2019 U. S. Supply Chain: Warehouse Trends

Ready to know the latest?  2019 is shaping up to be a year filled with pressure.  From inventory levels, to the need for speed, more warehouses, more labor and more technology to the outsourcing trend that is pushing the limits on what activities can be outsourced, 2019 is already presenting exciting opportunities as well as the impetus for more change, both in and out of the warehouse.

1. Inventory Management Issues in U.S. Warehouses

2019 is already a year highly focused intensely on inventory levels in the warehouse.  During the recession, inventory levels were demonstrably reduced.  The economy today has led to increased inventory levels, but not to the high point of pre-recession levels.  Between the purchase of less inventory and enhancements in managing inventory, in general, inventory levels seem to have found solid footing, balanced at the higher recession-adjusted levels.

With that said, however, there is an issue this year with inventory stockpiling.  Last year, it was widely reported that manufacturers and retailers were aggressively buying and storing inventory to get ahead of potential future tariff increases.  The economy has slowed down after facing the slowed pace of growth globally, unresolved trade disputes and the waning impact of U.S. tax cuts so inventory remains high in warehouses across the United States.

While the accumulation of stockpiles of inventory helped to add 1.2 percentage points to U.S. growth in the third and fourth quarters of 2018 and were key to the year’s 3 percent expansion, reversing the inventory buildup is anticipated to hamper growth in 2019.  Yes, GDP increased at an annualized rate of 3.5% in Q3 2018, however the measure of how much trade added or took away from U.S. GDP growth is dismal, -1.78 percentage points.  This is the largest negative contribution to GDP growth for trade in over 30 years.

In the auto industry, the six-month average of dealer inventories of cars and trucks is the highest since 2009 at 75 days.  Ford Motor Company noted this month that their truck inventories were at a level of 70 days, as compared to 66 days in 2018.  According to an auto industry expert, the inventory stockpile is slowing down demand for new vehicle sales this year.

Across the board, from meat to electronics, luggage, furniture and other goods, inventory levels are higher than last year.  With sluggish retail sales for two of the past three months, inventory is currently not moving out of warehouses.

2. More Outsourcing to U.S. Third Party Logistics Providers for Warehousing

In today’s fast paced supply chain industry, companies are struggling to keep pace with the substantial growth in order volume resulting from the e-commerce boom.  Companies in the e-commerce realm often report that they find it challenging to manage expectations for fast, accurate order management and quick shipments and deliveries.  Additional issues such as the tight labor market and lack of affordable, well-positioned warehouse space causes additional headaches.  There are some of the reasons for the increased push to outsource to 3PLs.

The need to invest in technology is another reason.  E-commerce companies often recognize that they need to invest in technologies that can help streamline operational efficiency and keep costs under control but often lack the sophistication, knowledge or ability to make that jump.  Many, if not most, third party logistics providers now have invested in technologies such as warehouse management software for e-commerce fulfillment, cartonization, EDI and other systems so outsourcing removes the need for their clients to have to spend that money.   Because 3PLs tend to utilize technology, they often are able to maximize their labor resources and minimize the stress and pressure on warehouse workers, increasing employment longevity.

The labor crunch puts additional pressure on companies to outsource rather than to recruit, train and retain warehouse workers.  3PLs are specialists in their field and have already established networks for transportation and logistics and other needs, enabling them to leverage their expertise to meet critical needs.

One final issue of note, supply chain businesses are outsourcing to 3PLs to obtain more value-added services so that they no longer need to perform these tasks due to labor shortages and other issues.   This has shifted many types of tasks usually executed by manufacturers to third party logistics providers.  Without having adequate software capabilities for 3PL billing, 3PLs are likely to miss out on revenue if they are unable to bill for all the value-added services they provide.

3. Continued Need for Speed in U.S. Warehouse Operations 

Today’s warehouse is increasingly challenged to operate faster, more accurately and more cost effectively.  Now that’s a challenge! 

