Warehousing and Distribution: Looking Beyond Cost Reductions

12 Nov, 2012

To see the effect of an on-again, off-again economic recovery, look no further than the fields of warehousing and distribution. Increasing fuel costs, supply chain disruptions and uneven demand have resulted in lackluster inventory turns and the closure or reshuffling of many distribution centers.

Faced with the need to optimize warehouse processes, some of the main tactics used by producers and shippers to reduce costs have been tightening inventory control, streamlining rack layouts and configurations and improving the core functions of storage and picking. Many companies are also coping by consolidating their distribution networks, eliminating buildings, reducing staff and renegotiating their commercial leases.

Short-term actions certainly have their place in maintaining profitability or simply surviving a down market, yet thinking long-term and tapping into several emerging trends can lead to a strategic competitive advantage down the road.

“Throughout the year, we’ve seen continued volatility of the extended supply chain and a market focused on cost reduction,” says David Frentzel, vice president of global contract logistics, APL Logistics. “We’ve been spending more money on improving productivity with technology, especially on the IT side. One of our higher costs is labor, so we’re working quite diligently in expanding our warehouse management system’s capabilities to manage more effectively onsite.”

“However,” he cautions, “once you’ve done a pretty good job with your day-to-day operations, you’re looking for the next increment of benefit. I think the challenge going forward is how to take advantage of a global economy without exposing yourself to shocks that are costly and difficult to recover from.”

“A number of companies we’ve been working with have been seriously looking at near-sourcing, which has probably more direct impact in Mexico, but does affect the supply chain and warehousing in the U.S. as well,” Frentzel says. Other significant trends to consider which could impact supply chains are the general return of U.S. competitiveness in some sectors and the increased adoption of co-shipping and shipping collaborations. Another area that’s probably underutilized in the industry, he adds, is using Six Sigma methods from the manufacturing world to drive “lean warehousing,” which often yields an additional benefit of making facilities more “green.”

Investing Despite Headwinds

As warehousing and distribution professionals focus on efficiencies, a growing number of communities — many of which report an uptick in activity across a diversity of sectors over the past year — are innovating and investing in infrastructure improvements despite uncertainty in the economy.

In the foothills of the Blue Ridge Mountains, North Carolina’s Rockingham County offers an environment where both legacy and newer industries alike can thrive, thanks to extensive ground transportation and close proximity to Piedmont Triad International Airport, Raleigh-Durham International Airport and Charlotte-Douglas International Airport.

“Being in North Carolina’s ‘Northern Piedmont Triad’ region, we see ourselves as a good, Mid-Atlantic location for a lot of different industries,” says Graham Pervier, president, Rockingham County (N.C.) Partnership. “With our manufacturing heritage that continues to be healthy even now, our folks know a lot about how goods are shipped and how important transportation is. That’s why we’re working on projects that will really improve connectivity and enhance the whole corridor.”

Current highway improvements underway include work on NC 68 / US 220 (Future I-73) to provide four lanes from Rockingham County to the Greensboro urban area and Piedmont Triad International Airport, while the current construction of the eastern leg of the Greensboro Urban Loop will connect eastern Rockingham County to Greensboro, I-40 and I-85 via US 29 (Future I-785).

The region is home to diverse companies such as Frontier Spinning Mills — the largest cotton yarn spinning plant in the United States — SANS Technical Fibers LLC, Bridgestone Aircraft Tire, MillerCoors, Gildan Activewear, KDH Defense Systems and Commonwealth Brands. Air access is enhanced by a FedEx hub in the vicinity, while local highway and rail reach the ports of Charleston and Norfolk, Pervier says.

“With so many of our jobs and proud history in the manufacturing sector, we hope to be a place where the adaptability of our workforce will also see the resurgence of American manufacturing,” Pervier adds.

Moving north to Canada’s Technology Triangle — within an hour’s drive of Toronto — the city of Cambridge features a robust logistics and transportation cluster, home to over 40 industry specialists, including Sharp Transportation, Dynamex, McArthur Express, Transfreight Inc. and Challenger.

“Cambridge is strategically located and serviced by an extensive network of regional and provincial highways and well connected to regional, national and international markets by road, rail, air and water services,” says Bozena (Bo) Densmore, director of economic development, city of Cambridge, Ontario.

“These connections make Cambridge an excellent location to accommodate just-in-time manufacturing systems and ideal for warehousing and distribution operations. We are also seeing many transportation companies entering into partnerships that leverage equipment and people-power to expand efficiencies and operational processes to benefit clients,” Densmore continues.

