The distinction between a warehouse and a distribution centre (DC) is becoming more of a blur. The structures may be virtually identical from the outside, but their inner workings may be vastly different. DCs are designed to handle the fast intake and rapid shipment of items while warehouses are traditionally designed for storage of raw materials, work-in-progress and finished products. Some warehouses have been transitioned into semi-DCs where additional operations include order fulfilment and dispatch, often with the need for fast throughput.
The design and operation of a DC is much more complex than that of a simple warehouse. They are equipped with latest technologies including warehouse management systems, robotics and automated distribution facilities.
The role of warehousing is evolving to be a critical link in the supply chain. It is an area of expense that is under constant scrutiny and it can be the first place to look when trying to identify cost savings.
Main types of warehouse
Manufacturing and production
This is the conventional role of a warehouse where a manufacturers stores raw materials, components, semi-assemblies and finished products. The warehouse is typically located on the factory premises or nearby stores.
Manufacturers used to rent warehouse space off-site to store buffer stocks but carrying this type of inventory is expensive and is now out of favour unless the product requires maturation such as cheese or whiskey! Also, service industries need a place to store their requirements for maintenance and repairs such as parts and other tools and equipment.
The activities within fulfilment centres, or DCs as they are often known, are extensive and are focused primarily on filling customer orders by the most efficient means. To do this competitively, companies need to be expert at labelling, picking, packing and loading as well as managing their storage facility. New technologies are being applied to increase warehouse efficiency and throughput, to improve processes, and contain costs.
Warehouses, especially located at ports of entry, receive inbound shipments by road, sea or air with the purpose of breaking bulk for further distribution. These facilities may also be used to consolidate smaller inbound shipments from multiple vendors into larger ones for dispatch to wholesale customers or retail chains.
Global importers operating in developed markets are discovering the pleasure of storing goods at the point of product origin, e.g. in China or India, where the holding costs are lower. Goods can then be shipped on request to arrive at the various locations and at the points in time they are specifically needed.
Reducing lead time through cross-docking
The term ‘cross docking’ refers to the process of receiving products through an inbound dock and then transferring them to an outbound transportation dock with little or no handling or storage time. Products from a supplier or manufacturing plant can be distributed directly to a customer or retail chain without creating inventory. This process is finding favour again as a way to take costs out of the supply chain by accelerating throughput, minimising administration costs and improving customer service levels.
Figure 1: Cross-docking explained
Cross-docking is particularly useful in food supply chains; it is especially applicable to moving perishable food. Companies involved in moving high-value and electronic goods that may be a security risk are finding that this method assists in getting the product to market quickly and reduces losses. Cost savings are being achieved on outbound transport by shipping more economical loads at times that meet customer requirements.
Outsourcing warehouse operations
Third-party logistics (3PL)
Many manufacturers and importers are recognizing that specialist third-party logistics companies (3PLs) are often better positioned and have the required expertise to run distribution operations. 3PLs usually offer sub-contracted logistics and transport services, they may also include courier and freight-forwarding support.
They have economies of scale, skilled staff and state-of-the-art equipment and processes. Some have expertise in specific industries such as pharmaceuticals and beverages. Partnering with 3PLs can provide opportunities for continuous improvement and assist with forecasting, scheduling and streamlining processes.
Fourth-party logistics (4PL)
4PLs, also known as Lead Logistics Providers, act as “supply chain integrators that assemble and manage the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution” (Accenture 1996).
According to the industry association CSCMP, they differ from 3PLs as a 4PL organization acts as a single interface between the client and multiple logistics service providers. The demand for specialized distribution and warehouse services is climbing as companies focus more on their core competencies. DCs and warehouses impact the receiving customer in many critical ways and frontline warehouse personnel are directly involved in ensuring accuracy in the fulfilment process.
Delivery failures impact both cost and brand reputation. Is it time to consider a review of your warehousing capabilities? Go Supply Chain can advise on how to optimise your operations, select the right technology and reduce costs.