Leveraging a combination of technologies including material handling solutions, warehouse automation and crossdocking, warehouse operators are leveraging a multitude of solutions to keep orders on track and flowing to the doors of anxious consumers. 

Crossdocking has increased in popularity.  More than ever before, a larger percentage of goods are received in warehouses but are not moved to storage locations.  Crossdocked goods arrive and are immediately ready to ship to customers, increasing inventory turns.  One less step in the warehouse process can equate to dramatic savings of time and money.

4. Across the U.S., Warehouse Location and Size Matter 

To meet the needs for immediate last mile delivery and e-commerce order fulfillment, warehouses need to be positioned closer to urban areas.  Although most fulfillment centers, distribution centers and warehouses are now approximately 400,000 square feet in size, the supply chain industry is experiencing a demand for “small box” facilities.  These smaller warehouses, from 50,000 to 200,000 square feet often are positioned in nearby infill locations to support the e-commerce ecosystem.  Smaller distribution centers can be used to service manufacturers so that they can drop ship for their retail customers or for larger customers that need closer proximity to customers in urban areas. 

This new paradigm changes the scale of the warehouse as well.  The e-commerce industry has generated demand for a new type of warehouse with different locations, dimensions and capabilities than are found in legacy warehouses.  Some warehouses are not built to house traditional pallet racking and instead focus on fulfillment, turning inventory every 14 days or so. 

In 2018, more than 183 million square feet of new warehousing space was constructed as compared with 100 million new square coming online every year over the past 10 years.

5. Warehouse Labor Challenges Have Not Diminished 

The churning of warehouse labor continues.  Numerous supply chain industry studies have revealed that warehouses and distribution centers experience up to 15% turnover, excluding seasonal and part-time workers.  Nearly half of all new hourly warehouse workers abandon their jobs within the first three months. In addition, the direct cost of replacing a warehouse worker can reach as high as 25 percent of the resource’s annual salary.  Adding in lost productivity, continually onboarding new warehouse staff and other indirect costs increases this to up to 150 percent of salary, a truly staggering amount. 

With the lack of qualified hourly warehouse workers, there is tremendous demand and intense competition.  In addition, the rise of e-commerce has led to more complex customer requirements.  The standard in today’s supply chain industry is a perfect order, executed in a shorter period of time using less resources of each type throughout the process and network. 

In 2018, there was a significant shift in technologies that impact productivity.  Usage of paper-based picking systems decreased to 48%, labor management system use increased to 15% and the use of warehouse management systems increased to 93% for the first time.  The adoption of these technologies is largely a result of the shortage of supply chain labor.  Increasing the productivity of warehouse workers is essential as it is not always possible to hire short term or seasonal workers to meet increased warehouse needs. 

The use of automated systems such as RF scanning, RFID, voice-enabled operations, robotics, drones and AS/RS is becoming increasingly popular, even expected.  With warehouses seeing increased order volumes, some warehouse operators are reluctant to spend the time and money to hire or are unable to find qualified warehouse workers.  The pressure on warehouse workers laboring under conditions demanding speed, accuracy, longer hours and increased productivity is enormous. 

Leveraging the right combination of technologies and utilizing business intelligence to provide insight into vital operations can make a demonstrable difference in the productivity of the workforce as well as in the level of frustration and strain in the daily performance of warehouse workers.  Using warehouse data, warehouse managers can better plan for optimal performance, identify problem areas and help drive more success in warehouses, distribution centers and fulfillment centers.

Conclusion 

From San Francisco to Charleston S.C., warehouses across America are feeling the strain of more complex requirements, demand for speed and accuracy and the need to keep costs contained.  North American warehouses are struggling to meet the huge issue of dramatically increased order volume in times plagued by labor shortages, increasing supply chain costs and other factors. 

With top stories in the news focused on global supply chains, the impact of tariffs on global trade and the throng of new technologies being launched in warehouses, consumers are “thinking supply chain” while warehouse workers hope to pilot drones and autonomous vehicles from the sidelines. 

It’s a whole new world…