Table of Content
- Executive Summary
- Market Drivers: High-tech Manufacturers and Distributors are Rethinking Warehouse Management
- Business Challenge: Inadequate order, Labor, Compliance and Asset Management are Undermining Warehouse Performance
- Top Performers Earn Best-in-class Status
- Business Solution: Advanced Warehouse Management
- Benefits of Advanced Warehouse Management Systems
- Conclusion: Winning in today’s High-velocity Markets
- About Infor
Manufacturers and distributors in the high-tech and electronics industry sector are under pressure to increase the performance of their warehouse operations in the face of globalizing supply chains, fluctuating market demand, and accelerating order velocity.
Warehouse management challenges in high tech are especially acute among manufacturers and distributors specializing in semiconductors, electronic components, and product assembly. Given the challenges associated with lengthening supply chains, shrinking product lifecycles, and increasing customer expectations, companies are now forced to rethink their approaches to warehouse management.
Best-in-class companies are recognizing these challenges as an opportunity to strengthen their operational capabilities and increase profitability. These top performers are meeting today’s warehouse visibility, agility, and productivity challenges by investing in advanced warehouse management solutions.
The consequences of inaction are growing. As customers become increasingly demanding and supply chains increasingly global, the warehouse becomes an increasingly critical factor in terms of overall risk, performance, and profitability.
Unfortunately, many firms are not yet meeting today’s market challenges. The most immediate problems now undermining warehouse management are:
- Ineffective order management
- Excessive labor costs
- Improperly managed compliance
- Inefficient asset use
While market laggards remain wedded to processes, practices, and systems that perpetuate these difficulties, market leaders are taking warehouse management to new levels. They are adopting advanced systems that help them deliver the perfect order, reduce labor costs, strengthen compliance, and maximize the use of space and equipment.
These systems enhance warehouse operations by leveraging such next-level capabilities as inventory management, work and task management, radio frequency and voice direction, labor management, slotting, and kitting and light assembly.
Capitalizing on the capabilities of advanced warehouse management systems, today’s leading manufacturers and distributors are strengthening their market positions and profitability in today’s hyper-competitive high-tech markets.
MARKET DRIVERS: HIGH-TECH MANUFACTURERS AND DISTRIBUTORS ARE RETHINKING WAREHOUSE MANAGEMENT
High-tech manufacturers and distributors are now being forced to reconsider their warehouse management practices as they confront such issues as lengthening supply chains, fluctuating demand, and increasing order velocity.
They are challenged to enhance warehouse visibility and performance to remain competitive, protect profitability, and position themselves for continuing growth.
Globalization, a key driver of change in warehouse management, initially revolved around reducing costs as manufacturers moved production to offshore locations. Such locations that include China, Taiwan, and Korea have since developed economies of skill and concentrations of talent that make them central to the production process. The trouble for many companies is that the lengthening of supply chains has reduced visibility and increased the time lags related to distribution. Indeed, this lack of visibility has led to increased warehouse inventory, driving up both inventory costs and the risks of getting trapped with obsolete goods and materials.
The lengthening of supply chains, in other words, has put increasing emphasis on achieving greater visibility throughout the global supply chain. In the absence of visibility, companies will tend to build up their inventory stocks and bear the associated costs. While increasing globalization also creates an opportunity for high-tech manufacturers and distributors to penetrate developing markets that promise high growth, they’re now realizing they’ll need increasing visibility into their supply chains and warehouse inventories to offset the negative aspects of their global moves.
Yet another driver of change in warehouse management is fluctuating market demand—a factor requiring greater responsiveness on the part of manufacturers and distributors. Cell phones offer a vivid example. Consumer demand is constantly shifting. New features are requested and new configurations are necessary. The warehouse becomes the focus of the challenge as inventory managers seek to balance the demand for new components and configurations against the imperative to eliminate existing stocks. They must actively track component availability, specific configurations, and horizon dates for shipping various versions of a product.
However, in the forecast-driven environments that warehouse managers must operate, managing inventories with extreme precision is critical. Wild fluctuations in demand can quickly deplete inventories and upset customers, or they can undermine profitability by leading to large stocks of unsold product. Indeed, the top reason companies experience heavy losses in this sector is because they are left holding excessive inventory and are forced into enormous write-offs.
