The Distribution Center - a look ahead
Recently, our deliberations with a leading retailer brought to focus a number of process harmonization challenges that it faces across product categories, GEOs and IT systems. These were on account of diverse country-specific processes, multiple WMS systems, lack of unified supply chain metrics, overlapping/conflicting integration requirements, and varied fulfillment strategies. Another discussion with a different retailer that had gone a step further to implement warehouse efficiency & workforce productivity standards at stores also revealed similar issues.
While evaluating potential solutions to address these challenges, I began to wonder at how much the Distribution Center (DC) of today has evolved from its traditional underpinnings without us fully realizing it. For instance, how many of us continue to consider the DC as a cost center while loading revenue center expectations on it? Do revenue-enabling features of warehouse management systems get a seat on the table during WMS package evaluation exercises? Are enterprises viewing their distribution networks in a holistic 'beyond-the-four-walls' framework while evaluating costs? And critically, what must be done to minimize the process harmonization challenges that we observe everywhere?
This note is not an attempt to validate the cost vs. revenue functions of a warehouse. Several posts in the Infosys supply chain management blog have established that by now. The purpose is to secure a baseline on how much the distribution center of today has evolved, and briefly outline what more can be done. In future posts, I will take up these points in greater detail.
Let us first look at costs that an earlier note also dwelt upon. Warehouses were indeed established for their 'inventory holding' functions. Streamlining operations and increasing productivity are therefore the primary cost-optimization drivers. However, in addition to squeezing costs and realizing savings, organizations now need to start looking beyond the four walls of their DCs. They must evaluate the cost of their network design and accelerate the physical consolidation of their distribution centers. They must also rationalize facilities costs and undertake periodic layout-optimizing initiatives.
Revenue-enabling functions too must change. Customers today expect wider choice. Fulfillment cycles have accelerated. Mobile devices are influential demand drivers. All these necessitate a larger role for DCs - including the expansion of the SKU-mix and 'buy-anywhere-fulfill-anywhere' paradigms. Delivered In-Full, On-Time (DIFOT) will remain a key enabler of customer satisfaction and retention. DCs need to facilitate faster returns and extend differentiating value-added services. In addition, they must constantly streamline operations, simplify processes, facilitate automation, extend visibility, and increase agility as they move up the value chain. Complete alignment of warehouse functions with channel requirements and consumer demand is the way forward.
Quite frankly, none of this is new. Yet less-than-optimal approaches to warehouse operations and warehouse management systems manifest into the very challenges outlined in the opening examples. In subsequent posts, we will look at some of the solutions presented here and their implications to warehouse management systems. Stay tuned.
Until then, I would love your opinion on some of these questions. Do you sense sufficient awareness within organizations about the dichotomy between their assumptions of and expectations from a warehouse? Are change management programs applied holistically? To what extent is the alignment of customer, channel & warehouse complete within organizations? I would appreciate your feedback.
