Time to wake up. The warehouse remains, and will always be, an essential part of most supply chains. No supplier can ever fully predict what the market for its products will be. A warehouse acts both as buffer and valve between manufacturing and demand. The only question is, what are the best practices that ensure the optimal use of precious warehouse space, while bringing about top-notch customer service? For 10 of them, read on.

1. Focus on effective labor management. Few would argue with the claim that people are the most important element of any successful warehouse (except for those spooky automated facilities with no life forms at all). But the process that used to be known as human resources is becoming increasingly sophisticated. Managers are starting to deploy engineered labor standards and supporting systems to measure warehouse worker performance, as well as formulate incentives to do better. They can calculate down to the second how long any given task should take to carry out. Yet technology alone isn't the answer. The difference between success and failure lies in how such systems are used.
Labor-management systems can be especially valuable in determining how many workers are needed to meet daily productivity goals, says Brandon Drew, product manager with Atlanta, Ga.-based Manhattan Associates. He has seen a marked increase in the use of new software within the last two years. It has become especially popular in larger distribution centers, where the margins of retailers and consumer goods providers are so thin that companies are driven to get the most they can out of their workforces. The food and grocery sector has led the way, Drew says.

Even without expensive systems, great warehouses are obsessed with issues of staffing. That's especially critical in a multi-shift operation, where managers work to get a good spread of workers throughout the day by way of split shifts, says Brian Hudock, partner with Raleigh, N.C.-based Tompkins Associates.

They also make effective use of temporary labor to handle peaks in demand, while maintaining systems that are easy to learn.

Fred Radcliffe, president of Toronto, Ont.-based Radcliffe Systems Inc., says labor-management techniques are migrating from their origins in manufacturing to the warehouse. His company purchased a vendor of labor software last fall, and has since sold the system to Nestle Canada. The payback can take place within a matter of months, he says, calling the technology "a no-brainer." Labor, he adds, "is such a high component in the cost of running a warehouse."

Kenneth B. Ackerman, founder of K.B. Ackerman Co. in Columbus, Ohio, says companies should offer incentives to groups of workers rather than individuals. The tasks within most warehouses are too varied to allow a fair set of standards for each employee, he says. And Simon Bragg, European research director of ARC Advisory Group in Cambridge, England, urges companies to account for a given country's culture before adopting engineered labor standards. "They're popular in the U.S.," he says. "They fail miserably in Germany."

2. Maximize flexibility through intelligent systems and layout. It makes eminent sense to position the fastest-moving items at the end of each aisle, says Bragg. The returns on that change are so quick that they can be used to justify further and more complex stages of a major facility overhaul. But don't group all of the fast movers too closely together, says Hudock; that's an invitation to congestion. He advises the creation of distinct pick areas for each product group, to account for unique handling characteristics. As a result, the picking of broken cases, full cases and full pallets will be done in different places.

What goes on in the warehouse can greatly simplify the tasks of downstream partners, says Bragg. Manufacturers supplying Sainsbury's, the British retail grocery chain, pack items so that they can be unloaded in the order in which they are needed at the store. Another warehouse might employ roll cages, which can amass all of the goods needed to replenish a particular store.

Bill Tyng, systems consultant with Forte Industries in Mason, Ohio, says a flexible warehouse can meet compliance rules of different customers for such things as labeling and advance ship notices (ASNs). Many of the leading warehouse-management system (WMS) vendors can generate shipping labels that are approved by a particular retailer, such as Wal-Mart Stores.

3. Make sure your WMS plays well with others. Integration, with the ability to track goods every step of the way, is key to an effective supply chain. The first link to look for is between the WMS and transportation management system (TMS). The two used to be sold as separate systems by different vendors, but they are much more tightly coupled today. "It's now rare to find a company that doesn't sell both," says Jim Stollberg, vice president and general manager of Irista in New Berlin, Wis.