A notable example of activity in the cluster is the July 2012 expansion of Pival Expedite, the transportation arm of Quebec-based Pival International Inc., which centralized the company’s dispatch, sales, distribution and administration operations in Cambridge. The move builds on the mix of services and expertise in the region and adds value to the local supply chain management systems designed to reduce overhead costs.

The city also develops its own industrial and business parks, thereby accommodating the growth of logistics and warehousing companies to service the region’s manufacturing base. In an effort to reduce overhead costs and be more efficient and competitive by incorporating just-in-time delivery systems, there is a trend for SME’s to share warehousing facilities and ship from a central warehouse provider. Many companies looking to expand and re-organize their manufacturing operations are doing so by moving out of the storage of products onsite, and housing them offsite — another good opportunity for warehousing and logistics companies here, Densmore notes.

While keeping close watch on the bottom line, distributors, logistics providers and communities can take advantage of the macro trends happening in the global and national economy if they look beyond immediate cost savings. Growth may not be as fast or stable as it was in years past, but certain areas and industries point to definite potential as investments increase and supply chains adapt to new realities.

Over in the Northwestern United States, the Port of Montana provides a major advantage to companies connected to the region’s booming trade in energy, commodities and bulk goods. Extensive transport infrastructure combined with the ability to transload anything from silicon and fertilizer to steel and energy equipment make the port a strategic gateway for a wide variety of producers and distributors, says Kathy Fasso, general manager, Port of Montana.

“Because of our location, we’re definitely kind of a whole suite and get a little bit of everything,” Fasso says. “Plus, we’re the only place in Montana that Union Pacific comes into, giving us a North-South distribution corridor which makes us unique.”

“With two major interstates, I-90/I-15 and two railroads, Burlington Northern and Union Pacific, we’ve got both rail and trucking covered in all directions, making it a lot easier to distribute products into the state and beyond,” Fasso says.

The port’s bonded warehousing and distribution solutions include: customized inventory information, sorting, labeling, picking, packing, crating and repackaging. Additionally, the port plays to its strengths by offering enclosed and outside storage for unitized, dry bulk or liquid products, Fasso notes.

In Arizona, a mix of several factors makes Prescott Valley an up-and-coming base for warehouses and distributors with a regional reach.

“I think companies will find that there are opportunities here that could be beneficial for their growth, diversification and supply lines,” says Gary Marks, executive director, Prescott Valley (Ariz.) Economic Development Foundation. “We certainly have the capacity, workforce, conducive climate and ready access to Phoenix, Las Vegas, West Texas and Southern California. We also connect to Mexico which is becoming more important.”

In addition to a favorable business climate and cost of labor that is more than competitive, notes Marks, the region is well-situated with access to interstates 40, 10, 17, 8 and a network of highway-grade state roads. Geographically, we’re very safe, he adds, explaining that the valley’s elevation avoids extremes of heat and cold, while its location is free of physical disruptions such as floods, mudslides, earthquakes and the like.

Companies taking advantage of the secure, cost-competitive access to nearby Southwest markets include Ace Hardware, which recently added 285,000 square feet to its existing Retail Support Center, bringing their presence in the region to over 980,000 square feet.

Looking Ahead

While keeping close watch on the bottom line, distributors, logistics providers and communities can take advantage of the macro trends happening in the global and national economy if they look beyond immediate cost savings. Growth may not be as fast or stable as it was in years past, but certain areas and industries point to definite potential as investments increase and supply chains adapt to new realities.

“We’ve had a busy year, updating and replacing things in our operation we’ve needed to stay competitive,” Fasso says. “And now we’re positioning ourselves to definitely have an optimistic future.”

“I anticipate that as the national and world economy pick up, and more re-shoring within our country takes place, it’s going to be even more attractive and beneficial to locate in our area, especially when it comes to distributing goods,” Marks notes.

Mark Kleszczewski is president and CEO of GoBusiness Group LLC and a freelance writer on critical business topics. He can be reached at mark@gobusinessgroup.net.

For complete details on the organizations featured in this article, visit:

APL Logistics

www.apllogistics.com

City of Cambridge, Ontario

www.cambridge.ca

Port of Montana

www.portofmontana.org

Prescott Valley (Ariz.) Economic Development Foundation

www.pvedf.com

Rockingham County (N.C.) Partnership

www.ncnorthstar.com

Mark Kleszczewski

Mark Kleszczewski is president and CEO of GoBusiness Group LLC and a freelance writer on critical business topics. He can be reached at mark@gobusinessgroup.net.

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