February 2010 | Commentary | 3PL Line

Today’s Warehouse Plays a New Role

Tags: 3PL, Warehousing

Cliff Otto is President, Saddle Creek Logistics Services, 863-668-4435

Warehouses are no longer just for storage. In today's cost-conscious, efficiency-driven environment, many manufacturers are reevaluating their definition of warehousing. Anything that doesn't lend itself to a high-speed, highly mechanized, low-labor environment is being sent to the warehouse.

Driving this evolution is a desire to take links out of the supply chain and make sure that costs are optimized and as close to the customer as possible.

INNOVATIVE WAREHOUSE USES

As a result of this shift, manufacturers are gradually expanding the services they expect from their warehousing providers, seeking ways to increase flexibility, improve inventory control, manage costs, and streamline the supply chain.

Three services, in particular, are drawing considerable interest:

1. Shared space environment. Companies with dramatic seasonal or promotional fluctuations face unique warehousing challenges. They don't want to invest in space that they can't fill year-round, but they must accommodate business surges. A shared space environment accommodates shipping peaks and valleys by balancing multiple manufacturers' requirements with complementary surges.

To manage this arrangement, a third-party provider analyzes shippers' space requirements and identifies peak periods of activity. Shippers with peaks at opposite times of the year can be paired in a single facility. For example, a sunscreen manufacturer might be paired with a holiday gift basket company.

The companies' operations are located at opposite ends of the building and ebb and flow toward the middle as required. Both companies are guaranteed additional overflow space, but only pay for the space as they need it. They're able to meet maximum requirements and accommodate business growth without having to invest in permanent space and equipment. Locating the facility in an optimal location also helps minimize transportation costs and maximize responsiveness to customer needs.

2. Secondary packaging. Many manufacturers also want to bring functions such as secondary packaging closer to the customer to give them the flexibility to accommodate seasonal fluctuations or delay product configuration until the last minute to meet current demand.

Approximately 40 percent of manufacturers currently outsource some or all of their secondary packaging services, according to the 2009 Secondary Packaging Outsourcing Report, sponsored by Saddle Creek Corporation. Increased flexibility and reduced costs are the top benefits reported.

Whether it's assembling a back-to-school point of purchase promotion, adding a colored face plate to a cell phone, shrink-wrapping a rainbow pack of sports drinks, or formatting computer disks with the latest software, outsourcing secondary packaging services allows manufacturers to meet customer needs and increase efficiency without increasing overhead. The move can also reduce transportation and labor costs, as well as costs associated with carrying and managing inventory.

3. Cross-docking. As manufacturers seek ways to move products more efficiently and cost-effectively, many are rediscovering cross-docking—moving product directly from receiving to shipping with little or no inventory and minimal handling. The process is resurfacing as a way to take costs out of the supply chain, accelerate inventory velocity, and improve service levels.

While historically used for durable goods, high turn rates and reduced handling make cross-docking an effective solution for everything from perishable products to high-value/high-security goods. The process helps get product to market quickly and economically while reducing the need for warehouse space and inventory carry costs.

Many companies are exploring variations on traditional, "pure" cross-docking, integrating transportation strategies such as consolidation and deconsolidation to maximize savings. For example, a company may receive inbound loads daily but ship out just twice a week, reducing transportation spend while making deliveries that meet end-user requirements.

INVOLVING A 3PL

Many manufacturers are recognizing that 3PLs are often better positioned than their own internal operations to adapt to the expanded warehouse role.

Experienced 3PLs offer convenient facilities with a skilled workforce, state-of-the-art equipment and facilities, and established systems and processes for peak performance. Because warehousing, packaging, and transportation operations take place under a single roof, communication and planning improve, helping to ensure performance quality and timeliness. Effective 3PLs also routinely review forecasting, scheduling, processes, equipment and other variables, looking for opportunities for improvement.

Demand for specialized warehouse services will climb for the foreseeable future as manufacturers intensify their focus on core competencies. Fortunately, third-party providers can provide innovative, flexible solutions to help streamline their supply chains, increase flexibility, and better manage costs.