The 12 Principles of High Performance Warehousing - 2. Design your processes around value chains

Design your warehouse processes around the streams of value delivery for your business

Part 2 of a series on the 12 Principles of High Performance Warehousing.  The eBook can be downloaded for free by joining the High Performance Warehouse Network on the Logistics Help website.

A new online strategy could mean a change from case pick to unit pick
requiring a new and additional warehouse strategy

The current reality of global supply chain and the corresponding variety of distribution channels is illustrated in the universal model of supply chain.  Whilst this is a simplified diagram the important point is that any agent in the supply chain could be located anywhere in the world.  The myriad variations and possibilities create a growing number of possible distribution channels and value chains for any of participants.

Whereas a company may have gone for years with just a single distribution channel; for example; supply to a small selection of manufacturers or wholesalers in a local market.  Now they may now have developed their own brands for selling to retail stores and direct to customers in multiple markets.  Now they may sell to manufacturers  and wholesalers all over the world.  Each of these markets and distribution channels represents a different value chain  with a unique set of customer requirements, ordering patterns, shipping methods and consequently requiring a unique mode of operations within the warehouse to support them.

Some of the common distribution channels with differing warehousing requirements are:

• manufacturer to wholesaler, 
• manufacturer to retailer
• manufacturer direct to business customer
• manufacturer direct to home customer
• wholesale to retail,
• wholesale to business
• retail DC to retail store replenishment,
• trade supply store to contract tradesman
• trade supply store to large business 
• trade supply store online direct to tradesman or business
• trade supply store to retail customer
• retail store to walk in customer
• retail store online direct to home customer
• pure-play online retailer

Whilst having some things in common, each of these channels will be different and will also vary depending on the industry context, countries and businesses strategy.  Each variation will need a different approach to warehouse design and operation to best support the particular value chain.

Top tips for process design around value chains

• Identify your value chains.  What product/service/ distribution channel combinations do you have?  Do they require specific support and configuration in your warehouse?
• Speed and accuracy must be built into the process design.  Bolting a small order process onto a warehouse operation designed for bulk case and pallet picking will work in the short term for the start-up of a new online channel, but will crack under the pressure of volume; becoming costly and unable to meet service expectations.
• If you are serious in developing a new distribution channel then the warehouse process must be specifically designed to suit.
• Process design should take full advantage of available technology for greatest productivity.  The technology must suit the order and inventory profiles and generate a return on investment for the expected business volume.  (More on this later).
• The process must be optimised for the entire value chain and not just the warehouse.  Inbound logistics, ordering methods, customer service, delivery, billing and customer experience of the product and service must all be considered. The warehouse can be a key supporter in all of these from maintenance of stock availability, delivery or customer pickup experience, service support, installation through to the returns process and recycling of products at the end of life.
• The more your value chain can be integrated with your customer’s streams of value creation the more you will develop unchallengeable value delivery to your customers.  This approach can make it very hard for your competitors to replace you in the market and usually takes price competition out of the equation.  
• The classic example of this is Vendor Managed Inventory (VMI) where the small additional service you provide is highly valued by the customer who keeps buying your product because of the service.

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