Warehousing: Maximizing Distributor Profitability – Part 4

The warehouse is where most distributors make it or lose it. Sales is responsible for the top line, but if the warehouse (including inventory management) does not meet the six critical measures of success, all of the sales in the world will not help because you will lose customers quickly. In the last three issues we covered Metrics and Management, the Cost of Mistake, and Benefits of a Streamlined Process which can be read on our blog.  This month we’ll cover Compliance Labeling and EDI.

When dealing with the Big Box stores and ORMs, it is critical to get the shipping labels and merchandise labels exactly right. There are often penalties for mislabeled products. In addition, it increases the cost of handling for everyone in the supply chain. Labels include human and machine readable information. The printed data is relatively easy, although there are often errors in placement and size. The machine readable requires very accurate printing and the use of inks (or thermal impres­sions) and/or electronics to assure readability in any environ­ment, especially after being exposed to less than pristine shipping and handling conditions.

There are standard linear barcodes, reduced space symbol­ogy (takes less room on the label), 2D barcodes (many different formats some of which are error correcting), and electronic in­cluding passive and active RFID (Radio Frequency Identification). Each form of labeling has its own requirements to provide high levels of readability and reliability.  Properly produced labels support the use of electronic sorting equipment that is capable of recognizing a code as the package passes a reader at a relatively high speed. In order to work prop­erly, there are three major elements that must come together. First, the label must be on the correct side of the package. Then it must be oriented in the correct direction (yes there is software which will correct for off center, skewed labels, but the standard is to not need them). Finally, the print must be clear and easy for cameras to read accurately (other than RFID information). This information is then used to control the conveyor system as an aid to sorting and subsequent handling.

Product sent to more sophisticated users (this includes the big box stores, larger MRO facilities, and most major manufacturers or OEMs) require very specific labeling standards. The problem is there are very few true standards that work across industry or even company lines. Any software package used must have the flexibility to enter label definitions and have them stored by customer. Then, the system is responsible for generating the appropriate label when the order is received based on the “ship to” information.

Once labeling is enabled in any supply chain, everyone can benefit. It helps to reduce errors in shipping, receiving, picking, and packing. Proper labels and “license plates” on pallets make it possible to use advanced EDI (Electronic Data Interchange) transactions such as electronic receiving and Evaluated Receipts Settlement (ERS involves automatically matching the electronic PO to the paperless receipt and the electronic invoice that is part of the advanced ship notice—all using standard EDI documents which ultimately and automatically triggers an electronic pay­ment to the supplier).

One big new area of responsibility is the potential need for a recall or for ongoing service. In cases of equipment, the ability to provide warranty or maintenance service based on serial numbers can be very important in terms of customer service and safety. A future article will cover the service aspects of the distri­bution business. Here it is important to understand that proper labeling allows tracking of individual sales to specific customers.

When a product is sold, labels on the outside of a product allow an individual serial numbered item or “lot” identification to be assigned to an invoice without having to search and pick a specific box off of a shelf. When the warehouseman picks the product, a portable barcode reader will ask to “read” the serial or lot number. At that point, the product is attached to the order for all future reference.

The system then allows that information to be retrieved for many different reasons, including: scheduled maintenance; recalls; warnings; and follow up contract to sell consumables or other associated products. As outlined above automating this process will significantly improve any distributor’s metrics and help them achieve financial and operating goals.

Supply Chains today require transparency to operate effi­ciently. That means it is important to know where a product is at all times. It should be easy to know what is on the shelf, what is committed, what is on order for an individual customer, and what is back ordered.  Transparency can take many different forms. In a perfect world where not so perfect things happen, there would be a greater ability to react to situations in real time. For example, if a product is ordered for a future delivery date and the system knows the shipping lead time, it can generate an automatic request to verify that a scheduled shipment will take place at the appropriate number of days in advance. The supplier’s computer (or CSRs if they are not that auto­mated) should be able to determine if the proper product is on the shelf and available for shipping when promised. If there is any problem, an electronic notice should be sent indicating that there will be a problem with an on-time delivery.

Knowing this in advance, means it is possible to either make other arrangements or to at least call the customer and let them know a delay is expected. Eliminate the surprise and the impact to the customer is minimized. Customer service metrics and satisfac­tion are enhanced which ultimately improves customer loyalty.  This entire process should be automated. Exception reports and alerts based on the customer responses can help manage the customer relationship and provide the operations manager with information to determine the best course of action.

With more sophisticated tools, it will be possible to track all inventory movements as they occur. It is not much of a leap to foresee the day when a complete inventory can be taken every evening by allowing the RFID scanners to search the warehouse and identify every product, where it is, and how many there are. Discrepancies will be known the day they occur and complete transparency will help streamline warehouse processes.

Each of these capabilities will help the warehouse team to run as efficiently and effectively as possible. As we wait for technology to catch up with utopia, focusing on transparency will help prepare any warehouse to adopt new processes as they become available.

The bottom line is obvious. A well run warehouse is the corner­stone of a profitable distribution business. It will provide additional profits and will help drive customer loyalty. Competitive advantage is gained when the sales force can point to high service levels (that are clearly documented) and reasonable costs.

Automation is a major factor in this success. It starts by being able to define and track metrics. How are we really doing —and in real time? We are not interested in what happened last month (well, we are, but not for the purpose of fixing a problem). The data we need is only minutes old. Our staff needs to be able to react right now to correct problems before they reach the customer.  Automation allows us to accurately know where we are and where we are going. Properly generated reports will give us a “report card” on every facet of the warehouse process. Over time, it is possible to fine tune each aspect of the operation to create a competitive machine that can survive and prosper in any economic environment.

While some look at EDI as old technology, it still works and is in use in many supply chains. The ability to take advantage of EDI capabilities and tie that into compliance labeling will provide benefits for everyone in the chain. Distributors who want to deal with the big box stores, sophisticated MRO operations or OEM plants must comply already. Now it is a matter of spreading the valuable processes to the rest of the industry.

Transparency is the key word for tomorrow. Knowing where every item of inventory is stored, when it is moved, and being able to track it to the customer will provide greater informa­tion, metrics, and ability to manage. There will still be room for human intuition and gut feel, but it can be tracked and measured. Management will get better because they will be able to see the numbers move in real time. It will be possible to make process corrections before errors become overly costly.

Automation is going to play an expanding role in the ware­house. Future capabilities may force us to rethink the way we have always done things. Those businesses that rise to the occa­sion will be rewarded with competitive advantage, greater market share, and (of course) greater profits.

© Brown Smith Wallace Consulting Group 2010

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