Warehouses Not Fading From Use

December 13, 2002
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GRAND RAPIDS — Warehousing remains an integral part of the supply chain process, even as that process grows leaner and leaner. 

Daniel Braun, material manager for National Nail Corp., doesn't believe warehouses are headed for extinction because companies have to keep some amount of inventory on hand, even though they're always trying to take that down to a lower level.  

From a manufacturing perspective, Braun said, most manufacturers try to keep their inventory as low as possible so money isn't tied up in inventory that's just sitting around a warehouse.

Braun is also an instructor with the American Production and Inventory Control Society (APICS), a global nonprofit that offers members educational and professional certification programs.

He said the objective is to find ways to make operations run more efficiently so that firms needn't maintain a lot of inventory.

He explained that the companies that are really good at that process are the companies that have their process down: They've got the inventory coming in just as fast as it's going out, he explained. 

If, for example, the automotive markets can give suppliers a fairly accurate forecast of what they want to buy month in and month out, suppliers can plan their production up or down accordingly.

"Then I can order my parts and have them coming in, flowing so that as soon as it comes in, I only have to keep maybe a day or two worth of inventory on hand," Braun explained. "I don't really have to store it in my warehouse; my suppliers can make it and ship it to me just as fast as I can use it up."

On the distribution side, there are fast-, medium- and slow-moving items. The better a company can forecast for those three categories, the better it can predict sales and the lower it can hold its inventory.

"Even in distribution, if I can find ways to hold my inventory levels down without hurting my customers, I'm going to do it. But whether it's manufacturing, distribution or any thing else, each industry and each organization has to look at what's best for them."

In this world of "just in time," warehousing isn't diminishing; it's simply becoming more of a specialized area, said Walter Gorak, a local consultant.

If a company is not really in the warehousing business, it doesn't need to support a large, multi-million dollar facility — it can delegate that responsibility to a third party.

In the last 10 to 12 years, he said companies have begun to realize the importance of focusing on what they do best, and some have begun outsourcing the functions in which they do not have core competencies to third-party providers that do, he said.

Gorak runs a consulting firm, Global Management and Purchasing Resources, which deals primarily with supply chain management and organizational change management issues. He also teaches at Ferris State and Davenport universities and the University of Phoenix.

As he sees it, companies today are either looking at ways they can fill their warehouses with other business or looking at ways to outsource their warehousing needs to an organization with fulfillment expertise.

A company that has a 100,000-square-foot warehouse that's not fully utilized 30 days a month, or that experiences seasonal peaks and valleys, might seek other businesses that can use its warehouse assets during slack times so it can continually achieve a positive rate of return on those assets.

"So they're maximizing the benefit of the warehouse; it's there for everybody to use in their peaks and valleys," Gorak said. "It doesn't have to be either feast or famine.

"In most cases, customer service will improve because we're going to be more organized and more electronic, with EDI, the Internet and integrated software systems. Customer service should improve and costs should go down.

Gorak recommends companies do their homework before selecting a third-party provider.

"You don't just go to the Yellow Pages. You have to do your due diligence on the front end," he advised. "Make sure you have a reliable organization. Make sure you do a walk-through and pilot programs to assure everybody knows what they're doing and how to do it."

It will require some cultural change as well, because everybody in the organization, from the plant floor to the executive office, has to understand their roles and responsibilities under the new set up, he added.

Access Business Group, Alticor Inc.'s supply chain business, manufactures, warehouses and distributes products for both Alticor and non-Alticor companies.

"Having the assets that we have with the warehouse space here, with the manufacturing capabilities we have here, really makes us kind of a stand-alone in the third-party manufacturing business," said Al McQueen, chair of global contract sales for Access Business Group. 

Part of the benefit of having the warehouse space that Access currently has is the flexibility it provides in third-party manufacturing activities, he said.

"It allows us to maneuver our schedule and get ahead of schedule. If we have firm purchase orders to produce, we can sometimes move stock into the production schedule instead of having downtime inefficiencies."

At Access's 700,000-square-foot central warehouse, volume is up 25 percent over a year ago.

In September and October of 2001, about 90 percent of the finished goods were for Amway and Quixtar, while about 10 percent of finished goods were third party.

Currently, about 70 percent of finished goods are Amway and Quixtar, while about 30 percent are third party.

McQueen sees a trend.

"There is a trend, I believe, that the major brand owners are refocusing their major efforts on sales and marketing and moving away from in-house manufacturing," he said.

"More and more companies are outsourcing their manufacturing activities. They're pretty much not into the brick-and-mortar philosophy anymore.

"So if they have new product launches or increased sales, instead of expanding their own manufacturing facilities, they're outsourcing."

One of the benefits Access can offer its major brand owners is the ability to handle their complete supply chain needs, McQueen said. 

Another benefit, he pointed out, is the specialized warehousing space Access has that isn't readily available everywhere. It has the warehouse requirements to handle specialized products because it handles all the different products in the Amway and Quixtar core business lines.

It has warehouse space for aerosols, cold rooms for temperature sensitive products, cold rooms for food products, and flammable liquid storage.

"The Access warehouse has a tremendous amount of different capabilities and that makes my business easier to sell," McQueen said.

For the Amway and Quixtar businesses, warehousing has become a smaller part of the picture because the company has learned how to move inventory out about as fast as it comes in. 

That's the result of a combination of experience, new technology implementation, better forecasting and better transportation, said Leroy Shively, manager of Access's North American Service Center.

Like the others, Shively doesn't envision warehouses disappearing anytime soon. 

"There will always be warehouses out there," National Nail's Braun concluded. "Will there be as many out there in the year 2005 as there was back in 1970 or 1980? No, I don't believe so, because we have found ways to make our processes better, to get the quality better and do better forecasting.

"Are we as great as we can be? In my opinion, not even close. Even the best of companies are always trying to find ways to make the process a little bit better."

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