Finally, manufacturers and distributors are finding that increasing order velocity requires increasing operational effectiveness. There is simply less time to react in today’s markets. Companies must react quickly to changes in markets or customer orders. They must rapidly pull orders, kit or assemble them, and ship them, moving as close as possible to just-in-time. But they cannot just throw labor at this challenge or stock finished inventories as many may have in the past. Due to the challenge of operating on tightening margins, they must find new ways to increase warehouse productivity and performance. They need greater visibility into their operations, particularly the often untracked zone between warehouse and production facility. They need the ability to engage in “hot picking,” “wave picking,” and other techniques that increase warehouse output.
With the fast and furious pace of new product introductions and the accelerating velocity of orders, companies are under severe pressure to rethink the way they manage warehouse operations. They must move fast because the window of maximum profitability is brief, reflecting the brief lifecycle of today’s electronics products. Manufacturers and distributors can’t afford to slow down—or make mistakes. Customers now expect “the perfect order”—the right order at the right time at the right price.1 And customer expectations are only rising. Companies that hope to thrive in this increasingly challenging environment will have to operate their warehouses at world-class levels.
BUSINESS CHALLENGE: INADEQUATE ORDER, LABOR,COMPLIANCE, AND
ASSET MANAGEMENT ARE UNDERMINING WAREHOUSE PERFORMANCE
The limitations of many companies’ warehouse operations are manifested along several key dimensions: orders, labor, compliance, and the warehouse assets themselves.
To drive performance and productivity gains in their warehouse operations that are in line with today’s best-in-class performers, manufacturers and distributors in the high-tech and electronics sector will be forced to confront inadequacies in terms of how these issues are handled. Let’s consider them one by one.
Ineffective Order Management—Today’s customers are more demanding than ever. They increasingly expect the “perfect order.” According to AMR Research, this is an order that’s delivered complete, on time, accurate, and in perfect condition.2 In the high-tech arena, the challenge of delivering the perfect order is often complicated by voluminous change notices requiring a series of new configurations and component replacements.
To stay on top of orders, companies must have clear visibility into the location of products, particularly when a product has been shipped and sent to a factory for assembly. Given the absence of visibility during this stage of the order cycle, it’s common to hire expeditors responsible for the status of these “in-process” orders.
Best-in-class companies achieve 98% first-time order completeness (reducing rework), 98% on-time rates (reducing delays), and 99.7% order accuracy (reducing errors and mis-picks), according to Aberdeen Group.3
Many companies, however, are falling short on these key performance indicators. In addition to allowing service levels to diminish, they remain vulnerable to lost business in the case of demanding OEMs, distributors, resellers, and retailers.
Even when they are meeting customer expectations, many others are relying on excessive inventories, leaving themselves vulnerable to sudden drops in demand—or excessive labor costs.
In an era of increasing customer focus, it’s clear that orders themselves are becoming more complex and custom, requiring warehouse managers to have a tighter grip on their stocks, schedules, and available resources. They are challenged to deliver the perfect order. However, they must accomplish this objective without excessive inventories or labor costs if they are to do it profitably.
Excessive Labor Costs-Given the increasing complexities associated with today’s customer and supply chain relationships, companies are struggling to meet performance expectations without raising labor costs. Indeed, 51% of respondents in a recent Aberdeen Group survey said they were “feeling the pressure to manage change without increasing staff.”4
Meanwhile, best-in-class companies are “managing the disruptions and uncertainty of supply and demand changes” with less than 0.25% increases in labor costs, according to Aberdeen.5
One issue for high-tech and electronics companies is a lack of visibility into the true costs of their labor. To rapidly respond to the RFIs and RFPs of potential customers, they often rely on standard costing. The problem with this approach is that they are often winning business that is unprofitable or losing business because they have overpriced their bids. Lacking the ability to systematically track labor costs and activities, they are unable to price their services appropriately—another factor undermining profitability.
Improperly Managed Compliance-A growing challenge for high-tech companies is compliance.
