NEW YORK -- Retailers and wholesalers will still be paying enormous attention to the task of implementing warehouse management systems in the year ahead.
But they will also be placing much greater emphasis than a year ago on developing cross-docking and flow-through logistics programs
and using radio frequency communications within their warehouse operations.
Those were among the key findings of a state-of-the-industry report on supermarket warehousing. The report was based on a survey of nearly 70 supermarket chain and wholesaler executives with major warehousing responsibilities.
The survey was developed by SN Productivity section editors and conducted by the Market Research Department at Fairchild Publications, New York, which publishes SN.
The report revealed some sweeping changes in a large number of crucial warehousing areas, including top priorities for the year ahead, projected declines in warehouse inventory levels and greater involvement in continuous replenishment programs.
Top Priorities
The survey found that implementing warehouse management systems, cited by 28.3% of distributors, still ranked as the No. 1 warehousing priority for 1996. But that percentage represents a sharp drop from the 40.3% of survey respondents who said warehouse management systems were the top priority in 1995.
Instead, cross-docking and flow-through logistics and radio frequency communications emerged as issues of increasing importance.
More than one-quarter, 25.4%, of distributors, including 42.8% of wholesalers, listed cross-docking and flow-through logistics as their top priority for 1996, compared with 14.9% in 1995.
In the area of radio frequency communications, 16.4% of survey respondents, including 21.9% of retailers and 11.4% of wholesalers, cited radio frequency communications as the No. 1 warehousing priority for 1996. Last year, 11.9% of distributors, including 22.9% of wholesalers and no retailers, cited it as the top priority.
Continuous replenishment programs, on the other hand, remained at about the same level in terms of priority ranking, with retailers leading the charge. The initiative was ranked as the No. 1 warehousing priority by 13.4% of distributors, including 25.0% of retailers and 2.9% of wholesalers, this year, compared with 14.9% of distributors, including 21.9% of retailers and 8.6% of wholesalers, last year.
Continuous Replenishment and Inventory Levels
The surge toward implementing continuous replenishment programs has not lost momentum. More than two-thirds, 67.1%, of survey respondents, divided fairly evenly among retailers and wholesalers, said they will be involved to some degree in a continuous replenishment program in 1996, compared with 54.4% of distributors in 1995.
In terms of the total amount of inventory now handled via continuous replenishment programs, 16.7% of respondents said 50% or more of product volume is involved in such programs today; 11.9% said 26% to 50% of product volume is involved; 23.8% cited levels of 11% to 25%; 26.2% reported levels of 6% to 10%, and 21.4% said 5% or less of product volume is involved.
Retailers, in general, reported somewhat higher levels of inventory volume moving through continuous replenishment programs than did wholesalers, but both segments clearly are shipping increasingly more goods via continuous replenishment.
The survey also asked whether the continuous replenishment programs were managed by vendors or distributors. Not surprisingly, the vast majority of continuous replenishment programs today are vendor-managed: at 70.7% of distributors, including 73.9% of retailers and 66.7% of wholesalers.
Eventually, however, more retailers and wholesalers plan to run the programs: 57.1% of distributors, including 63.6% of retailers and 51.9% of wholesalers, said they expect to manage continuous replenishment programs in the future.
While distributors expand their involvement in continuous replenishment programs, they are also predicting reductions in warehouse stockkeeping unit inventory levels.
In 1996, 27.8% of distributors said warehouse SKU inventory levels will decrease, while 43.1% predicted an increase. In 1995, only 16.5% of distributors said warehouse SKU inventory levels fell, while 54.4% said they increased.
Technology, Budgets and Costs
The survey also revealed several key findings in terms of warehouse technology initiatives and budget priorities.
Almost three-quarters, 73.4% of survey respondents, said they now had a computerized warehouse management system in place. But nearly two-thirds, 63.3%, said they plan to install or significantly upgrade the system in 1996.
A sharp increase in companies allocating 10% or more of their warehousing budget to new technologies was also revealed.
