In Europe many businesses are moving from manufacturing to becoming supply chain organisations as they switch production offshore to outsourcers. Few industries have been untouched by a trend that continues to grow apace.
For these companies, warehouses are neither simply for storing goods nor are they just an overhead. They are an integral part of their business, capable of delivering both cost reduction and improved service to customers. Properly run, a warehouse can make a big contribution to customer satisfaction, the smooth running of a supply chain and ultimately to the bottom line.
‘They have started to recognise that the software required to manage a warehouse and the wider supply chain is having to become a great deal more sophisticated to meet the requirements of growing supply chain complexity,’ opines Allen Scott, vice president of European operations at software company Manhattan Associates.
‘When one considers the number of players involved in some global supply chains consisting of literally hundreds of companies and the amounts of information that are exchanged, the potential to improve a supply chain’s performance is enormous.’
That view is borne out by the experience of European companies that have recently invested in up-to-date WMS software. The Body Shop, the ethical cosmetics firm recently acquired by L’Oreal, its mainstream French rival, speaks of the gains that can be made from a thorough going revamp of warehouse systems. The Body Shop improved efficiency by 20 per cent and cut stock holdings by 23.5 per cent after it reworked its systems and introduced task and resource management.
Cotton Traders, an apparel company that began life supplying rugby shirts has been
working flat out recently during the Six Nations rugby tournament – traditionally its busiest time of the year. To cope, the clothing company put additional supply chain management systems from Catalyst round its existing SAP enterprise resource planning (ERP) system.
‘For Cotton traders, making their third party logistics suppliers visible was vital during a short window of opportunity to secure sales,’ explains Steve Barker, Catalyst’s vice president of sales and marketing in Europe. ‘Lack of visibility was affecting their customer service: they didn’t know whether goods had been delivered or not.’
But Body Shop and Cotton Traders are only half the story, according to Per-Magnus Karlsson, senior director of supply chain management applications and manufacturing industries at Oracle EMEA. ‘It is fair to say that less than half the warehouses in Europe have a sophisticated WMS installed today. In some warehouses you see very sophisticated systems. In others you see people working with pen and paper.’
There are a huge number of companies still using manual picking lists, according to Teresa Jones, senior research analyst with research company the Butler Group. ‘In many cases, particularly in wholesaling, managers do not see a need for much more than semiautomated management. There are some examples where automation has actually slowed down warehouses. But that is the exception – mostly there are huge efficiencies to be gained from sensible automation.’
Being able to communicate up and down the supply chain, says Barker, is critical to getting the best from warehouse operations. ‘If you know when goods are coming then your distribution centre can operate like a marshalling yard: receiving items and sending them out the same day.
‘Our customers also want to extend their processes outside the warehouse,’ he ‘They want to manage their labour better, optimise their use of warehouse space and introduce features such as cross docking and slotting which depend on good links with supply chain partners. Supply chain collaboration is crucial in many of these processes. The more you can collaborate the more you can improve warehouse efficiency.’
Collaboration can greatly improve the capacity of a warehouse and the level of service it can deliver. For example, advance notification of incoming shipments from suppliers can allow warehouse managers to plan for deliveries and streamline the paperwork involved in receiving goods. Data about incoming deliveries can be used to prepare labels and promotional materials in advance.
Warehouse management systems are becoming increasingly flexible with software that is now capable of running retail distribution centres that can handle both bulk and single picking, so that both store and individual customer orders can be fulfilled.
Systems like this can also process an entire order, not just picking it. Individual orders received via mail-order or via the web, can be gift-wrapped, packed, labelled and shipped, while the data collected during the fulfillment process that is held in the WMS system can be forwarded to enterprise systems running merchandising, finance, marketing and transport management applications.
‘As distribution networks become larger, more diverse, and increasingly complex, the requirement for WMS systems has changed,’ says Charlotte Graham-Cumming, marketing manager EMEA applications at Sterling Commerce. ‘Previously, choosing a WMS was a matter of just ticking the right boxes based on standard warehouse practices, now WMS systems must support a broader range of activities.’
‘With the advent of the consumer driven supply chain, supply chain directors are being required to meet the needs of direct to consumer fulfillment in supply chains built for replenishment to stores and distribution centres. This has created a need for flexible, process driven WMS applications that can accommodate new process requirements as the business changes and grows.’
Systems with integrated processes and data in place are vital to handling reverse logistics, particularly in the mail order and web shopping arena, where returns can sometimes be more than 60 per cent of original orders.
Nothing goes smoothly all the time, so there is increasing interest among supply chain managers in supply chain event management (SCEM) software that allows companies to respond rapidly and sometimes automatically to unplanned events – without having to completely remake their plans.
SCEM applications accomplish this by notifying supply chain managers when specific events occur, such as when inventories are depleted or shipments are delayed. Often automated responses can resolve these issues, otherwise alerts give managers the opportunity to analyse problems and come up with their own solutions to them.
Collaborate to survive
‘Anyone who has a warehouse management system on its own will die,’ says Barker. ‘You need a collaboration suite to produce a network management tool.’
Multifunction warehouse systems are in effect like specialised ERP systems. But customers still have a choice between buying an integrated system and opting to stitch together so-called best of breed systems.
The UK-based Denby Pottery Companysupports its warehouse operations using an ERP system. The company has been running Oracle e-business suite for eight years. However, four years ago the company looked at buying third party warehouse software. ‘Then Oracle announced it was adding a WMS to the system, which for us was a significant reduction in risk,’ explains Mark Allcock, IT manager at Denby. ‘The Oracle software was not the most feature rich but adequate for our needs.’