New initiatives are constantly being launched that mandate new requirements on companies selling into particular regions. The Restriction of Hazardous Substances (ROHS) directive was recently passed in the European Union, for instance. It restricts the use of six hazardous materials in the manufacture of various types of electronic and electrical equipment.
Under such restrictions, manufacturers and distributors must ensure that the components they are sourcing and shipping are compliant with relevant codes. Such rules, which can carry criminal as well as civil penalties for non-compliance, require companies to maintain deep knowledge of their inventories and the substances they contain. Information about shipping, configuration, and destination must be tightly managed.
Similarly, shippers must be fully aware of corporate mandates that would influence such factors as configuration or labeling. Should shipments be labeled incorrectly, they are likely to be returned with the shipper being fined a late charge.
Inbound compliance concerns may also come into play when companies must run incoming components through quality assurance testing to ensure they meet customer guidelines. In such cases, quality standards must be certified and the warehouse team must collaborate with the QA team.
Finally, companies need to have the ability to actively trace a product back to its source or forward it to its destination should a product recall or inquiry take place. Full compliance increasingly requires that companies be able to trace their component inventories with extreme precision should a problem arise.
Inefficient Asset Use-Yet another factor limiting the performance of today’s manufacturers and distributors is the tendency to underuse assets such as equipment and warehouse space. With the growing demands they face, their natural tendency is to spend more on warehouse equipment such as forklifts, pallet racks, and conveyors. They are also likely to contract for more warehouse space—often at premium rates.
Rather than better leveraging the assets they currently possess, they see costs rise as they acquire still more assets. Lacking the ability to dynamically match inventory to orders, they are prone to simply amass and underuse assets. Once again, they are likely to be outmaneuvered by high-performing competitors with the capabilities to generate more from less.
To fully capitalize on their existing assets, best-in-class companies are using sophisticated inventory management to reduce stocks and techniques such as “wave picking” to better use the equipment and warehouse space they already own. What’s clear is that manufacturers and distributors must manage their warehouse facilities and assets with exceptional insight and skill if they are to remain competitive in today’s fast-moving markets.
TOP PERFORMERS EARN BEST-IN-CLASS STATUS
What’s undermining productivity and performance on all of these dimensions-orders, labor, compliance, and assets? Typically, it’s an absence of clear visibility into operations and an inability to take the actions necessary to reach new performance levels.
Some companies continue to rely on manual and paper-intensive processes to manage their inventory activities. They may be particularly reliant on spreadsheet programs such as Microsoft Excel as their medium of information exchange.
Others may rely on existing ERP systems. But these systems typically lack the capabilities necessary to proactively manage and monitor warehouse operations. There is often no way to track inventories, particularly once they leave the warehouse. There may be no way to track labor costs or direct labor activities in the warehouse. Compliance may be poor due to the inability to track and trace materials, substances, and components. And assets may not be fully leveraged because there is no way to optimize inventories, space, or equipment.
These are the challenges facing today’s market laggards as they struggle with poor practices, inefficient processes, and insufficiently capable systems.
By contrast, today’s best-in-class companies are turning warehouse management into a competitive advantage. These leaders are setting a new standard in warehouse management, threatening to leave laggards far behind. Manufacturers and distributors that intend to remain competitive and meet growing customer demands—driving warehouse productivity to best-in-class levels-must adopt advanced capabilities.
Many companies, however, are falling short on these key performance indicators. In addition to allowing service levels to diminish, they remain vulnerable to lost business in the case of demanding OEMs, distributors, resellers, and retailers. Even when they are meeting customer expectations, many others are relying on excessive inventories, leaving themselves vulnerable to sudden drops in demand-or excessive labor costs.
BUSINESS SOLUTION: ADVANCED WAREHOUSE MANAGEMENT
To reach new levels of warehouse visibility, agility, and productivity, companies in the high-tech and electronics sector are now investing in advanced warehouse management solutions. These proven systems help suppliers maximize product placement strategies, prioritize tasks, implement productivity standards, and increase logistics efficiency.
