Modern supply chains are very complex and they require advanced data processing systems to operate properly. This situation is partially the result of increasing mobility occasioned by interconnected transport systems in all parts of the world. A simple product may have components made in different parts of the world. The final product goes to different parts of the world using an entirely different supply chain.
One of the weak links in any logistical system is the distribution warehouse. Warehouses serve as the points for breaking down bulk products into smaller units for distribution (Leeman 42). Therefore, the complexity of the operations of warehouses calls for the input of logisticians to help streamline their operations. This paper analyses the challenges faced by a warehouse operating in large-scale supply chain that covers several countries. It focuses on the problem of labeling and addressing goods correctly, and seeks to present potential solutions to increase the efficiency of the operations of the warehouse.
Warehouse Management Issues
The warehouse management issues of interest are those experienced by a warehouse that forms part of an international supply chain. The supply chain has several components. The logistical issues start when manufacturers produce products and then send them to the FTP Global Trading Company. The company is the main distribution agency that works on behalf of the manufacturers. The products leave the premises of FTP Global Trading Company via inland freight to an international freight hub comprising an airport and seaport for onward transmission.
Importers from downstream countries receive their supplies from Brazil, which serves as the distribution hub. The products then go through customs before release to warehouses, which are the main bulk breaking centers. Thereafter, the warehouses coordinate the distribution of the products to retailers for home delivery. The path the money follows from these transactions is shorter. The consumers place orders for goods directly to the factory, and send the money to Brasil Bank, which wires the money to the UK bank account of the FTP Global Trading Company.
The main challenge the warehouse faces in this supply chain is receiving, sorting and loading the goods for delivery to clients. The shipments arrive in bulk from the transporters, and the warehouse breaks the bulk and assigns each product to the correct buyer. This process has several challenges.
First, the warehouse frequently deals with the problem of mismatched products arising from various parts of the supply chain. In some cases, the factories wrongly label products or make mistakes regarding the specific product ordered by the customers. In addition, the bulk breaking process in the warehouse at times leads to a mismatch between the actual order made by a customer and the product addressed to the client.
The high number of products and customers make it very difficult to automate this process effectively. This challenge is more critical for products addressed to clients at the warehouse level. The factory prefers to ship similar products in the same package to make shipping easy. The warehouse has the responsibility of breaking down the consignment, and addressing the individual products to the correct customers based on a manifest sent by the factory.
The second issue affecting operations in the warehouse is dealing with products returned by customers. The two main causes of returns are either damaged products or mismatched products. Some products end up with defects because of handling during the shipping process. It is difficult to detect whether a product has a defect without opening it. Therefore, after delivery, the consumer must check the product and verify its state before receiving it. At the same time, some customers receive the wrong products and hence request for a swap, something that takes time to process.
The third main concern in the warehouse is the speed of operations. Breaking bulk products into units for shipping to individual customers consumes a lot of time (Button 14). Some parts of this process are automated, but there are still some parts, which must be done manually. In this respect, products spend more time in the warehouse than is ideal.
Finally, the warehouse is dealing with capacity constraints. Expansion of a warehouse is a capital-intensive process that requires proper economic justification (Kopezak and Lee 18). The fluctuation in product volumes makes it difficult to make expansion decisions because investing in storage capacity can increase the operational costs. This is an ongoing concern.
Challenges Associated with Warehouse Issues
The four issues raised above present several challenges to the warehouse management. Mismatched products and damaged products increase the demand for outbound logistics. The warehouse must ship the products back to the manufacturers for sorting. This cost eats into the margins of all the players in the supply chain. The process of replacing a product increases the transport cost of the specific item by 200% or more because the cost of shipping smaller volumes is higher than shipping large volumes. This leads to a significant change in the margins accruing from the specific product because transport and warehousing are significant cost items in a supply chain (Wensveen 40).
Secondly, the warehouse experiences capacity management constraints because of these challenges. On one hand, the warehouse must handle inbound products delivered by the manufacturer, and on the other hand, it must handle outbound products back to the manufacturer. This creates a false demand for warehouse capacity largely arising from returned products that require multiple handling.
The third main challenge the warehouse experiences based on the challenges discussed above is the constant need to adapt its systems to meet the existing needs. What this means is that the warehouse has to adapt its methods to have the capacity to handle customer demands. Some of the products sent to the warehouse require non-conventional handling techniques. Investing in the capacity for special handling creates a cost item on the warehouses operating budget for a service it only needs occasionally. This eats into its bottom line.
