Many warehouses aren't deploying even the most commonly available technology for boosting performance. Second in a series on best practices in supply chain management.

In strictest terms, a warehouse employing "best practices" would be a fully automated, "lights-out" operation, with robots prowling the aisles and not a human in sight. But the reality of warehouse management today is more mundane than that. To adopt best practices in warehousing, companies need only draw on some commonly available technology and business processes.

There are plenty of tools on the shelf that can streamline operations and boost accuracy. How much they are actually being deployed is another matter. The biggest retailers and distributors are likely to be running sophisticated software to automate basic tasks, but for most companies, old-fashioned methods prevail. "Less than 30 percent of warehouses today are even taking advantage of barcode technology, let alone radio frequency identification," says Gerald McNerney, senior director of Schaumburg, Ill.-based Motorola Inc.

In addition to being a leading supplier of consumer electronics, Motorola sells technology for the warehouse. Earlier this year, it acquired Symbol Technologies, a vendor of wireless communications and barcoding systems. The timing was no accident; McNerney says wireless has been picking up speed in warehouses, using the same protocols that link personal computers.

Wireless allows workers to exchange data more rapidly and accurately. That's especially valuable in an environment where tasks change repeatedly throughout a day, says McNerney. Managers are in need of constant updates on how the operation is performing. Equipped with portable mobile devices, workers can input the necessary information with minimal effort. Many of the units link to both local and wide-area networks, as well as sporting Bluetooth capability for short-range communications with printers and other devices. As a result, says McNerney, "information is now moving in a real-time fashion."

RFID is another promising technology for warehouse management, although it's a long way from widespread adoption. Big retailers like Wal-Mart Stores, and government agencies like the U.S. Department of Defense, got the ball rolling with their mandates for the use of RFID labels on cases and pallets by major suppliers. The technology, however, remains in its infancy, its cost benefits unclear. McNerney says it's most prevalent in warehouses handling high-value goods that are difficult to count, such as compact discs and software packaging.

For its part, Motorola is working to link RFID to wireless networks through a technology called WiNG, which stands for Wireless Next Generation. It utilizes WiFi communications to automatically transmit data from RFID tags to back-office systems.

In addition, Motorola is developing the wireless network known as Mesh, consisting of multiple access points that can enable communications both inside and outside the warehouse without the need for expensive cables. Mesh systems are in development in a number of cities and seaports.

"I don't think RFID has taken off as quickly as the market expected it to," says Jim Nelson, a partner in the supply chain operations practice of Accenture. "There are bigger fish to fry in getting labor, quality and inventory tackled first."

The cost of RFID, especially with regard to tags, is still an issue. Nevertheless, says Nelson, it remains "a very viable solution." Some Accenture clients are building into their WMS systems the ability to adopt RFID when the time is right.

More traditional radio frequency technology, tied to shipment barcodes, can still provide big benefits within the warehouse and on the production floor, according to Kevin Franz, director of solutions development with Columbia, Md.-based Peak Technologies. Handheld devices are available for managing basic functions, including goods receipt, picking, cycle counting, putaway and the internal movement of inventory. They cut down on manual processes and paperwork, while boosting data accuracy. RF technology from Peak has helped Chr. Hansen, a Danish supplier of natural food and pharmaceutical ingredients, to reduce physical inventories from three per year to just one. At the same time, accuracy has risen from 97.7 percent to 99.9 percent. Data entry, which might have required two minutes per line item when done manually, now takes place in 15 seconds, according to Franz.

Multi-Channel Operations

Retailers with physical stores, catalogs and internet sales face the challenge of unifying those channels through an integrated warehouse management system (WMS). Urban Outfitters is one company that has made significant progress on that front, says Eric Lamphier, senior director of product management with Manhattan Associates, headquartered in Atlanta. By consolidating all of its systems for tracking inventory within the warehouse, Urban Outfitters has reduced the time between receiving and putaway from days to hours, Lamphier says. Product that used to take three days to ship from the time of order is now out the door in a day. The result is less inventory-and a lighter burden on the company's balance sheet.

Information that is generated by day-to-day warehouse operations can be used for other purposes, especially longer-range planning and optimization. "We're seeing an increase in the demand for real-time summary information on how the facility itself is performing," says Lamphier. The data can be used for making critical management decisions, without the need for diverting information into a data warehouse or generating voluminous paper reports. Lamphier says Manhattan is investing in better dashboards, to make the data more easily accessible to managers.

Operating analytics are a critical "front end" to modern-day WMS systems, says Eric Nilsson, vice president of product management with Infor in Atlanta. Dashboards based on key performance indicators place information "at your fingertips, so you can make decisions in real time," he says.

Infor's WMS includes a work-planning "bench," which lets users view shipment and inventory data on a number of levels, including by customer and delivery date. It includes an optimization engine which incorporates labor constraints and other factors to determine when each wave will be picked, says Brian Price, Infor's senior product manager for warehouse management. The system is also tied to carrier scheduling and shipment dispatch.

