November 2002 | Case Studies | DC Solutions

Warehousing for the 21st Century

Tags: Warehousing

Companies explore merge-in-transit, crossdocking, and pool distribution in the never-ending quest to increase speed to market, improve service and inventory turns, and reduce costs.

Seeking flexibility and nimbleness, some companies are moving away from using a handful of massive mega-distribution centers, opting for a hybrid distribution network that combines large regional facilities with smaller forward stocking locations, perhaps operated by third-party providers. Other companies bypass distribution centers altogether, shipping to customers straight from their manufacturing plants. Still others are exploring concepts such as merge-in-transit, crossdocking, and pool distribution to increase speed to market, improve service and inventory turns, and reduce costs.Take telecomm giant Ericsson, which until recently operated a North American network of 20 distribution centers. Ericsson didn't want to tie up capital in its DCs or hold a lot of inventory. Instead, the Swedish company sought to drop-ship material from its U.S. and European sources of supply, merge it in transit, and deliver it in a single shipment to its customer.Ericsson turned to third-party logistics provider North American Logistics (nAL), which designed a flexible merge-in-transit network. In addition to the 16 merge-in-transit DCs, nAL also has the ability to access 1,200 warehouse locations via its network of van line agents.The switch to merge-in-transit has paid off handsomely. Russ Boyd, manager of supplier quality and process management for Ericsson North America, projects million dollar-plus savings from the merge-in-transit operationAs the Ericsson example illustrates, the role of warehouses is changing. For example, nAL's DCs serve as sort-and-merge facilities rather than as inventory repositories.

"In the process we have today, nothing moves through a central warehouse," Boyd says. "The only inventory we have in our nAL facility is there because it's en route to delivery."

The work that's done in those warehouses is increasingly performed by third parties. Today, two-thirds (65 percent) of North American respondents to the 2002 Seventh Annual Third-Party Logistics Study (conducted by Cap Gemini Ernst & Young, Georgia Institute of Technology, and Ryder System) outsource warehousing activity. Users of warehousing providers expect them to excel within the four walls of the warehouse—and beyond—and 3PLs are responding.

One provider, for example, has remade itself from a warehousing provider to a supply chain manager, according to William H. Drumm, president of Establish Inc., a logistics and supply chain consulting company in Fort Lee, N.J. This provider now handles all physical operations for companies that design and market products that are produced offshore.

"With the significant movement of manufacturing offshore, providers now have the opportunity to fill an expanded role, one that goes beyond accepting product shipped to them from a domestic factory, and then shipping it out to customers," Drumm says. "In some industries, with some companies, providers now have the opportunity of becoming their clients' entire physical operations."

Warehousing providers who seize the opportunity will transform themselves into their clients' supply chain managers.

Bringing Toys to Tots

Just ask Los Angeles-based Nakajima USA, which distributes Hello Kitty plush toys and figurines to mass merchandisers and specialty retailers.

The company originally used a distributor and sub-distributors but, "as we grew, our distribution model no longer worked for us. Because of our relative small size, it did not make sense for us to build our own warehouses and take our logistics operations in house," says Eric Weber, U.S. president and COO of Nakajima USA.

"I never wanted to own a warehouse. It's a fixed asset, and you allocate that fixed asset's cost across a variable amount of inventory," Weber says.

Recognizing that outsourcing was its best option, Nakajima sought a third-party provider. "I was looking for a soup-to-nuts provider, not a company that could just provide me with the warehouse," he says.

Today, Nakajima USA looks to CaseStack Inc., Los Angeles, to deliver a port-to-door solution to bring its merchandise to market. CaseStack handles all Nakajima's logistics needs, including transportation, warehousing, inventory management, and distribution of its Hello Kitty products throughout the United States and Canada.

"We pick up a container in China, bring it to the Port of Los Angeles, ship it to our Los Angeles warehouse, then ship the orders out to Nakajima's customers," says Dan Sanker, president and CEO of CaseStack.

CaseStack's system assembles the mix of transportation and warehousing services required to move the product from China to retailers' shelves. Once the products arrive in the United States, CaseStack can tap a regional warehousing network that includes 20 locations in North America. CaseStack gives Nakajima the ability to store its products in a location close to its customers, increasing flexibility and reducing delivery times.

CaseStack also provides customized fulfillment services to Nakajima. For example, when Blockbuster, one of Nakajima's key customers, experienced a product overstock, CaseStack picked up the extra inventory and took it to its warehouses. It repackaged and stickered the product before sending it to another key customer.

CaseStack does not own the warehouses in its distribution network, opting instead to use the assets of several partners. This wasn't an issue for Nakajima. When evaluating providers, "I was more impressed with their systems than with the issue of CaseStack not owning their own warehouses." Weber says.

Robust information systems are a critical part of effective warehousing and supply chain management. At the core of CaseStack's solution, for example, is a logistics execution backbone that includes a proprietary central platform and advanced warehouse and transportation management commercial applications.

The Action is on the Server

At CaseStack, "the action is on the server as well as on the warehouse floor," Sanker says.

As shipments of Hello Kitty move from the Far East and into U.S. and Canadian retail outlets, Nakajima executives can trace their products' movements online in real-time using CaseStack's proprietary web-based software system. Nakajima executives know exactly how much inventory is available at every warehouse location at any time.

CaseStack's logistics software enables users to manage and fulfill orders, and schedule transportation and warehousing all with a mouse click. The process starts when Nakajima's accounting department enters the order specifics into its system. The order file, which contains the details of the order and its shipping requirements, is then exported directly to the CaseStack system.

CaseStack's software integrates into Nakajima's accounting system, so Nakajima does not have to enter the order data twice. In Nakajima's case, as for many companies that outsource, the 3PL's ability to manage information is as important as their ability to manage the warehouse.