Such systems use factors such as item, location, quantity, and order information to manage stock. But while conventional warehouse management systems concentrate on merely locating inventory, advanced systems manage the whole process of material flow: receiving, put-away, cycle-counting, picking, replacement, packing, and shipping.
Among the key capabilities of an advanced warehouse management solutions are:
Inventory Management-This allows you to identify and track inventory with sufficient granularity to allocate, fill, and deliver orders as accurately as possible, as often as possible. You can view and monitor the location, condition, and amounts of all finished goods, components, and raw materials in your warehousing operation, as well as rotate your inventory according to changing configurations and other relevant factors. Lot control, serial number capture, date code tracking, and inventory aging provide additional visibility and flexibility.
Work and Task Management-This manages the ebb and flow of demand by balancing workloads and tasks with available resources. Multitasking enables you to increase productivity through the use of common workflows, customer requirements, and business processes. Task interleaving allows you to group work orders and locations with similar or complementary attributes into batches and waves so that orders are received, picked, packed, kitted, and shipped in a timely fashion. Individual worker productivity is improved by combining complementary tasks to increase output and limit travel time.
Radio Frequency (RF) and Voice Direction-These capabilities help you improve the productivity of distribution and fulfillment processes by using scanners or hands-free connections and advanced speech recognition technology to voice-enable order selection, replenishments, put-always, transfers, and receiving. Your workers can operate without reliance on cumbersome lists and labels or go hands-free and vastly improve their productivity and order accuracy.
Labor Management-This enables you to maximize worker performance in the warehouse. You obtain workforce planning, staffing, and execution capabilities, along with the ability to monitor direct and indirect labor and provide feedback to workers and supervisors as picking, packing, and shipping activities are completed. Real-time performance measurement gives supervisors visibility into their operations so they can identify bottlenecks, labor performance problems, and other barriers to productivity and take corrective action.
Slotting-This helps you maximize productivity and minimize travel time from location to location by determining the most advantageous arrangement of SKUs within a range of pick faces or slots. It minimizes disruptions that result from demand variability by enabling adjustment of product placement according to seasonality, special promotions, and changes in customer order patterns.
Kitting and Light Assembly-This allows you to adopt postponement strategies and mass-customize products at the time of distribution and fulfillment to ensure customer requests are fulfilled correctly at the lowest total supply chain cost. You gain greater ability to accommodate changing customer tastes and product requirements. Kitting and light assembly facilitates personalization and other product enhancements, packaging and labeling operations for existing products, and complex final assembly operations for customer-specific products.
BENEFITS OF ADVANCED WAREHOUSE MANAGEMENT SYSTEMS
Companies in this sector can reduce costs, protect profitability, and enhance their overall market competitiveness by remaining focused on the key performance indicators now driving warehouse performance. Through the implementation of advanced warehouse management solutions, they can:
Strengthen Order Management-With customers now demanding the “perfect order,” manufacturers and distributors can leverage advanced solutions to reach 98%+ order completeness, 98%+ order on-time rates, and 99.7%+ order accuracy-putting them in the best-in- class performance category.
Increase Labor Productivity-With labor cost pressures rising in relation to new demand and supply changes, companies with advanced capabilities can enhance workforce performance and accomplish more with less. Labor cost increases, which otherwise would have risen heavily, will be minimal or non-existent. Indeed, companies can increase labor productivity by 15% to 40%.
Maximize Asset Use-Rather than investing more capital in equipment and warehouse space, companies will rely on their advanced systems to fully deploy their existing warehouse assets.
Reduce Inventory Costs-With most ERP and legacy warehouse management systems, one can only identify inventory by location, not holistically. However, advanced warehouse management systems enable one to make inventory buying decisions based on visibility into inventory throughout one’s entire network and make intelligent decisions on intra-facility movement of that inventory relative to buying more. Since inventory is a tremendous cost burden, companies can drive clear and compelling return on investment by addressing this area.
Strengthen Inbound and Outbound Compliance-Whether materials and components are entering the warehouse or being shipped out, companies are challenged to meet increasingly stringent codes of compliance. Advanced systems strengthen these capabilities; ensuring companies are able to comply with regulatory and corporate mandates of all kinds while being able to trace components should problems arise.
