Supply chain trends affecting warehouses

This section examines current trends within today’s supply chain and how
these are likely to affect warehouse operations.
The e-commerce phenomenon will continue to grow both for businessto-
business (B2B) and business-to-consumer (B2C) sectors. From a convenience
point of view and under greater environmental pressure, grocery
home shopping and delivery will also grow significantly.
This will necessitate more fulfilment centres and returns processing facilities.
Retailers and manufacturers will continue to look for further cost savings
as markets become even more competitive. Warehouses will be expected to
be more efficient and cost effective, with the likely closure of inflexible buildings
and inefficient operations.
Retailers will continue to take stock out of the supply chain, leading to
increases in stockless depots, transhipment centres and cross-dock operations.
The cost of transport and stock-reduction targets could potentially bring
manufacturing closer to the consumer. Eastern Europe has recently become
a centre for manufacturing within automotive and electronics.
The increase in port-centric logistics has resulted in companies building
large warehouses as close to the ports of entry as possible. As mentioned,
Tesco’s 1.2 million square foot warehouse at Teesport UK is a typical example.
The miniaturization of products such as mobile phones, DVD players and
computers, together with the increasing use of media for listening to music
via downloads and reading books, is likely to result in less space required
for these types of products.
The sustainability agenda will also play its part within the supply chain.
This will result in the development of further brown field sites, linkages to
rail and potentially canal networks, and self-sufficiency in terms of energy
use.
Future warehouses will be expected to be carbon positive. UK retailer
John Lewis built a new distribution centre in the UK with a view to significantly
reducing its carbon footprint. Early results showed savings of 18 per
cent in energy costs, 45 per cent in water usage, an overall reduction of 40
per cent in CO2 emissions and a cost saving of circa £250,000 per annum.
It is expected that new warehouses will be targeted with having their own
means of power generation, be it solar or wind, and may also convert waste
into power.
Greater collaboration within the supply chain both vertically and horizontally
will lead to greater consolidation and an increase in shared-user
operations. This is likely to lead to a reduction in the number of warehouses
and the construction of purpose-built centres.
The ability for companies to work closely with each other and trust each
other will be a major factor as to how quickly this collaboration takes place.
The growth of e-fulfilment and its effect on
the warehouse
Home shopping is the fastest growth area in UK retail. The total value of
internet sales in 2009 was estimated at £49.8 billion, 21 per cent up on 2008.
There are significant challenges for warehouse managers when operating
an e-fulfilment warehouse.
These warehouses are significantly impacted by seasonality. The demand
on staff and equipment varies significantly with the seasons: large, bulky
items such as barbecues and garden furniture during spring and summer and
much smaller electrical products during the run-up to Christmas. These have
very different impacts on handling and storage equipment.
Second, the wide range of products stored requires warehouse managers
to efficiently process low-value, single-item orders. This is one of the main
challenges facing all warehouses today but in particular those dealing with
internet orders. Picking and packing low-cost items utilize the same amount
of labour and equipment as for high-cost items but the margin is going to be
significantly different.
Third, as consumers flex their muscles in the market, accuracy and ontime
delivery are paramount if companies are to retain the loyalty of their
customers.
Inventory management is another challenge for the warehouse manager.
The increase in the number of product lines will put pressure on the number
of pick locations whilst slow-moving and obsolete lines can take up muchneeded
space in the warehouse. From a picking point of view the proliferation
of product lines will result in warehouse managers having to look at
alternatives to ground-floor pick locations such as mezzanine floors, flow
racking and carousels.
In order to release vital space to the warehouse operation, stock turnover
has to be managed well and decisions made quickly regarding the disposal
of non-moving stock.
As discussed earlier, one of the main by-products of e-commerce is a large
percentage of returns. This can be up to 40 per cent of outward volume.
Significantly, many of the returns are good stock which can be resold but
have to go through a thorough quality check.
Mark Hewitt, chief executive of iForce, sees this developing interest in
returns: ‘There will be a growing demand for outsourcing e-fulfilment to
companies that can also offer returns processing from the same facility, as
this will drive down costs by enabling a more efficient process for putting
returned goods straight back into stock’ (Supply Chain Standard).
Finally, next-day delivery is seen as the norm, which puts further pressure
on the warehouse manager to balance speed with accuracy. Allied to this is
the requirement to be able to integrate systems with couriers, and customer
services to be able to track and trace the progress of each order.

Currently there are three types of fulfilment centre:

● integrated fulfilment, where internet sales are carried out alongside
existing retail operations;
● dedicated fulfilment, carried out in a purpose-built facility;
● store fulfilment, which involves picking online orders from existing
retail shelves for separate delivery ex store.
The third option is probably the least favoured for an e-fulfilment
operation.