The latest Infor application moves from task management-the daily juggling of putaway, picking and other discrete processes-to overall process management. According to Nilsson, that feature allows facilities to create process templates for individual customers or industries. "It avoids the need for customization in the task management area," he says.

What Type of Vendor?

Before installing any warehouse system, companies need to make a crucial decision: should they acquire the software from a specialized, "best-of-breed" vendor, or from a larger provider that sells other supply chain applications, including an enterprise resource planning backbone? Nelson says companies must be careful to match all IT purchases with their individual needs.

There's no automatic answer to the question of best-of-breed versus enterprise vendor. "It entirely depends on the client's operating environment and customer requirements," Nelson says. Companies with relatively straightforward operations, involving mostly product on pallets, are a good fit for warehouse software from an ERP provider. But those with high levels of automation, extensive piece picking and varying requirements for loading within the same facility tend to go for best-of-breed, he says.

ERP vendors, primarily SAP AG and Oracle Corp., have closed the gap with best-of-breed in recent years, either by developing their own applications or acquiring specialty vendors outright. In some cases, says Nelson, either decision will work, at least for a time. Companies looking to acquire the best possible technology, while minimizing the number of software houses with which they work, might put off major purchases for several years while waiting for their ERP vendors to catch up.

A more immediate concern of many warehouse managers is worker productivity. Lamphier sees a big demand for labor management tools within WMS software. The technology allows companies to get the most out of their workforces, which can be measured against strict performance standards. The technique has long been used by food, beverage and grocery supply chains, where profit margins can be dangerously thin. Now, consumer goods retailers and other types of manufacturers are facing similar pressures, squeezed by rising costs on one hand and growing customer demands on the other. In response, they are embracing any idea that can reduce overhead in what is still, for the most part, a labor-intensive business.

Lamphier says Manhattan has been working to make its labor-tracking systems integrate more easily with other software modules, so that data can be shared and used for multiple purposes. As for the reaction of workers to the technology, he sees relatively little opposition. On the contrary, he says, if employers build incentives into the system, offering bonuses for exceeding performance targets, then employees might actually embrace the idea.

Labor-management technology can be controversial, especially among workers who view it as intrusive. Ken Ackerman, president of K.B. Ackerman Co. in Columbus, Ohio, warns against using such systems for disciplinary purposes. "You shouldn't beat people over the head with productivity," he says. "If your prime purpose is disciplinary, people will try to outgame the system."

Daniel Sanker, chief executive officer of CaseStack Inc., a provider of warehousing and other IT services with headquarters in Santa Monica, Calif., sees nothing wrong with installing labor-management programs in the warehouse. But he also preaches the importance of educating workers about CaseStack's clients. He believes output is improved when employees know whom they're serving and why.

Sanker also believes in listening to his workers. Ironically, that approach could lead to the implementation of performance monitoring within CaseStack's warehouses. Some employees have asked for a system of incentives which would allow them to earn more by exceeding minimum standards for pick rate and accuracy.

Beyond the Walls

When viewed as part of the greater supply chain, no warehouse is a stand-alone operation. Best practices will typically involve systems that reach beyond the facility's walls, for the transfer of data and tracking of inventory. Most major WMS applications today contain a module for cartonization, whereby orders are matched to the right box in order to achieve maximum cube utilization within a trailer or container, Nelson says. That information is then communicated not only to the internal shipping department, but to carriers and customers as well, thereby simplifying the receiving process at final delivery.

On the inbound side, the use of advance ship notices from vendors, along with carrier scheduling at the receiving dock, allows companies to implement sophisticated yard-management systems, Nelson says. Detailed information on content, cube, value and other elements is available before the shipment arrives. As a result, shippers can allocate product to specific customers at the last possible moment, making them more responsive to actual market conditions. Canceled orders can be pulled off the line before the driver shows up, eliminating unnecessary shipping costs.

Nilsson stresses the need for integrating warehouse, transportation and yard-management systems. Only then can shippers smoothly handle their orders from time of receipt to final delivery. The strategy avoids the trap of optimizing one aspect of distribution, such as shipment consolidation, while sub-optimizing another, such as total transit time. Effective warehouse management requires that companies look at all relevant factors simultaneously, deploying multiple modules that work well together. One customer of Infor, Woolworths Limited, runs a high-volume grocery operation in Australia, utilizing radio frequency receiving and loading, cross-docking, labor management and voice picking.

CaseStack Inc. deploys home-grown technology to optimize transportation in partnership with its own warehouse operations. The systems determines whether there is an opportunity to consolidate loads, says Sanker. Then it reviews a list of some 1,000 carriers to select the best vendor and lane for a given move. The database draws on historical performance reports to identify optimum routes.

CaseStack can advise clients as to where they should place inventory among the vendor's six sites around the country. Its hosted visibility software shows the precise location and status of all product, which can be easily redistributed according to changing customer needs.

