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Warehouse - Distribution Center - Demand Center

Dan Reed - LeanMean-Manufacturing.com

The term "warehouse" refers to a place for the storage of materials and products in anticipation of future demand. Given this definition, does the term "warehouse" adequately describe how business operates today? Has the term kept pace with the rate of change in technology, markets, and business practices?

In an era of "Lean manufacturing," just-in-time supply, and mass-customization, power has shifted from manufacturers to consumers. Today, the customer is king. Progressive companies are beginning to view the "distributor" differently. Major changes in distribution business practices are effecting massive change on traditional warehouse management.

The Intelligent Warehouse

A revolution has been happening in warehousing. Traditional warehouse management is at the forefront of corporate re-engineering and continuous improvement efforts. Warehouse automation has evolved with technology in phases: Phase I added Bar code data collection devices to assist with picking speed, inventory counting, and accuracy. Phase II added Radio Frequency data collection (RF), interactive networks, and real-time links to inventory systems. Today, Phase III adds Warehouse Management Systems (WMS) for picking, sorting, labeling, palletizing, and shipping. Phase IV integrates: RF and WMS with Conveyor Control Systems, which include: PLC or PC-based Automation Controls, conveyor systems, carousels, sorters, and other material handling equipment. Phase V, adds Web-enabled E-commerce linking suppliers, customers, and warehouses.

Distribution’s Value-Adding roles have changed

Traditionally, distribution has added value in the following ways: An aggregator of demand that buffers manufacturers from daily demand variations. A consolidator, offering customers one stop shopping for many different, often competing products. A drop point, where manufactured products are closer to the customer for better delivery service. A local representative, providing technical information, billing, and service.

The distributor’s traditional role of getting product to the market is under attack from the Internet, customers expectations of better service, and new third party logistics services which include the following: Internet-based procurement is replicating distributors consolidator role, while streamlining the procurement process. Express delivery now allows manufacturers and distributors to serve regional and national markets. Internet sites of manufacturers that give customers immediate access to the latest product and technical information, etc.

Driven by innovative distributors who have re-engineered their businesses from traditional "buy - hold - sell" distribution, to demand driven "sell - source - ship." These new vertically integrated "distributors" are emerging in almost all verticals.

Exceptional execution and customer responsiveness is becoming the competitive advantage of today’s distribution center. Companies must become more responsive too increasingly sophisticated customer demands. To achieve a true customer focus in what used to be a storage facility, today's distribution centers must be able to:

1. Configure operations on a customer-specific basis; and
2. Quickly and economically, perform value-added services.

Configurability is critical as markets constantly evolve and change. The distribution center must be flexible to new customer demand, while rapidly adapting to customer’s environments. For example, a mass merchandiser's order fulfillment requirements are dramatically different from other business-to-business customers. However, these requirements must all be serviced by the same distribution center. The ability to configure operations on a customer specific basis and ship on demand is essential.

Evolution of the Demand Center

In today’s "Lean environment" customers are demanding products be: custom packaged, palletized in sequence to how they will be shelved when received, and delivered within extremely short lead times. These demands have forced some manufacturing operations: light final assembly, custom packaging, and customer specific fulfillment requirements onto distribution centers. This emerging blur of boundaries between manufacturing and distribution is giving rise to yet another role for the traditional warehouse, "A Demand Center."

Today, a demand center is the place where companies respond to actual customer demand, managing the flow of product and information to execute order fulfillment, while satisfying customer requirements, and cutting supply chain costs.

Value-added services consisting of: mass customization, kiting, and light assembly are all functions performed in demand centers. This evolution is the direct result of Lean methods, which attempt to postpone final configuration of a product until the last possible moment. This "Lean" approach provides lower inventory carrying costs, by stocking fewer components to meet a large number of options, while improving customer service by increasing fill rates of exactly what customers want, as opposed to what has been forecasted. The demand center is no longer limited to "storage" but is a strategic component of a responsive and efficient supply chain.

The innovative demand centers of today use information to empower workers to make intelligent decisions. Fueled by real-time information, demand centers are helping companies break their dependence on error prone historically based forecasts, and outdated methods of storing excess inventory. Innovative companies are leveraging demand centers to execute quick-response fulfillment strategies, improve customer service, and lower costs. Demand Center innovations include

Demand Center

For companies to thrive in the Information Age, they must recognize the strategic value of demand centers. They must act to transform their warehouses into demand centers. The benefits include: Satisfying customers, Competitive advantage, Lower operating costs. The warehouse is no longer a static geographic drop point, it has evolved to a new role, a value-added link in a streamlined supply chain. "A Demand Center."

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