In common with many medium-size enterprises, Denby, which has a 4,000 sq meter warehouse holding some 6,000 stock keeping units, was reluctant to spend on a package with very advanced features that provided functionality the company did not need.
‘It was a matter of us going the lowest cost route,’ says Allcock. He acknowledges that the ERP option was not the latest technology. ‘However, Oracle are catching up. We’ve just upgraded to e-business suite 11i with fully configurable picking screens that has given us the ability to tweak the data entry process. We do real time picking with handheld terminals.’
Which way managers jump also depends on what industry they are in. Manufacturers tend to favour big, integrated systems because they suit production better. Retailers on the other hand are more likely to opt for best-of-breed because their requirements are more complex and may involve many different business partners.
Oracle’s Karlsson sees a coming together of the different styles of WMS. ‘The ERP world and the world of specialised warehouse systems are going to one world because you need to have systems that work out of the box,’ he maintains.
How a warehouse is supported by IT also depends on the products involved. Meat and
pharmaceuticals, for example, are massively regulated and demand very accurate labelling and bookkeeping. Distribution in the fashion trade has very complex stock keeping units with up to 15 combinations of sizes, colours and dye lots.
‘Being successful in today’s fashion retail industry is all about speed – the industry has become a fast moving apparel goods market,’ says Kees Meijer, managing director of TNT Fashion Group. ‘As a provider of logistics services to this industry, we have to be able to handle and move products as quickly as possible. Delivery deadlines are crucial for us and foremost for our clients.’
Companies like TNT are playing an increasingly important role as users of WMS software. ‘With the additional complexity of the supply chain, all of a sudden it is not manufacturers but third party and fourth party logistics providers who are running the show. We are surrendering it to them because we can’t cope with the complexity of it all,’ says Karlsson.
Increased visibility also has important implications for security. Shrinkage costs European retailers and manufacturers e24bn per year, according to Adrian Beck, an expert in criminology from the University of Leicester. Technology can make an important contribution to securing items and protecting profit. Better tracking of goods via bar coding or the more recent radio frequency identification (RFID) can cut losses.
Efficient warehouse systems are especially critical to the way that labour is organised in what is still a highly labour intensive business. People working in warehouses do not tend to stay very long in their jobs, so training is not only becoming an expensive overhead, but difficult to supply to a transient workforce.
So, it makes sense to use a WMS tomanage work activities as much as possible. Technologies such as pick-to-light, voice recognition and radio frequency systems designed to direct workers who are picking and putting away and to gather data more effectively can boost efficiency without calling for intensive training.
Warehouse managers also need systems that let them know whether they are meeting the key performance indicators that have been set for their operations. For instance, clever use of space can have a big impact in lowering the cost of running a warehouse.
A WMS that allows users to set criteria for picking and putting away and provides tools for them to graphically access information about how a warehouse is performing can help managers meet targets.
The bad news is that not all this technology is delivering yet. For example, RFID has been widely touted as a much better way of tracking goods through the supply chain, replacing bar coding on cases and ultimately on individual items.
Slap and ship
But it has yet to find full application in the warehouse. Many suppliers are still relying on slap and ship: sticking on RFID chips just to meet retailers’ mandates rather than because they want to capture data for use in their own systems.
Warehouse operators are leery of the whole idea. For them the IT infrastructure to support RFID looks particularly costly. The volume of data that is generated, the complexity of device management, lack of standards, limited methods of interpreting the data and expensive integration with existing applications are all stumbling blocks that make it difficult to realise the benefits of RFID.
‘RFID is happening, but the technology is ahead of user uptake’ says Karlsson. ‘We can do more than our customers are asking for.’ Another obstacle that Karlsson forsees is the explosion in data that will be created by RFID and other technologies. ‘You need to do some clever thinking about what data you require and the best way of storing and retrieving it.’
There is another increasingly pressing issue that faces WMS applications – the importance of ensuring that data is accurate and can be read by all supply chain systems. A supply chain that depends on passing data around electronically is not going to get very far if different partners are gathering different data, presenting it in different formats or allowing it to become corrupted. ‘What is required are central, secure locations that will collect and distribute accurate data,’ observes Karlsson.
It is not surprising that data accuracy is difficult to achieve. To set up a WMS properly users must record the exact dimensions and weight of each item in each unit of measure the item is stocked in. Additionally, users may have to gather information about whether it can be mixed with other items in a location, whether it is rackable, its maximum stack height, maximum quantity per location, hazard classifications and so on.
Just obtaining this information and keeping it up-to-date is fraught with opportunities for mistakes, Research company AT Kearney, estimates that e30bn or 3.5 per cent of total sales are lost each year due to supply chain inefficiencies, with errors in nearly a third of data in retail catalogues. These mistakes cost e60 to e90 to put right and take 25 minutes of clerical time for each stock keeping unit.
Nonetheless, these problems can be resolved. Trade body GS1 is aiming to create ten data pools around the world which eventually will be inked with a separate network carrying RFID information. These datapools will contain product information for use by WMS and other systems.
WMS software is no longer a standalone piece of IT; it is rapidly becoming part of a collaborative business process, playing a critical role in ensuring the smooth running of the supply chain. The days when staff could wander around with pen and paper are on their way out.