Warehousing: Value Chain equals good ROI

With costs and competition rising faster than ever, only businesses that find ways to increase value for their customers and shareholders can thrive in today’s market. Michael Porter’s value chain concept holds that certain activities within a business represent opportunities for adding value to the product or service the business provides. In general, these activities are profit-generators that can be distinguished from the overhead and support functions of commercial distributors and company warehouses. Value-adding functions often relate directly to the specifics of the individual business. Following are some value-added functions that Porter highlights as common to most business and should be familiar to anyone who depends on their warehouse as part of their critical operations:

  • Inbound logistics
  • Outbound Logistics
  • Production/operations
  • Marketing and sales
  • Services

Warehouses are traditionally seen as purely cost-centers and not a potential area for value creation. Yet progressive businesses are turning their warehouses into a significant competitive advantage. Of the value-adding functions listed above, inbound and outbound logistics relate directly to wholesalers, distributors and distribution center operators. In addition, the quality of receiving, storing, and delivering product can affect production, marketing and sales, and services both positively and negatively.

Warehousing practices in the value chain
Progressive companies will find ROI opportunities in automated warehouse processes.  They can keep mistakes at an acceptable minimum, improve efficiency, maintain compliance, maximize personnel utilization, and maximize inventory investment through effective use of inbound and outbound logistics and warehouse operations. In a modern, automated warehouse management environment, these activities take place in a smooth, uninterrupted flow. Whether in a distributor or wholesaler model or in a dedicated distribution center serving a dispersed chain of retail stores, the process begins with receipt planning and execution.

The Role of Automated Warehouse Software
What are the automated processes that the most competitive companies are using in their warehouses? With an advance ship notice provided by the warehouse software, warehouse personnel can prepare for the incoming shipment and delivery before the shipment arrives. Once the shipment arrives at the dock, the software establishes the staging requirements, logs the product into inventory, checks order accuracy, and directs put-away via bar-coded labels, which is critical for the outbound processes.

 In the put-away process, the software supports any further needs for barcode labeling and license plates that may simplify and expedite tracking throughout storage and subsequent reshipping. Finally, the warehouse software automatically updates the back office software. Outbound, the warehouse software processes the order in reverse, receiving an order from the back-office software and issuing a pick order optimized with business logic such as the product location, disposition, ship date, and inventory status.

For example, a beauty supply warehouse serving dozens of small outlets might buy in bulk but only ship one or two items to a store at any one time. Pickers may be instructed to box a single order to completion or add items to a tote and pass it down the line where more items will be added before the items are packed and shipped. Conversely, a turf supply warehouse serving high-volume users such as golf courses or developers might receive and ship bulk product in single or multiple pallet loads.

 An ideal warehouse management system has the flexibility to provide the vital value-adds regardless of the nature of the business. In the first instance, the value-add is the distributor’s ability to buy in bulk, manage the merchandise, absorb the carrying costs, and meter out product as needed. In the second, a critical value-add is the ability to perform the complex logistics for the end users, leaving them free to focus on their core business. Customers would rather compensate the distributor than deal with these matters themselves.

Appropriate methodology is basic to improving efficiency and adding value through process excellence and cost control. An example is the use of a radio frequency scanner that guides pickers with precise instructions as to which aisles hold which products and in which picking order. The warehouse software generates this information and transmits it to the floor, expediting the picking process and preventing wasted motion.

The final phase of the outbound process is freight spend optimization. Warehouse software should tailor solutions to precise shipper and customer requirements such as basic cost, customer preferences, regional and local shipping options, parcel carriers, and dedicated truck fleets. The software then selects the appropriate shipping alternative for each order and automates the production of all relevant documentation.

This entry was posted in August 2010, Newsletter and tagged , , . Bookmark the permalink.

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