 p.m., Ace Beverage starts loading the trucks according to scheduled stops, gaining a big jump on the loading process. Ace can start preparing loads early by picking the products from the warehouse inventory and staging them without having to load them onto trucks.¹⁸

How to Better Manage Your Warehouse

One of the main principles that drives distribution best practices is: Know your situation and know your capabilities. You don't necessarily need a new warehouse to handle increased business, and while many companies take a technological route to increasing productivity, it's quite possible that better processes are the answer, not necessarily automation. “Look at your entire business as you search for solutions,” suggests Terry Harris, managing partner with supply chain consulting firm Chicago Consulting. If you make changes in one area, it will affect other areas.¹⁹

Following are several best practices that companies have taken to maximize the productivity of their distribution facilities that go well beyond a “throw money at it and pray” strategy:

• Reduce your inventory. Run as lean an operation as possible. In particular, eliminate all the obsolete products in your warehouse, the so-called dead inventory that your finance department has resisted writing off because they assume storage is free. Work more closely with your suppliers to time the receipt of goods as closely as possible to the time of use.
• Be selective in what you stock and where you stock it. Examine your order pattern to determine which are your fastest moving products, and then keep them at the front of the warehouse. If you use both regional and central DCs, keep the most expensive items upstream to avoid having to move that expensive inventory.
• Add hours or shifts. Sometimes even the best technology and processes aren't enough to satisfy customer demand, particularly during peak season. In these situations, many companies opt to increase throughput by increasing hours of operation. While your labor costs will increase, you'll gain in the short term by not having to invest in capital equipment. As a long-term strategy, however, you'll have to determine if running an extra shift year-round is more cost-effective than investing in technology.
• Clear the dock area. Sometimes the best solution is also the easiest: Insist that every incoming truck have an appointment, so that every dock door is run off a firm schedule. The more predictable your operation, the more efficient will be the flow-through. Consider drop-and-hook for truckload deliveries, where an inbound trailer is unhooked and dropped off in the yard, brought via a jockey truck to the dock for unloading, and then returned to the yard. In any event, ask yourself how much staging you really have to do. You'll hear all sorts of reasons and excuses why somebody can't take a load off the truck and put it straight into a stack without ever putting it down, notes Ackerman, but those reasons are no longer valid.²⁰
• Bypass the DC entirely. This strategy, known as predistribution management or more colloquially as the DC bypass, aims at delivering products directly to retail stores or the point of consumption, rather than a warehouse. The greatest benefit here is timeliness.
• Outsource your warehousing to a third-party logistics provider. Before you consider hiring a 3PL to take over the bulk of your distribution processes, it's vital that you first analyze your specific needs and determine if your company will be better served by letting a specialist run your warehouse (see Chapter 11).

Design for Supply Chain

On-time delivery is a fundamental premise behind supply chain management, and it's a key benchmark on the road to achieving the perfect order. Although same-day delivery is now available from many retailers and logistics providers, any company relying on the fastest and most expensive transportation options to fulfill its delivery obligations is either going to figure out a way to pass those costs on or it isn't going to be in business very long. The old adage “Build a better mousetrap and the world will beat a path to your door” is now hopelessly out of date. It's no longer good enough to build that better mousetrap—you also have to build a better distribution network from which you can optimally service your customers. According to a study undertaken by ProLogis, a consulting firm specializing in logistics real estate, the number-one challenge for supply chain professionals is to create a distribution network that can deliver on customer demands while still keeping costs in line.²¹

High-tech manufacturer HP operates one of the largest supply chains in the world, and one of the most sophisticated distribution networks. The company has learned that it is absolutely necessary to consider logistics activity when deciding where to source products and where to build factories. HP relies on collaboration across its entire supply chain to design the optimum distribution network to bring a given product to a specific marketplace.²²

HP used to rely on design for manufacturability strategies to build products as efficiently and inexpensively as possible, but the company shifted to a best practice known as design for supply chain. This concept looks at all of the costs throughout a product's lifecycle, even past the point of its functional use. By its very nature, design for supply chain requires the involvement of multiple departments when a product is being designed.

“Design for supply chain includes not only research and development type people but also people involved with logistics and packaging, and people who are focused on the environment,” explains Greg Shoemaker, HP's global head of supply chain, central direct procurement services. “When we design for logistics enhancements, for instance, we make sure we've got the right size box that'll fit on the right size pallet to optimize our shipping costs. When we design for tax and duty reduction, we may manufacture in certain places in the world in order to reduce our taxes or duty.”²³

The applications of design for supply chain are seemingly limited only by a company's imagination, as well as its ability to effectively pull together disparate functions. Design for postponement, which is popular with the apparel industry as well as high-tech companies, allows a company to wait until the last minute to finish making a product, pushing off configuration or a value-added feature until the product is as close as possible to the end customer.²⁴ HP also engages in design for commonality and reuse, which involves using similar or identical components in different products. HP's designs for take-back and recycling efforts are supplemented by its own recycling operation plant.

