Introduction
The organization is looking at establishing the new reception and distribution operation for the finished goods, produced outside the domestic market. The market complexity, costs and operational efficiency in downstream logistics are critical to the success of the new venture. Importantly, the recommended warehousing operation should take into account the geographical spread of the customer base to the West Coast and Northeast of the United States as well as Canada. The purpose of this document is to present a preliminary analysis of the market trends, associated with the warehousing activities for similar operations and provides the recommendation, which would address the strategic organizational needs and ensure the alignment of the external environment and company´s capabilities.
Market Trends
The best practices in the contemporary inbound logistics operations require the strong and simultaneous focus on people, processes, and strategy. The complexity of the operations in distribution operation is determined by the dynamic market, high volume and high variety requirements in electronic trade as well as growing share of e-commerce sales, which focus on the total lead times and create more competitive pressure. While cost-effective operation on upstream is essential for the sustainable strategy it cannot compromise the efficiency of the downstream logistics for the clients.
One of the most recent trends in the industry outlines the shift from traditional distribution warehouses to the throughput centers, which enable consolidation of the finished goods for optimization of the downstream logistics costs. The market dictates the following trends (Coyle et al, 2013):
General inventory reduction in electronic industry;
Advanced performance management strategies focused on productivity per employee;
Automation of warehousing operations;
Wider use of 3rd party Logistics Providers (3PLs);
Changes in procurement and order strategies, outlining higher SKU variety and lower quantity per lot.
Some of the important elements of this strategy are to reduce cycle times and safety stock and increase the labor efficiency. Market trends outline the growing investment in warehouse operation automation, which focuses on elimination of waste and human error in operations and accuracy of demand forecasting, affecting the highest cost line in the Balance Sheet – space requirement and physical assets. Centralized location of the warehouse, supported by adequate systems for demand, shipping notifications, and vendor compliance programs enables consolidation of the orders and better utilization of the fleet on direct-to-customer operations (Rushton and Walker, 2007).
Situational Analysis
The company is looking at building an efficient central warehousing operation, which will consolidate the service to the North America region. Taking into consideration the demand to serve a wide geographical area, one of the major challenges is to ensure the utilization of the fleet. To close this operational gap and ensure optimal cost allocation, it is important to focus on elimination of the waste from the supply chain. That said the possibility to outsource the non-core operation, such as downstream logistics is one of the most relevant opportunities, provided by the market.
Canada is one of the major markets in the region, while the United States revenue is distributed between West and Northeast regions. With that in mind, the strategic location of the distribution center should be chosen between the Northeast and Central regions of the country. According to the USDL statistics (2015), the Northeast states represent the lowest wage levels in the country with the average for the industry labor productivity. The attractiveness of the New York state is evident due to well-developed logistics infrastructure and developed labor market.
Radio frequency identification (RFID) and integration of vendor management and demand forecasting with 3PLs are essential for the organization in the given situation. Modern automation systems offer a great variety of solutions, depending on the level of investment. That said, companies can choose to automate part of the operations, such as inventory planning and organization, to complete integration with minimum human intervention in all five operational tasks: collaboration, receive, pick, organize inventory and load and ship operations.
The most modern warehousing and distribution software’s, available on the market can provide complete ERP warehouse management and order fulfillment solutions with flexible deployment mechanisms, allowing adapting to the needs of specific organizational layout and products. Inspire of the medium size operation, which is expected to be conducted at the site, the company will seek for the integrated solution for effective inbound and direct to customer operations. It is expected that the size of the import lots and established inbound port activities will enable the organization to provide customs clearance on arrival, eliminating the requirement for bonded warehouse operation. At the same time, the warehouse should focus on inventory management, packaging and storage and downstream logistics operations.
Recommendations
The analysis of the market trends and current situation allows narrowing down the warehouse facility options and demand for the selected projects. Based on the analysis of the market potential to supply labor and ensure effective partnerships, the following solution is considered optimal.
Activities
It is recommended that the organization builds own non-bonded distribution and warehouse facility in New York, capable of handling complete operation from receiving and inbound operations, inventory management, packaging to downstream customer-centered logistics. The warehouse space should be planned to cover the requirements of operational and safety stock levels for the US and Canada.
While the core activity, such as packaging and inventory management should remain under internal control and management, it is essential for the cost-effective operation to outsource all logistics and transportation operations to qualified 3PLs with the own fleet. This will enable more flexibility and lower rate per delivery as 3PLs can offer cargo consolidation services, based on the volume and scale of operations.
Systems
The project is new for the company and the implementation strategy should take into account the future operational adjustments based on the actual market response. With that in mind, the facility should offer an optimal balance between the product cycle times and deliver to order fulfillment strategy and the technology and labor costs. With that in mind, it is recommended to implement semi-automated operation with tracking and fork-lift and fully integrated market solution in terms of warehousing system, which will allow order fulfillment integration with the upstream and downstream partners as well as modern demand forecasting and stock prediction reporting (Wyckoff, Lacks, and Reese, 2004).
Conclusion
It is expected that the recommended solution will be able to provide an adequate response to the market and enable the organization to a certain level of flexibility in further optimizing the operations. The facility will be planned to accommodate the potential growth or streamlining some of the activities to ensure the strategic fit between the distribution of demand for electronic products and shift of some of the current operations to the new facility to optimize the organizational cost structure. Additionally, operational systems, offering transactional knowledge and customer data will enable advanced marketing and sales strategies.
References
Coyle J., Langley J., Novack R.A. and Gibson B. (2013). Supply Chain Management: A Logistics Perspective. Mason: Cengage Publishing
Rushton A. and Walker S (2007). International Logistics and Supply Chain Outsourcing: From Local to Global. London: Kogan Page Publishing.
Dyckhoff H.,Lackes R., and Reese J. (2004). Supply Chain Management and Reverse Logistics. New York: Springer-Verlag Heidelberg.
USDL (2015). Industries at a Glance. Warehousing and Storage NAICS 493. Retrieved 5 September 2016, from http://www.bls.gov/iag/tgs/iag493.htm