Enhance Customer Relationships-Having dynamic and responsive warehouse operations enables suppliers in the high-tech sector to deliver increasing levels of customer value. They can meet new and more demanding specifications and configurations in a cost-effective way.
Advanced warehouse management solutions promise to reduce direct operating costs and increase overall revenue. As the experiences of best practice firms suggest, these gains are clearly within reach. In fact, some companies are further maximizing the benefits they realize by smartly integrating their warehouse management capabilities with new or existing ERP, supply chain management (SCM), and transportation management systems (TMS). The seamless real-time exchange of data among such systems can contribute to increasing agility and differentiation in today’s hyper-competitive markets.
CASE IN POINT: GENERAC POWER SYSTEMS
Founded in 1959, Generac Power Systems of Waukesha, Wisconsin, prides itself in being able to respond quickly when a residential, commercial, or industrial customer’s power goes out. It was the first company to engineer affordable, home standby generators, and also the first to develop an engine specifically for the rigors of generator use, according to Logistics Management.7
Up until three years ago, Generac’s shipping strategy centered on sending out product to its powerless customers as the orders came in. Hurricane season, for example, often found the firm scrambling to fill orders from frantic, powerless customers in Florida. “There was almost no transportation planning involved whatsoever,” says Brian Randleman, the company’s logistics manager. “We were an execution-type company: if we had a product, we shipped it out.”
That changed in 2006, when Generac began shopping around for a WMS and TMS. Already using an ERP system from Infor, the company “decided that the ERP itself wasn’t managing our supply chain requirements,” says Randleman, who developed a list of Generac’s business and functional requirements before considering solutions from six different WMS and TMS vendors.
Generac, which was shipping from three plants via less than truckload (LTL) and some flatbed carriers, had a few goals in mind for its new supply chain system. For starters, Randleman says the company was looking to participate in a “pool-based” transportation system, which finds different shippers “filling” a trailer as a group, rather than using LTL shipments individually. A new finished goods distribution center using the WMS would execute this new strategy, and nearly 80% of all shipments would originate there now. To participate, Generac required a TMS that could track its loads from the warehouse to final delivery.
Generac found the answer in the supply chain management solutions offered by its existing ERP vendor. “Not only did we already have a relationship with Infor, but its WMS and TMS offerings met our supply chain requirements,” says Randleman.
Once the TMS and WMS were in place, Generac had to switch from 47 years of a “ship it as the orders come in” mentality, to a planning-based approach. As a result, the company has been able to reduce its manpower needs in the warehouse and improve its fill rates, inventory control, and customer satisfaction ratings. On-time ship rates are now over 90%—up from 35% to 40% three years ago. Generac has also moved from a strategy of “fill everything as soon as possible” to a more optimized approach. “Just because we get an order today doesn’t necessarily mean we have to ship it today,” says Randleman. “Using our supply chain solutions, we can optimize our logistics to achieve the best possible savings while still meeting customer demands.”
In the warehouse, Generac has equipped workers with scanners that allow one person to receive and put away products with a single action. “We can also do inventory cycle counting that we couldn’t do before, so we know where the product is at all times,” explains Randleman. “We now have all of the functionality that we need to operate our business efficiently, while providing our customers with the best product as quickly as possible.”
CONCLUSION: WINNING IN TODAY’S HIGH-VELOCITY MARKETS
As the experiences of best-in-class performers clearly demonstrate, there are enormous gains in warehouse performance to be realized through the implementation of advanced systems. Manufacturers and distributors in the high-tech sector that have invested in advanced warehouse management solutions are strengthening order management, increasing labor productivity, enhancing compliance, and maximizing their use of warehouse assets.
As market demands fluctuate, order velocity accelerates, and supply chains become increasingly global, companies will need to drive gains in warehouse productivity and performance to avoid crushing costs. But, just as important, these investments promise to pay off in terms of greater warehouse visibility, agility, and productivity. Such moves enable suppliers in this sector to become increasingly customer-focused and meet growing expectations. They lay the foundations for profitable growth and market success in the high-velocity markets of today and tomorrow.
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