An increasing number of chief executives are blaming poor business performance on warehouse problems. Bosses at furniture company MFI, publisher Penguin, online fashion retailer Asos and supermarket chain Sainsbury’s are just the latest to finger the warehouse as the cause of bad financial results.
Sainsbury’s well documented difficulties last year led the UK supermarket company to write off e380m worth of IT systems and automated handling equipment. The supermarket firm had ambitious plans to concentrate fulfilment in four highly automated distribution centres as part of a e4.4bn modernisation plan.
However, the technology failed to deliver and availability in stores plummeted.
It was a slightly different story at Asos where efforts to fulfil orders from four warehouses proved too much for the previously high-flying internet business. At Penguin, a software malfunction at a new site in Rugby forced the company to run two warehouses and to make special book deliveries. The debacle cost the company e13m.
Problems with supply chain systems affecting data quality, inventory forecasting and home delivery were reported to have contributed to an operating loss of e67m at MFI. In trying to deal with the problems, the company incurred extra costs for missed delivery and installation services, and for additional call centre support to cover the disruption.
So why are warehouse systems featuring more regularly in reports to shareholders and what lessons can we draw from these salutary tales? There is little doubt that warehouses are coming under greater pressure to perform. Customers have become much more demanding in recent years, forcing companies to operate more quickly and efficiently.
The average consumer places an order and expects it to arrive within a few days. This means that businesses have only a brief window of time in which to fulfil requests. In addition, supply chains involving many more enterprises bring new operational complexities to materials movement both within the four walls of the warehouse and across the network.
The losses that companies suffer if warehouse systems go wrong are a measure of how crucial logistics is to successful retailing. Get it right and profitability soars. Get it wrong and you pay a heavy price. Warehouse management systems were at fault in some of the cases that hit the headlines, but in others investment in appropriate technology might have helped matters.
Sainsbury acknowledges that it did not manage the development and installation of its expensive automated distribution centres closely enough. For Asos, managing four warehouses proved too complex, while at Penguin lack of planning meant that when its software failed to work there was no adequate fall back system. MFI was caught out by a failure to size new systems correctly.
‘The warehouse is an obvious target,’ says Steve Barker, vice president for sales and marketing EMEA at warehouse management systems company Catalyst. ‘If you have nothing in the warehouse it is easy to blame. The warehouse is where it all happens. However, often they say it’s the warehouse when in fact they are talking about the whole supply chain.’
Many companies think information technology has solved the need to test and trial systems, says Barker. ‘However, there are integration issues caused by the complexity of the technical landscape. There may be 20 or 30 systems that need to feed in (to your system) and you need to integrate suppliers, if you are not careful the scope of the project creeps.
‘The best way to approach automation is to do it in bite size pieces. Instead of a big bang, break down each part so that it is manageable and make sure each part gets a proper return on investment. Say to yourself if I can’t make it pay I shouldn’t buy it.’
All the experts Logistics Europe spoke to were at pains to point out that the main issue is not the software itself but requirement definition and project management. ‘If you look at projects that have run into trouble it is often due to late changes in scope,’ says Steve Tatham, product manager manufacturing and supply chain solutions at Sage.
‘Successful projects are a matter of careful resourcing, monitoring work closely and keeping control of changes. Don’t do it if it isn’t going to give you big benefits. Sadly there is quite a record of software projects going over budget and over timescales.’ The setup requirements of a WMS can be complex.
The characteristics of each item and location must be maintained either at the detail level or by grouping similar items and locations into categories. ‘Less than 20 per cent of SAP implementations in industry use warehouse management because of the complexity of what’s involved,’ says Barker of Catalyst.
At the detail level users must record exact dimensions and weight of each item in each unit of measure the item is stocked. In addition users may have to provide information as to whether it can be mixed with other items in a location, whether it is rackable, maximum stack height, maximum quantity per location, hazard classifications and so on.
David Finegan, manager of the fulfilment group at consultants, Kurt Salmon Associates, believes initial design work is often at fault. ‘In my experience most warehouse problems have to arrive from some illconceived design. Customers have gone to a third party operator and their parameters have not been thought out in the specification. The other thing is that WMS systems frequently haven’t been properly tested.’
Tatham’s prescription is that technology suppliers need to talk plain English and tell a clear story. ‘It should not be a matter of selling a package, doing the project in minimum time and moving on to the next one. Equally, it is not about forcing a company’s business processes down a rigid path defined by software,’ he maintains.
Many companies already seem to be adopting a more cautious approach to warehouse management systems. The worldwide market for warehouse management systems experienced a rough year according to the latest research, says Steve Banker, service director for supply chain management at ARC Advisory Group. Total revenues dropped by 2.7 per cent.
‘Even more worrisome, because it is a key future predictor of growth, is that software revenues shrank by 6.9 per cent. In other enterprise software markets we have examined, this has been a precursor to several years of shrinking revenues for a market,’ Banker concludes.
Despite ARC’s gloomy outlook there are still plenty of companies buying warehouse management systems. ‘There are still a lot of systems being batch driven,’ Simon Fahie, practice leader at Red Prairie, points out. ‘However, if you look at agile techniques such as postponement and cross docking you have to have the software to manage it.’
Saks, the US stores group with over 350 outlets and six distribution centres, has invested heavily in flow through which involves flowing goods directly from receiving to shipping without the labour-wasting steps of putting the goods away and later picking them. Information in the form of electronic data interchange and portal-based advanced ship notices arrive ahead of merchandise.
