Warehousing Value Adds

Supply chain strategy is often designed to eliminate or reduce warehousing. While this trend will no doubt continue as a means to lower total costs and improve efficiency, warehousing can still play an important role and add value. Here are some key areas for managers to consider in improving warehouse operations:


A major factor in supply chain strategy is inventory turnover. Warehouses enable effective positioning of inventory to support supply chain strategy. This includes raw materials, components for manufacturing, and finished goods inventory. Sound location theory is needed to determine the best warehouse site.



Old model characterized by use of intermediaries (middlemen) and staging of inventory throughout the supply chain. Newer model eliminates some nodes and reduces inventory. Faster cycle times put more pressure on logistics systems. This means that positioning of inventory is more important in the newer model.



Old logistics models focused only on efficiency and cost control. The challenge for whse mgrs is to achieve efficiency, control costs, and add value. This is done through improving cycle time and managing fulfillment operations.



Bulky commodities tend to occupy the most space in a warehouse and require labor to handle. These commodities usually carry lower value per pound and therefore lower profit margins. They may also be in the mature or declining product life cycles. Warehousing of these products must be efficient to avoid profit drain.




Big factor in warehouse decision making is price of real estate. High tech distribution centers with automated handling systems are capital intensive. Labor markets are important to the location decisions. These are examples of strategic decisions made at higher levels of management.



While training does exist, there are very few college courses in warehousing. Some literature exists but few text books. Therefore opportunities exist to professionalize the field.





Most warehouses are labor intensive and variable costs are critical. The whse can be used to provide good front line management experience for new managers. Mid level managers may also be assigned to the whse because of reorganizations and downsizing and their experience can be valuable. The whse should not be used as a dumping ground for problem employees. This will result in lower professionalism.




Logistics improvements can be high level supply chain integrations, mid level coordination between manufacturing, marketing, and other intra company functions, or basic improvements in functions. In most companies the warehouse can benefit from some basic improvements. Small changes can have a big impact and can be implemented easily.