Of all the technology tools that are available to warehouses today, voice-directed picking and putaway appears to be garnering the most attention. The technology has been around for years, but has been steadily increasing in quality and reliability. "I think that voice recognition is probably the biggest technology boost that I've seen since barcoding was introduced in the warehouse more than 25 years ago," says Ackerman.

Voice offers "a clear payback in productivity gains," he says. One of Ackerman's clients, a public warehousing company in Columbus, recently adopted the technology for a key account. He estimates that full payback of the system will be realized in less than a year.

Distribution facilities must have a certain level of volume to justify the investment, Ackerman says. And operations that deal in long shipment serial numbers are not well-suited to voice. But many companies can benefit from its use, especially in the consumer products sector.

Voice-driven logistics systems are of greatest value in optimizing various types of physical labor, says Franz. They can be deployed for such activities as order picking, cycle counting, order audits and replenishment. Operating in a hands-free mode, voice systems can be deployed to manage high volumes of repetitive tasks, including the picking of individual items.

The current technology accommodates a variety of languages and accents. Franz says modern systems require only about 20 minutes in which to recognize an individual's unique voice patterns. What's more, they are based on open standards, so they can be employed on multiple devices within the warehouse.

Follow the Lights

Pick-to-light is another venerable technology that has yielded big benefits, for the small percentage of warehouses that has chosen to install it. A series of lights positioned above pick bins instructs workers where to pull product when they are building cases for shipment. The technology can also guide the putaway of incoming goods.

In certain environments, says Ackerman, pick-to-light can realize savings similar to those derived from voice-recognition systems. But the cost rises with the number of stock-keeping units, so a high-volume operation is better suited for voice, he says. The price of that technology depends on the number of operators, not SKUs. Still, "both systems reduce the possibility of error enormously."

Included in many WMS packages today, but not always deployed fully, is software to optimize the placement of product around the warehouse. Infor has sold one such system to a high-volume grocery retailer in Canada. That application can function in a stand-alone mode or as part of a larger WMS application. It is designed to be "callable," so that users can query the system and receive answers on optimum slotting schemes.

"Slotting is probably the one [WMS application] that gets the least amount of attention," says Nelson. The uniqueness of the tool, along with its requisite "number-crunching," might help to explain why companies have paid less attention to it than other WMS tools.

Warehouse managers can't afford to ignore the final step in many supply chains-that of returns. In the direct-to-consumer market, returned merchandise can account for up to 40 percent of distribution activity, says Nelson. An efficient system for processing those goods will hold down costs, boost inventory visibility, and get product back on the shelf for another sale. There are a number of specialized software applications that can create labels and packages, while transmitting critical status data to all involved parties.

Running an efficient warehouse network isn't just about software and internal business processes. Reginald Neirynck, U.S. country manager for Eurinpro, part of the Sydney, Australia-based Macquarie Goodman Group, says executives ought to give additional thought to where they place their facilities. In Europe, companies are shifting distribution centers to Eastern Europe locations, where operating costs are lower, and workforces more "flexible." But the strategy promises an additional payoff, he says. It positions distributors closer to developing markets. Says Neirynck: "Companies are really looking into being ahead of the curve for the next wave of consumer demand."

Even with the best systems in place, a warehouse operation can still fail to deliver on its promise of cutting costs, balancing inventory and boosting efficiency. A key to success is long-term commitment by top management, says Rick Jordon, director of global logistics solutions with ICG Commerce in King of Prussia, Pa. Step one is earmarking enough money to do the job correctly. Then comes the appointment of a dedicated management team that won't be afraid to upend business practices in line with the new technology. "The worst thinking is to take an old process and not challenge it," Jordon says. "All you're doing is automating your bad processes."

Following that, Jordon counsels patience. Managers tend to expect big benefits too soon. When those benefits materialize, they lose interest. Or workers who are used to doing things manually won't trust the system to make the right decisions about putaway and other processes.

"A WMS is a complex animal," Jordon says. "You've got to bank on two or three years before you start to see some major return on investment on the project."

All the while, managers should be comparing their warehouse operations-indeed, all of their supply chain processes-to those of other companies. "If you're not benchmarking against your competition," says Jordon, "I would argue that you're not doing best practices."

Warehouse Management: A Best Practices Checklist

Go wireless

Get ready for RFID, but make use now of traditional radio frequency and barcoding technology

Service multiple sales channels with one system

Utilize data from day-to-day operations for long-term planning and optimization

Conduct a careful analysis of enterprise vs. best-of-breed software vendors. Match your choice to your unique needs

Consider systems to track labor performance

Tie warehouse systems to operations outside the facility's walls

Explore voice-recognition, pick-to-light technology and slotting software

Implement a system for managing returns

Consider moving to lower-cost locations, with potential for new consumer markets

Get top management committed to warehouse projects for the long haul