Saks’ Catalyst system allows its distribution centres to handle 45,000 cartons per shift. In the past, a facility with the same square footage could process 15,000 cartons per shift at best. The labour cost per carton has since dropped dramatically.
British Land runs a fulfilment facility called the Accelerated Response Centre (ARC) which offers storage space and pre-retail services such as deshrouding, hanging and security tagging, to some 70 retailers in Meadowhall Shopping Centre, Sheffield. The company recently installed Manhattan Associates’ Warehouse Management for Windows software.
The ARC at Meadowhall occupies 24,000 square feet of warehousing space. The stock control and distribution system offers improved visibility of stock to retailers as well as faster replenishment, allowing shops to make maximum use of their store space. The customers seem happy. ‘Using the Arc delivered store efficiency, flexibility and increased stock availability, we were never let down – deliveries were on time and all our expectations were exceeded,’ says Paul Ranson, store manager at Waterstones book store.
Warehouse management systems are also becoming more sophisticated supporting new applications such as RFID and other wireless data collection technologies. ‘A few years ago RF scanning was seen as difficult and expensive,’ says Tatham of Sage. ‘With the ever decreasing cost of equipment a lot of our partners say why not go for RF.’
It is the same story with RFID: leading warehouse management systems already sport basic RFID modules that enable those using the technology to gather Electronic Product Codes, in much the same way as they do barcodes.
Packages are also sprouting modules to deal with a wider range of warehouse management tasks such as organising transport in the yard and improving warehouse labour productivity. Several technology companies have introduced productivity improvement packages that help control labour costs in distribution centres and logistics operations.
‘Despite high labour costs, the majority of retailers and manufacturers are using only 75 per cent of the productivity potential of their staff, so they are simply giving money away,’ says Michael Boos, principal, Kurt Salmon Associates. ‘As supply chains become even more complex, more people are going to have to be employed to meet requirements, so improving performance has to be a key business objective.’
The performance of the warehouse is clearly critical to business health and when things go wrong more often than not it is a question of management – planning, designing and controlling automation projects effectively – rather than faults in the technology itself.
An essential component
The warehouse technology that helps RS Components meet customer demand
Cross-border trade requires capabilities superior to those needed for domestic trade. But exactly what are those capabilities? What will help companies effectively manage the complexity and risk inherent in global supply chains while ensuring their operations are as efficient and productive as possible?
When you run a warehouse containing 135,000 different products it pays to know where they are – especially when you have promised your customers same day dispatch. RS Components’ international business, supplying electronic components to customers in Europe and the US, depends on reliable warehouse management.
To make good on its promise to customers the company has invested over e88m in a state of the art warehouse in Nuneaton, Warwickshire. The 560,000 sq ft facility is stuffed full of hardware including 20 cranes from Siemens DMAG each capable of handling 4,000 units per hour and 10kms of conveyor belts.
Inventory levels are managed by a Manugistics warehouse management system which monitors stock levels and forecasts what orders are required based on sales patterns for stock items including seasonal fluctuations and delivery times from suppliers. The system triggers purchase orders, plans deliveries and provides Nuneaton’s inbound areas with information about when goods will arrive.
Handling inbound goods is made easier by the fact that up to 35 per cent of them arrive from suppliers pre-packed in boxes to RS Components’ specifications. The rest come in one of four sizes of box. To get units from the inbound area to the bulk storage area, RS Components uses cross belt sorters to route work to the correct location.
Data about incoming stock is downloaded to Nuneaton from a host IBM system. Each item is barcoded and arrives with a purchase order. Once the goods have been scanned, a warehouse control system, supplied by Siemens Digital Applications, directs the cranes to store them in appropriate locations.
RS Components uses two ways of picking – either goods to man via cross belt sorters or manually from a static pick face for faster moving lines. With automatic picking the warehouse control system requests an item which is delivered to a picker with a vdu who scans the goods and forwards them to the packing area.
Some 100,000 faster moving items are kept in a bulk storage area and are moved by conveyor to a static pick face where they are picked by hand. There are also facilities for storing 20,000 pallets. The pallets are stored in zones with fast moving lines at the front.
The warehouse control system manages all automated handling and also determines which orders will be picked when. Order queue management is vital because some orders, such as those destined for RS Components subsidiaries in Europe have earlier dispatch times than others. Dispatches are made between 6am and 10pm each day and the system must ensure orders meet their specific time slot.
When orders are complete they are packed, barcoded with a DHL carrier label and pre-sorted on a cross belt sorter. The labels are scanned and the data passed to DHL’s database so that customers can track their orders.
‘The system has proved very, very reliable,’ says Chris Hewerdine, Systems Support Manager at Nuneaton. We send out 99.75 per cent of all orders on the same day and we have only had one failure in eight years.’ Systems that handle the fastest moving items are duplicated at a second warehouse nearby at Weldon.
Nuneaton is currently undergoing a facelift with the introduction of radio data terminals for scanning labels and the replacement of the host IBM system with SAP software. The warehouse control system will also be more closely integrated with the new software.
RS Components is making changes to the four Manugistics systems it has in France, Germany, Italy and the UK. There is a certain amount of cross trading between the separate operations, partly because demand can be erratic, but also because some warehouses only stock 50,000 items out of a total catalogue of 100,000 components.
‘We are looking to have all four major countries have stock in a single Manugistics database and overlay overseas plans on top of the UK plan,’ says Peter O’ Dwyer group forecasting and planning manager at RS Components. ‘The move will enable us to reduce the amount of safety stock we keep at Nuneaton and other warehouses.’