In 1996, the percentage of distributors spending more than 10% of their budgets on new technologies soared to 38.8%, including 40.0% of retailers and 37.9% of wholesalers. In 1995, in comparison, only 16.3% of distributors fell into that group.
Companies allocating less than 2.0% of their budgets to new technologies, on the other hand, fell to 28.6% in 1996 from 38.8% in 1995, according to the survey.
Upgrading information systems technology was also listed as the top challenge in the area of warehousing, cited by 42.3% of distributors, including 54.2% of retailers and 32.6% of wholesalers. Labor management came in second, singled out by 38.5% of distributors, including 28.6% of retailers and 46.4% of wholesalers.
The survey also tracked trends in third-party outsourcing for various warehousing functions. The greatest use of third-party firms continues to involve distribution center space: 67.3% of distributors said they will go outside their companies for that purpose to some degree in 1996, compared with 67.2% in 1995.
Targets for Spending
Replacing materials handling equipment and updating data communications networks are two areas that most distributors will spend money on in 1996.
Which initiatives are on your budget for 1996? (More than one response allowed.)
Replacing Materials Handling Equipment
Total 76.3%
Retailers 74.3%
Wholesalers 78.0%
Upgrading a Data Communications Network
Total 61.8%
Retailers 65.7%
Wholesalers 58.5%
Building or Redesigning Warehouse Facilities
Total 47.4%
Retailers 54.3%
Wholesalers 41.5%
Enhancing a Labor Scheduling Program
Total 44.7%
Retailers 40.0%
Wholesalers 48.8%
Purchasing a Warehouse Management System
Total 32.9%
Retailers 37.1%
Wholesalers 29.3%
Assessing Priorities
Implementing warehouse management systems still ranks as the top distributor priority for 1996, but cross-docking/flow-though logistics and radio frequency communications both moved up significantly on the list.
What areas commanded the highest priorities in warehousing operations in 1995?
Warehouse Management Systems
Total 40.3%
Retailers 37.6%
Wholesalers 42.8%
Cross-Docking/Flow-Through Logistics
Total 14.9%
Retailers 12.5%
Wholesalers 17.1%
RF Communications
Total 11.9%
Wholesalers 22.9%
Continuous Replenishment
Total 14.9%
Retailers 21.9%
Wholesalers 8.6%
Materials Handling Equipment
Total 9.0%
Retailers 18.7%
Electronic Data Interchange
Total 1.5%
Wholesalers 2.9%
Which will in 1996?
Warehouse Management Systems
Total 28.3%
Retailers 28.2%
Wholesalers 28.5%
Cross-Docking/Flow-Through Logistics
Total 25.4%
Retailers 6.2%
Wholesalers 42.8%
RF Communications
Total 16.4%
Retailers 21.9%
Wholesalers 11.4%
Continuous Replenishment
Total 13.4%
Retailers 25.0%
Wholesalers 2.9%
Materials Handling Equipment
Total 6.0%
Retailers 6.2%
Wholesalers 5.7%
Electronic Data Interchange
Total 3.0%
Retailers 3.1%
Wholesalers 2.9%
Inventories to Decrease
More than one-quarter of distributors, a sharp increase from a year ago, said they expect total warehouse inventory levels to decrease in the year ahead.
How did total warehouse stockkeeping unit inventory levels change in 1995?
Increase
Total 54.4%
Retailers 51.5%
Wholesalers 56.8%
Decrease
Total 16.5%
Retailers 17.1%
Wholesalers 15.9%
No Change
Total 29.1%
Retailers 31.4%
Wholesalers 27.3%
How you expect it to change in 1996?
Increase
Total 43.1%
Retailers 45.7%
Wholesalers 40.9%
Decrease
Total 27.8%
Retailers 22.9%
Wholesalers 31.8%
No Change
Total 29.1%
Retailers 31.4%
Wholesalers 27.3%
The MIS Challenge
Upgrading information systems technology was cited at the top challenge facing distributors in the warehousing arena. Labor management came in second.