“What we're really working on and making a lot of progress in is making sure that the development teams get a good view and understanding of all the supply chain variables that can be affected by their design, depending on what the particular sourcing strategy is,” Shoemaker explains. “So we try to identify all those needs up front, even where the product is going to be manufactured, so that the designers can spend a good amount of quality time creating the best package.”

Striking the Proper Balance

A well-run supply chain depends on having a streamlined distribution network to receive raw materials and deliver product to the end user, and that network needs to use the least number of intermediate steps possible. Developing such a network where total system-wide costs are minimized while system-wide service levels are maintained involves studying and weighing numerous factors. The ultimate goal of this network planning is a supply chain that is properly balanced between the competing considerations of inventory, transportation, and manufacturing.²⁵

“The objective of strategic distribution network planning,” according to Dale Harmelink, a partner with supply chain consulting firm Tompkins International, “is to come up with the most economical way to ship and receive products while maintaining or increasing customer satisfaction requirements; simply put, a plan to maximize profits and optimize service.”²⁶

A distribution network plan, Harmelink suggests, should answer the following questions:

1. How many distribution centers (DCs) do you need?
2. Where should the DCs be located?
3. How much inventory should be stocked at each DC?
4. Which customers should be serviced by each DC?
5. How should customers order from the DC?
6. How should the DCs order from suppliers?
7. How often should shipments be made to each customer?
8. What should the service levels be?
9. Which transportation methods should be used?

Depending on the market needs of a company and its overall supply chain mission, the answer to question 1 may necessitate adding one or more DCs to the network, or conversely, it may require consolidating several DCs into a single regional distribution hub.

A Site for Sore Eyes

When you get right down to it, all logistics (like all politics) is local. Amazon, for instance, operates more than 175 fulfillment centers throughout the world. Hamburger chain McDonald's has more than 200 DCs worldwide to supply its more than 38,000 restaurants. In just the United States alone, Walmart has more than 150 DCs, each of which supports 90 to 100 stores in a 150+ mile radius.

And yet, there's a feeling that the site selection process is more art than science, more luck than strategy. Determining exactly where in the United States a company should locate its logistics and distribution centers requires a study of many factors beyond just transportation costs (although transportation is a major factor in the decision). To determine a metropolitan area's overall logistics friendliness, following are 10 key areas companies should consider in their site selection evaluation:

1. Transportation and warehousing industry. How many businesses and employees within a city provide transportation, distribution, warehousing, and related services?
2. Workforce and labor. How many logistics-related workers live in the area or could be attracted to the area? And what is their average salary?
3. Road infrastructure. How many lane miles are available per capita, interstate highway access, miles of paved roads, and average daily traffic per highway lane?
4. Road congestion. What's typical traffic volume like in a city? How many delays, accidents, and other factors affect the smooth flow of traffic?
5. Road and bridge conditions. What percentage of bridges are functionally obsolete or structurally deficient?
6. Interstate highways. What is a city's access to interstate highways, and how many auxiliary interstate routes are in the area?
7. Taxes and fees. This includes things like truck user fees and motor fuel excise taxes.
8. Railroad service. How many rail carriers serve a metro area?
9. Waterborne cargo service. What's the ocean port capacity as well as capacity of any inland waterways?
10. Air cargo service. How many air courier companies are in the metro area, and what's the total air cargo tonnage for the area?²⁷

How Much Is Too Much?

How do you know if you're spending too much on your distribution network? Location consulting firm The Boyd Company developed a comparative cost model that identifies how much it costs, on average, to operate a warehouse in 25 US cities considered likely to attract new warehousing investment, based on several site selection trends, such as access to rail terminals and container ports, as well as labor, real estate, taxes, and shipping costs.

Boyd's comparative model focuses on a hypothetical 500,000-square-foot warehouse employing 150 nonexempt workers. The most economical city to locate a warehouse, according to the Boyd study, is Chesterfield, Virginia ($11.3 million), near Richmond, due to low power costs as well as low property and sales taxes. The most expensive city, conversely, was Stoughton, Massachusetts ($15 million), near Boston, which had high property and sales taxes, and high power costs.²⁸

According to Terry Harris, managing partner of Chicago Consulting, cost and service are the most important criteria when it comes to designing a warehouse network. Other relevant issues include highway infrastructure, real estate issues, labor climate, and carbon footprint concerns.²⁹

Chicago Consulting undertook a study in 2018 to determine the best warehouse networks in the United States, with “best” indicating the lowest possible transit lead times to customers, based on population patterns. Using that criterion, the best place for a company managing one distribution center would be Vincennes, Ind. The average distance to a customer would be 806 miles, with an average transit time of 2.28 days. For a company operating two DCs, the optimum locations would be Ashland, Kentucky, and Porterville, California.³⁰

The latest trend in warehouse siting is micro-fulfillment or hyper-local fulfillment, which is a reaction to a situation where industrial real estate is harder and more expensive to find (particularly within urban settings), and where consumer demands for quick deliveries are even more aggressive than before, explains Don Nasca, business development manager with Delta Electronics, a manufacturer of power supplies and industrial fans. Rather than building huge DCs, which can be one million square feet or more, “a growing number of companies are turning to smaller spaces and seeking new ways to enhance productivity in these settings through automation.”