Potential Solutions
The four main problems the warehouse is facing as indentified in this project are mismatched products, dealing with returns, slow speed of operations, and capacity constraints. The potential solutions to these problems are as follows.
First, it is possible to reduce the number of mismatched products by labeling and addressing all the goods at the factory as opposed to labeling them in the warehouse. There are two causes of mismatched products in the current system. The first cause is products labeled wrongly in the factory before shipment. This type of error is hard to detect. The second source of mismatched products is the warehouse labeling and addressing process. The factory prefers to ship some products in bulk because it simplifies packaging and handling.
It also sends along a manifest showing where each product should go. The warehouse breaks the bulk, labels, and addresses the products and ships them out in smaller units. This process usually leads to problems like quantity mismatch, and at times, address mismatch. Automation is still difficult for this stage in the warehouse because of the large variety of products the factory sells. In this sense, factory labeling and addressing will eradicate the problem of mismatched products at the warehouse level. Factory mislabeling requires a joint effort between the warehouse and the factory to eliminate it.
The second potential solution to the problems facing the warehouse is the need to designate a separate zone to deal with products that require intensive handling. During the process of breaking the bulk, the warehouse must commit an inordinate amount of resources to handle certain classes of products. This increases the operational costs of the warehouse while increasing the time the warehouse needs to handle any shipment.
Designating a special zone in the warehouse for the management of goods that require intensive handling will increase the throughput rate of the warehouse. Currently the warehouse uses FIFO (first in first out) as its basis for process design. This needs to become more dynamic to allow for quick handling of goods that require minimal handling. The overall result will be an increase in the volume of products handled by the warehouse. Faster handling will also increase the capacity of the warehouse to process goods thereby eliminating the need for acquiring more storage space at least in the short term (Wittmer, Bieger and Muller 44).
Investing in greater storage space is also a potential solution to the capacity problem. If the warehouse is currently operating at its optimum capacity, the only solution left will be to invest in more space to handle larger volumes of goods. An expanded carrying capacity of the warehouse will give the warehouse more space to handle products as it prepares them for delivery to clients. The problem of returns will also become less costly because it currently requires the designation of space to store returned goods before shipment back to the factory.
As observed earlier, a product returned to the factory because of wrong labeling incurs a shipping cost that is 200% higher than its budgeted share. Mislabeling and mismatching products can actually wipe away the margins associated with the specific product. There is need to invest in systems that can give the labeling and addressing process more accuracy both in the factory and in the warehouse. The warehouse does not have much control over the operations of the factory.
Therefore, it cannot impose a labeling system on the factory. However, it can explore whether factory can label and address all products to eliminate the errors created at the warehouse’s floor. The warehouse can also ask for the shipping details as received from clients during ordering to eliminate the errors associated with dealing with aggregated data from the factory in the product manifests. The best solution to the warehousing labeling errors will be to automate the process of matching the goods to the correct address.
The Decision Process Leading to the Solution Adopted
The decision process leading the proposed solution was as follows. First, it was important to find out what the warehouse considers the significant problems hindering efficient operations. The issues identified as problems had several effects on the operations of the warehouse. First, they led to increased operational costs. Secondly, they compromised resource utilization at the warehouse by increasing the time and space requirements.
The solutions proposed arose from the following assumptions. First, problems relating to capacity utilization can be resolved by increasing the speed and accuracy of handing goods within the warehouse. Increasing the turnaround time for the shipments in the warehouse means that the warehouse’s capacity increases because it becomes capable of handling more goods per unit time. Increasing the accuracy of labeling and addressing products would also solve capacity problems by freeing the space used to handle returns and the space used by the product during reshipment. Therefore, the actual savings arising from attaining a zero-returns rate present an attractive economic incentive to invest in accurate product labeling and addressing.
The issues associated with product returns arise from two main quarters. First, a product may be wrongly addressed, thereby necessitating a secondary process to correct the error. On the other hand, products damaged in transit or those having manufacturing defects must go back to the factory for resolution. Better packaging and careful handling can eliminate damages associated with handling. Even then, the warehouse cannot control how the rest of the players in the supply chain handle products.
In summary, the decision process used to arrive at the current solutions involved thinking through the factors in the supply chain that are under the control of the warehouse versus those that are not. Secondly, the process took into account the cost of implementation of the proposed solutions versus the cost incurred by not implementing the solution. These two factors resulted in the decision to focus on the product labeling and addressing process because it will have the largest range of impacts on the supply chain.