The ultimate goal of any group of systems is the ability to obtain critical information on a real-time basis. Such data can help to determine when to release orders, how to minimize transportation costs and how to make the best use of labor for picking. Only a system that supports the free and instant flow of information can achieve those tasks, says Stollberg. The computer game distributor Electronic Arts coped with massive growth in its operations by replacing batch processing of information with real-time decisions. "They used to think of themselves as just a gaming company," he says. "They were forced to be a supply-chain company and a best-practices company."

Susan Rider, executive vice president of Waukesha, Wis.-based RedPrairie Corp., says many warehouses still don't know where product is within their own facilities, let alone elsewhere in the supply chain. But real-time visibility is essential to the proper allocation of items within a multi-site network of DCs.

4. It's not just about receiving, putaway and shipping. Value-added services are growing in popularity among retailers who expect to receive product that's ready to be stocked, or displayed for special promotions. Manufacturers, too, want the ability to configure basic products for various markets. And much of the work needed to satisfy those demands is moving upstream to the warehouse. Mary Haigis, chief marketing officer of Optum Inc. in White Plains, N.Y., speaks of mass customization, the practice of tweaking product for particular markets on a large scale.

Value-added services can also support the growing number of companies relying on make-to-order fulfillment via the internet. Dell Computer pioneered the concept for computers; now Reflect True Custom Beauty, part of Procter & Gamble, is doing it for cosmetics. According to Haigis, Reflect's DC in West Chester, Ohio, can package, label and personalize product based on customer preference.

5. Equip your warehouse with a reverse gear. It might be the most ignored aspect of warehouse operations today. But the need for efficient reverse logistics can't be brushed aside anymore. The return, processing, repair and replacement of products has a huge impact on customer service. And the nerve center of any such operation is the warehouse.

"One hundred percent of WMS packages were designed to get stuff out," says Tyng. "They had to be adapted to get stuff back in." The situation has been more critical in Europe, where retailer policies tend to be more lax and returns can account for 30 percent of one's business. But reverse logistics is taking on increased importance in the U.S. as well. The trend has given rise to a number of niche vendors, offering software or services specifically to handle returns, while the larger integrated vendors are also scrambling to adjust.

"Reverse logistics can be the black hole of your warehouse," says Haigis. The returns process involves huge inefficiencies, but they're manageable with the help of the right technology and processes. She cites a large retailer and customer of Optum that piloted a reverse-logistics application at a pair of its DCs through the Christmas season. The company typically has a high rate of return, she says, but realized "incredible savings and efficiencies" with the help of a formal system.

6. Build a central command center within the warehouse, and with the customer. Naugatuck, Conn.-based Kuehne & Nagel Logistics maintains a strict quality program based in part on the notion of a central labor dispatch area. Dan DeWispelaere, vice president of quality and continuous improvement, says the operation can compare available staffing with expected volumes and tasks for any given day. At day's end, the warehouse knows precisely how it has performed by department and employee. Despite the centralization of those responsibilities, standards are developed for each location, not engineered for the facility as a whole.

DeWispelaere's notion of centralization extends to dealings with the customer as well. He advocates creation of a project management organization to guide the implementation of new accounts within the warehouse, reporting on results and the achievement of milestones each step of the way. Moreover, a project manager can act as the warehouse's single source of contact for all enquiries by the external customer, who no longer must deal with multiple bodies in order to get a problem resolved.

7. Measure correctly; react quickly. There are plenty of ways of measuring warehouse operations. The secret lies in finding the right ones. Kuehne & Nagel Logistics promotes a program known as the "5Ups," based on the assumption that a facility operates at greatest efficiency by identifying just five critical performance indicators. While there's nothing magic about the number five, says DeWispelaere, it's an easily manageable quantity. And few warehouse managers would disagree about their top five indicators, which are published monthly so all within the facility know exactly where they stand.

From a software standpoint, event-management systems can greatly boost responsiveness in the warehouse. Used by companies at points throughout the supply chain, these are automated monitoring tools which alert managers when something goes wrong. They relieve users of the need constantly to check on the progress of shipments, notifying them only at pre-determined points in the chain or when operations are out of tolerance. Minor mishaps can be corrected automatically, while more complex problems are tackled by human experts.

