Redefining logistics

by Emily Wilson
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In the 1960s, standard operating procedures for the distribution center or the warehouse simply consisted of "keep it clean, keep it organized and keep it moving." The only addendum to these standards was emphasis placed on code dating and stock rotation as we experienced product quality complaints and delays between production and shipping times. These concerns became increasingly important over time.

Despite complex food regulations and business compliance rules, the same motto of the 1960s is still heard loud and clear — even if it pales in comparison to the rigid compliance standards now expected of the warehouse or distribution management team.

Warehousing, now more than ever, is seen as a critical profession and a core competency. It has become a strategic weapon that many companies are using to enhance their competitive position.

Most of the managers working in the warehousing field today are there because of their innate management skills. Future managers will have to be adequately equipped to compete in a field that is growing more complex.

Warehousing is a sophisticated link in an extremely fragile chain of events. Warehouse managers need skills in management, marketing, cost accounting, business law, traffic management, economics, statistics, physical distribution management, logistics, sanitation, quality control and human relations.

Warehouse and distribution managers are faced with a significantly larger number of stock keeping units (SKUs); increased customer service requirements; demand to reduce inventory; demand to increase warehouse operating efficiency and space utilization; demand for increased product customization; demand for increased integration of the warehouse within the total logistics system; the option of reliable, effective, third-party warehouse providers; a significant increase in the number of equipment and system options available for warehouse operation; demand for integrated communications, electronic data interchange and information systems; global marketplace demands with new shipping requirements; and the option of virtual integration of partner inventories.

The true value of warehousing lies in having the right product in the right place at the right time. Thus, warehousing provides the "time-and-place" utility necessary for a company to prosper.

Customers search for four things in a reliable vendor or company: integrity, cleanliness, organization and structure. Warehouses are excellent barometers and benchmarks to illustrate and define a company's business and management ethics and its commitment to excellent customer service.

Today's warehouse management disciplines have become sophisticated by necessity. The warehouse and distribution managers' "survival" toolbox consists of management, compliance to standards, communication, documentation, training, safety, sanitation, quality control, inspections, preventative maintenance, flexibility, stock rotation, coding, traffic control, customer service and fiscal responsibility.

LOGISTICS. Since the late 1980s, industrial management has become known as logistics, materials management and physical distribution. These are supply chain management (SCM) theories that must shift to a supply chain synthesis (SCS), which is a continuous improvement process to the supply chain from producer to consumer.

The power and availability of information today requires a change to SCS. The new philosophy suggests that as organizations continue to focus on logistics and the increased competitiveness it brings, other traditional compartments will become integrated with the logistics function. Logistics management — traditionally segregated from other business functions — becomes fully integrated, acting as a complement to other business functions and developing a "synergy" among the parts. The only way to enhance customer satisfaction is to pursue logistics integration.

Supply chain synthesis promotes reduced inventories, increased customer service, and the optimization of the total operation rather than a series of discrete links.

The responsibilities of logistics departments include warehousing, traffic management, sales forecasting, purchasing, product planning, packaging, order processing, order entry, inventory control, global logistics, general management and facility location.

In spite of the burgeoning trend in information technology, inventories in the U.S. have been up 6% consecutively over the past three years. Managers responsible for inventory control really have to study what works and what doesn't for their specific application. Furthermore, these managers must determine what definitive tools are available to balance the costs of ordering and carrying raw material.

REQUIREMENTS FOR SUCCESS. In the 1970s and 1980s, many food processing companies were inundated with intensified, and sometime repetitive, compliance inspections from regulatory agencies. All of the agencies have a similar agenda, but in specific manufacturing areas for verification and certification. Compliance mandates that companies have record-keeping systems showing evidence of actual procedures and policies, training activity, periodical inspection performance and monitoring and control of all process parameters.

The emphasis is always: "Are we in compliance with the standards?" and "Are we documenting our compliance?" With finesse and attention to detail, the traditional standard operating procedures — "keep it clean, keep it organized, keep it moving" — can be crafted into today's warehouse manager's skills and responsibilities.

According to a 1999 survey of the current and future manufacturing priorities for the food processing industry, logistics and distributor partnerships was the number four priority. Supplier and logistic management partnerships also are gaining in importance.

The top ten food industry trends that will create the most change in the next five years include automation, information integration, packaging innovations, food safety compliance, outsourcing and co-packing, employee training, broadening product lines, supply chain management reducing warehousing, Internet sales and e-commerce.

More and more, warehousing is being viewed as a professional, critical logistics step and a competitive strength, rather than a necessary evil. Successful warehouse operations are a promise for the future. Operations will have a high regard for the customer, will know the customer's requirements and will consistently meet these requirements. Warehouse standards will be established and performance will be measured.

Systems and procedures will be put into effect that allow the warehouse manager to proactively plan the operations — as opposed to reactively respond to external circumstances. The reduction of lead times, shorter product lives and increased inventory turnover will result in an increased pace. More SKUs and special customer requirements will increase the variety of warehouse tasks.

Real-time warehouse management systems will utilize cycle counting to manage inventory accuracy, and accuracy above 99% will be the norm. Quality housekeeping will be a priority.

Procedures and layouts will be designed to maximize efficiency. There will be a clear focus on "pulling" product through the logistics system and not on building huge inventories. A real-time, bar-code based communication warehouse management system will be necessary to meet today's requirements. The goal is to minimize the lifecycle costs of logistics from order submission to product delivery, while providing excellent customer service.

OPERATIONS ASSESSMENT. An operations assessment is a process that evaluates ten categories of performance in the warehouse: customer service, control systems, inventory accuracy, space utilization, labor productivity, facility layout, equipment methods and utilization, building facilities, housekeeping and safety.

To reach success, start with a sound understanding of what is required or expected of your warehouse operations based on compliance standards, company objectives, customer expectations and competition initiatives. Do an analysis of your area of responsibility based on these expectations.

Initially, prioritize your needs on the basis of immediate action and response. Start by improving employee communications and training. Then prioritize your goals and set time-lines to achieve them.

Warehousing is a critical resource, and a scientific approach to warehousing must be followed. Warehouse professionals must understand the role of warehousing, the history of warehousing, the value of warehousing and the requirements of warehousing. Professionals must assess present operations, plan future operations and provoke continuous warehouse improvement. Today's warehouse professionals will only be successful if they address these issues.

John A. Weirich made this presentation at the 1999 A.O.M. Technical Conference in Fort Worth, Texas, U.S. Mr. Weirich retired in June 1999 as plant superintendent of a Con Agra Flour Milling facility in Commerce City, Colorado, U.S.