The Implementation Phase
The implementation phase will involve the factory and the warehouse. The steps needed to implement this solution are as follows. The first requirement will be to carry out an assessment of the costs associated with the current situation. Specifically it will be important to determine the costs associated with product returns to the factory and the warehouse. Secondly, the factory needs to calculate the cost of labeling and addressing all the products in the factory rather than sending the labels along with the products.
Secondly, the implementers should compute the benefits that will accrue to each player after implementing this solution. How much will the factory save by implementing this solution? In addition, will the increased delivery capacity of the warehouse lead to more sales for the factory? The warehouse also needs to quantify how much it will gain from this process. Lower volumes of returns should increase the carrying capacity of the warehouse, and should lead to increased profitability.
The third step will be to start carrying out all the labeling activities in the factory. This may require the factory to institute one more step in its packaging process. The factory already labels most of the products within its floor, but chooses to aggregate products going to the same destination. Therefore, it does not require fresh investment in equipment, just a small change in how the factory handles the aggregated products.
The fourth step will be to create a link between the sales office in the factory and the shipping section of the warehouse to share customer data as soon as a customer places an order. The warehouse requires a copy of the order form to plan deliveries. If the warehouse knows how many products will arrive in a week’s time and their exact destinations, it can plan its routes more efficiently and thereby eliminate local returns arising from mismatched addresses.
These steps can help to improve the efficiency of operations in the warehouse and along the entire supply chain. The warehouse stands to benefit the most from factory labeling and addressing of products. However, this may transfer the cost to the factory. Therefore, the warehouse should share the benefits that accrue from this improvement with the factory. This can be in the form of reduced handling charges, or rebates. While this reduces the overall advantage the warehouse will be experiencing, it will make it easier to make these measures sustainable for the factory, and will eliminate a whole category of errors. The warehouse can use these advantages to improve its bottom line in other ways.
Expected Results
The expected results from this process are as follows. First, the warehouse will have operations that are more efficient. It will have fewer product returns, and faster delivery of goods. This will arise from the elimination of the mislabeling while breaking bulk in the warehouse.
The second expected benefit will be a more streamlined supply chain because of greater demands for accuracy in the product shipment process. This will make it easy for all the operators in the supply chain to handle the goods without the risk of shipping goods to wrong destinations.
Correct labeling at the factory will also lead to a reduction in breakages and other transit damages to goods. Once the factory handles all the labeling, the warehouse will not need to have a sorting and labeling stage, which usually leads to some damages. Factory labeling will therefore cut back on the returns from two fronts. First, the products will have the correct addresses, and secondly, it will eliminate one of the sources of transit damages.
The forth result that this change will bring is an increase in the carrying capacity of the warehouse. As pointed out, returns not only increase the operational costs of a warehouse, but theny also worsen capacity constraints. A product passes through the warehouse thrice if it needs shipping back to the factory, and then back to the client. Therefore, eliminating returns creates space for the warehouse to handle two more products. This means that without any expansion in capacity, the factory can triple the volume of goods it currently handles through its returns system.
The Next Steps
The immediate steps needed to bring these solutions to reality are as follows. The warehouse needs to carry out assessment of all its processes to estimate the cost of handling each product and the costs it incurs when handling returns. The assessment is very critical because it will form the basis for negotiations with the factory regarding factory labeling and addressing of all products. Similarly, the warehouse needs to get into talks with the factory to determine the cost increments expected once the factory embarks on labeling of all products before shipment. The cost of labeling and addressing products in the factory is much smaller than doing it the warehouse, and the factory already has this capacity. It is however a cost that must be met.
Works Cited
Button, Kenneth. Transport Economics. Cheltenham, UK: Edward Elgar Publishing, 2010. Print.
Kopezak, Laura and Han Lee. “Coordinated Product and Supply Chain Design.” Case Study (1994): 331-404. Print.
Leeman, Joris J A. Supply Chain Management: Fast, Flexible Supply Chains in Manufacturing and Retailing. Dusseldorf: Books on Demand, 2010. Print.
Wensveen, J G. Air Transportation: A Management Perspective. Hampshire: Ashgate Publishing, Ltd, 2007. Print.
Wittmer, Andreas, Thomas Bieger and Roland Muller. Aviation Systems: Management of the Intergrated Aviation Value Chain. Berlin: Springer, 2011. Print.