Grocery retailers in particular, such as Kroger and Walmart, are adopting micro-fulfillment strategies to expand their grocery pickup and delivery options. In practice, the retailers “establish streamlined fulfillment centers within or nearby their traditional storefronts,” Nasca says, creating what are popularly known as urban warehouses that may be only 6,000 to 10,000 square feet. The retailer can cater its inventory specifically to that local market, and better service its customer base by offering a more personalized selection of products.³¹

A Quick Guide to Site Selection

So what sorts of decisions do supply chain managers have to make when choosing sites and considering new locations? Kate McEnroe, who runs site selection firm Kate McEnroe Consulting, insists that the decision process need not be overly complicated. She offers the following to-do list of issues to focus on:

• Define required and preferred criteria, and set a realistic timeline.
• Create a format for organizing and analyzing site selection data.
• Gather objective data.
• Eliminate areas that fail to satisfy required criteria.
• Rank the remaining areas on their ability to satisfy preferred criteria.
• Visit communities on your short list to assess sites, workforce, and business operating conditions.
• Consider property and incentive negotiations.

Too often, she notes, companies allow themselves to go overboard on gathering every piece of data on prospective sites, with the assumption that site selection can be reduced to a mathematical formula. “Too much information can make it difficult to maintain focus on the project's purpose,” McEnroe says. It's just as important, if not more so, to develop a list of criteria that force a company to identify what is required versus what is merely convenient or familiar.

Questions that need to be asked include:

• What local workforce skills are required, and how many potential employees live in the community under consideration?
• What are the geographic constraints of your distribution network, for both inbound and outbound logistics?
• What are your financial objectives?
• What is the optimal physical environment for your facility, in terms of size, utilities, and support services?
• What are the risks involved, and how can you avoid them?³²

The Three Deadly Sins of Warehousing

If you want to save money on your warehousing operation, you need to stop focusing on storage fees and instead focus on your handling costs, urges Jason Minghini, vice president, supply chain solutions with Kenco Group, a third-party logistics services provider. Companies usually consult with a warehousing expert for two reasons, he says: “Either they have a problem with high overhead and want recommendations for reducing it, or they want to improve good operations to become even more competitive in the marketplace. In each case, it's not the storage—it's the handling driving up their costs and keeping them from meeting or exceeding goals.” As Minghini sees it, the three most troublesome areas of warehouse operations are travel distance, touches, and paper.³³

When Amazon acquired Kiva, a manufacturer of warehouse robots, in 2012, it served as a wakeup call to not just other retailers but any company with significant distribution capacity and often inefficient processes that automation wasn't just a “nice to have” in the warehouse but a “need to have, and need to have it now.” As Mike Futch, executive vice president with supply chain consulting firm Tompkins International, explains, the need to add flexibility and scalability to DCs as omni-channel distribution widens while reducing reliance on labor is driving an increased interest in warehouse robots and automated guided vehicles for picking, sortation, palletizing, and depalletizing tasks.³⁴

Petzl America, a manufacturer of mountain-climbing equipment and apparel, uses a robotic goods-to-person picking system to augment the productivity of its human workers by reducing the number of touchpoints. The system uses wireless vehicles moving along a track that stores and retrieves totes, and can tilt the totes when it arrives at a human picker, reducing the need for the picker to reach or stretch. The robotic solution has led to safer operations, a fourfold increase in the amount of picks, and an increase in picking accuracy.

Cosmetic giant L'Oréal is using inventory-taking drones in its warehouses to conduct stock and location audits. Equipped with sensors and GPS technology, the drones follow a predetermined flight plan within a warehouse, using cameras to read information off labels, and sending that information to L'Oréal's WMS and ERP systems. The drone solution has reduced the amount of time needed to perform the inventory by two-thirds, while greatly improving safety within the warehouses.

With more than 100,000 SKUs, airplane manufacturer Lockheed Martin's Rotary and Mission Systems group was still relying on manual pick-to-cart operations in its warehouse. The company opted for a collaborative robot (cobot) solution, an automated material handling vehicle that operates hands-free but alongside a human picker. The cobot's display screen shows the picker exactly which product to pick, confirms the pick, and tells the picker which container the item should be put into. Within just six weeks of implementation, the cobot helped increase the number of lines picked per hour by nearly 400%.³⁵

While many warehouses to this day still rely primarily on human labor, paper-based order pick lists, pallet jacks, and forklifts to move products from one area of a facility to another, as omni-channel and automation become ever more prevalent in distribution, the three deadly sins of warehousing could one day soon be forgiven and forgotten.