The emphasis of warehousing should go beyond cost-cutting to creating increased value for customers and shareholders. Unfortunately, some senior managers continue to refer to the warehouse as "the backroom," while others consider the hourly workers' job to be "kicking boxes and licking labels."

Moving to a new business model

The "push system" served as the 20th-century model for warehousing and logistics management. Marketing and production people determined how much to build, and the product was pushed through the warehouses and into the marketplace. Other staff had little or no influence on what was built or how much inventory was created. During my military service decades ago, we referred to the Army as "a system designed by geniuses to be run by idiots."

The 21st-century model is participative, requiring a warehouse manager to be included in the planning process. Visibility is a critical element in this circular process, since management must react to unexpected growth in inventory or changes in demand. In this model, the warehouse manager goes beyond simply controlling inventory, to managing inventory.

There is a significant difference between management and control. For example, your bank controls your checking account, but normally your banker does not provide advice about managing your money. Although some banks have moved into the "wealth management" field, relatively few customers want or need the service.

An even smaller percentage of warehouse users expect facility managers to make inventory management decisions, even though every warehouse manager is capable of doing so. An alert warehousing team should sense quickly that the dusty cartons contain items that are not moving, or perhaps those not having had any activity for months or even years. While the user of warehousing services should know this, inactivity can be overlooked in a fast-moving environment.

Developing new services

Every warehouse manager knows how to receive, store and ship. Some know little else. To survive today, managers must develop innovative services beyond the traditional warehousing function.

Service management and product management are two innovations that should be considered. Service management includes stocking and delivering replacement parts and finished goods. Handling customer returns and repair of defective units could be included.

Postponement is a concept developed many decades ago, but seldom practiced in warehouses. Using the postponement model, the warehouse operator might apply labels or packaging to change the SKU from the "plain vanilla" brand to a private label item. In other cases, product may be moved from a bulk container to a consumer container. In still other situations, the consumer packaging — such as a blister pack or shrink-wrapped package — is applied at the warehouse, rather than at the production plant.

With postponement, the warehouse operator actually changes the identity of a stock keeping unit. By doing so, inventory management is simplified because the plain vanilla product can be converted into a number of different flavors.

Another example is "print on demand" used in the printing industry, which enables users of printed materials to reduce significantly their investment in finished product. In other industries, the warehouse operator could modify the process to "assemble on demand," as a new and different kind of postponement service.

Other areas of innovation

Warehousing is destined to move from a product-centric business to an idea-centric activity. Not long ago, warehouse advertising was based on photographs of handsome facilities, which suggested a fine warehouse building was a guarantee of good management.

While the promotion aspects of the business have improved, most warehouse operators continue to emphasize product, rather than ideas. For example: Advances in the use of robotics can reduce the cost of warehousing, but logistics service providers have not been in the forefront of this activity. It is too early to know whether robotics represent a significant breakthrough in materials-handling technology, but most of the advances have been in manufacturing, rather than in the logistics service business.

In nearly every industry today, financial success is measured by the percentage of return on assets, rather than return on sales. Even so, the warehousing industry has done little to educate potential customers about ways in which the use of an outside logistics service provider can improve financial performance, by reducing the assets employed.

Is it easy to do business with us?

The difficulty of reaching some warehousing executives by telephone causes us to wonder why they are apparently hiding. How much business is lost because they appear to be too important to talk with someone who might be a potential customer.

One reason for high turnover among common carrier truck drivers is their enormous struggle to deliver or pick up products at warehouses, particularly the large, busy ones. Not only are the drivers delayed, but they are not treated with respect. In the worst cases, they even feel abused.

Truck drivers who are treated as customers can be a source of business growth. A trucker who enjoys visiting a warehouse is likely to pass the word about it being a good place to work, or a good company with which to do business.

Not enough warehouse operators are monitoring their reputation, not only with customers but also with suppliers — including truckers, and even with their own employees. One of the first signs of management difficulty is employee turnover. People who don't feel good about their jobs, or dislike their supervisors, will seek employment at another company.

It boils down to establishing your warehouse's reputation as "easy to do business with." Reputations are developed every day, and they are maintained by example. Your reputation goes beyond your major customers, to include the small customers, or even the consignees — the customers' customers, who receive the shipments from your warehouse.

How about your reputation with motor carrier drivers, as well as your own drivers? Suppliers, both large and small, either can polish or tarnish your company's business reputation.

What gets measured gets managed

Rigorous metrics are the key to success in warehousing. What percentage of your orders shipped are perfect orders, and how do you find out? How does your cost control this year compare with the same period last year?

What is your dock to stock time, the time that passes between the freight being unloaded at your dock, and the product being shippable? How does control of damage this month compare with the same month last year?

What about inventory turns, whether you own the inventory, or just control it? Finally, because employee retention is the ultimate sign of good management or management problems, are you retaining workers?

The best warehouse managers never are completely satisfied with the status quo. Instead, they look not just for a way to beat the competitor, but for innovative methods of creating more value for both the customer and the customer's customer.

Winning the excellence award

More than politics is required for election as one of the best warehouse operators. While reputation always is important, opinions of others are subjective and metrics are not. That is why we conclude this article by emphasizing metrics, after describing subjective and qualitative aspects of warehousing. Subjective evaluations are influenced by personal opinions and prejudices, but metrics are less open to distortion.

When warehousing goes wrong, senior management sometimes reacts emotionally. Constant measurement of warehousing activity will substitute fact for emotion.