8. Save the trees - dump the paper. Call it the best practice of the future, as well as the most-hyped technology of the past year. But radio-frequency identification (RFID) is on the way, and warehouse operations expect to benefit tremendously.

What started as a command by Wal-Mart and the U.S. Department of Defense promises to benefit the entire supply chain, once issues of cost and implementation are overcome. The best practice today is preparation for RFID, says Drew. The leading companies are becoming familiar with what the technology has to offer, and how it will fit into their operations. Some are already moving ahead.

Germany's Henkel, maker of the popular Duck Tape, is currently implementing Manhattan's WMS, complete with early RFID capability.

To John Clark, manager of marketing for Provia Software in Grand Rapids, Mich., RFID is "a must, not a best." Interest in the technology will skyrocket in the coming year, he says. Besides ensuring the continued business of Wal-Mart, data-rich RFID tags will allow suppliers to avoid inaccurate picks, onerous manual counting, and the seemingly relentless flow of paper.

Voice-activated technology, which has been around in some form for decades, is equally important in the battle against slow, manual systems. It has become especially suitable for mid-tier companies, who can afford the investment and are looking for ways to cut labor costs, says Hudock. One $400m retailer that implemented Manhattan's WMS with voice capabilities was able to justify the expense through added sales revenues, the result of having fully stocked shelves, he says.

Ackerman calls voice technology "the most important development since barcoding - far more than RFID." Wal-Mart and Kroger Co., among others, "are installing it as rapidly as they can," he says. And the combination of voice with RFID promises to raise warehouses to unprecedented heights of efficiency.

9. Optimize your supply chain in the warehouse. Like labor- management systems, this is an idea that hails from the manufacturing side. A well-run plant usually engages in some kind of constraint-based planning, so that production tracks closely with anticipated demand. Such a system is especially valuable when the manufacturer must switch over the line from one type of product to another, merge parts arriving from multiple destinations on a just-in-time basis, or meet tight delivery windows.

According to Clark, current execution-based systems "do a good job of automating the facility - not automating what you have within the four walls." What does the current labor pool look like? What are the value-added services that the warehouse is expected to perform? What are the shipments that must go out the door first? These and other elements must be carefully factored into the mix on a daily basis.

Optimization must take place at a high, multi-function level, Clark stresses. Otherwise, optimizing tasks within the warehouse could sub-optimize transportation, or vice versa. Conversely, a comprehensive planning engine can help logistics managers understand that higher costs at one end can mean savings at the other.

Of course, any good planning system must be able to change on the fly. "The one constant you know about a plan," says Clark, "is that it's going to change." Managers often must reoptimize, given a new and unexpected set of constraints. An effective warehousing tool will generate a constraint-based daily schedule, order-release times, dock-door schedule and yard-management plan, including capacity planning and dynamic slotting.

But don't leave it all up to technology. As Ackerman points out, there's still a role for the human expert, and the need to make judgment calls about the best allocation of limited resources, based on reams of data. "Warehousing is not an automated business," he says. "There are too many variables."

10. And speaking of technology, don't be dazzled by it. Match the systems you buy to your actual need, advises Tyng. Vendors are all too happy to show off a menu of cool applications, but whether your warehouse requires that level of complexity is another question altogether.

"Stay focused on the objective of your distribution center, which is to get product out in an accurate, timely and profitable manner," Tyng says.

Warehouses shouldn't automatically discard all of their existing legacy systems when they buy a new WMS, says Chris Heim, president of HighJump Software (recently acquired by 3M). Circuit City purchased HighJump's WMS but kept its own system related to verification of the retailer's high-value products. Such a tool was crucial to confirming the right items and quantities for each shipment, and had been refined by Circuit City over the years, Heim says. In the wake of the Y2K scare and rush to acquire ERP systems, he says, "Too many people say the solution is to change the business to fit the software. We don't think that is the case."