April 1996 € Volume 6 € Number 4

Thinking Out of the Box

Where Tomorrow's Distribution Center is Headed

By Lori Lockman

Twenty years ago, most logistics facilities didn't provide much of a strategic advantage. They more closely resembled cardboard boxes. They were square or rectangular, designed to hold product, and had little impact on whether a company thrived or failed.

Not so today. Now that reengineering has finally found its way to the logistics arena, today's logistics facilities are as full of potential as they are of product.

As a result, finding and equipping a logistics facility has become far more critical than ever before-as has making sure that the facility will work as well in the long run as it does in the short term.
Although no one can predict exactly how a logistics facility will match a company's needs far into the future, there are a few basic rules of thumb that can help.

Drive a good bargain
"To an extent, changes in transportation -- specifically trucks -- move changes in warehousing," said GATX Logistics director of real estate Pam Zoellner.

Zoellner said the increase in cab and trailer size has affected at least three areas in logistics facility design:

Concrete aprons, which once averaged 42 feet, now should be 54 feet to accommodate the needs of larger vehicles.

Dock doors should be as much as two feet taller and wider (from 8-ft. by 8-ft. to 10-ft. by 10-ft.) for maximum flexibility.

Leveling systems in warehouses should be as flexible as possible.

"I'd recommend that people buy pit levelers for their warehouses instead of edge-of-dock levelers, because they can better adapt to varying heights of trucks," Zoellner said.

Also significant is the increased amount of traffic passing through warehouses as more companies pursue concepts like Just-in-Time and continuous replenishment. These concepts reduce inventory, cut storage demands, and increase the rate at which products reach end users. However, they also make easy access to trucks or railcars highly critical.

Many companies are addressing this by building logistics facilities with truck doors on both sides to ensure an easy and rapid flow of traffic through them -- and to make them more attractive to future prospects should the need to sell or lease them ever arise.

"If you have truck doors on both sides, the facility could be divided and leased and/or operated as two or more separate operations if necessary," Zoellner said.

Companies also are constructing facilities with a greater number of truck doors.

"Older warehouses offered one truck door for every 15,000 square feet of a warehouse," Zoellner said. "Now we're finding our requirements mandate one for every 5,000 to 7,000 feet."

Elevate your expectations
Today's logistics facilities aren't any more attractive than yesterday's. But what they lack in form, they make up for in function -- because from the roof to the floor, substantial improvements are evident throughout.

With the help of better racking, companies that once found themselves limited to storing one pallet of product on top of another now can stack their products upward as well as outward. And, thanks to the use of stronger concrete that can bear more weight, they can do so without worrying about cracking their flooring.

"More companies are going in the direction of high-cube warehouses," said Zoellner. "They're increasing their ceiling heights beyond 30 feet and storing their product vertically as well as horizontally."

For this reason, she says businesses looking for a long-term logistics center should consider how it will stack up not only today but in years to come, when new developments might improve product stackability even further.

"You shouldn't commit yourself to a logistics facility that only will suit your needs today," she said. "You want one that will serve your needs 10 years from now, too."

More is better when it comes to information
As product turnaround time in logistics facilities shrinks from days to hours, real-time information is becoming an increasingly essential tool. That's why, according to GATX Logistics marketing manager Russ Dixon, every logistics center should have at least three information-based products.

"Every center should have a means of preparing an electronic message (a mainframe, a midrange computer, or a PC-based system), a communications device like a modem, and an application capable of translating a logistics center's data into an understandable format for the receiver," he said.

Hardware, software and operating systems for these items can range anywhere from several thousand dollars for a PC-based environment to several million dollars for a mainframe one, so Dixon advises companies to do a thorough analysis before making an investment.

"Companies need to be realistic about the kind of demands they're going to make on a system," he said. "They may not need a mainframe if they have a simple operation and a low number of transactions. Then again, they don't want to invest in a system that's too basic to meet their needs." He added that many businesses are aiming for the best of both worlds by going with mid-range computers, which offer much of the sophistication of a mainframe at a fraction of the cost.

In addition to an overall system, other good devices to have include bar code scanners and radio frequency devices, which provide logistics centers with a more efficient means of accepting, storing, moving, preparing and shipping inventory.

"These devices are allowing logistics centers to move computer efficiencies from the office to the dock, and to achieve a lot of economy as a result," said Dixon.

Radio frequency devices, for example, can provide a forklift driver with up-to-the-minute instructions on what he or she should pick up, where to take it, and where to go next-without requiring him or her to waste valuable time and energy going to a dispatch area. And bar code scanners enable a facility to confirm receipt of a product and update inventory with a mere wave of a wand.

But these items come at a price -- and right now it's still too high for many U.S. companies.

"It's a big investment to convert your company to a bar code system, because you have to consider more than just equipment cost," said GATX Logistics information specialist Tim Hill. "You also have to consider the money it will cost to label all your products. And that could run into millions of dollars."

Still, Hill says that -- despite the price tag -- it probably won't be too long before use of bar code and radio frequency technology in distribution environments will be commonplace.

"More and more of our customers are getting interested in that technology," he said. "And more and more of their customers are requiring it. I think it's only a matter of two to three years before it makes the transition from good business option to good business essential."

Finally, as transportation prices rise, logistics centers are becoming increasingly reliant on applications like route planning to help them plan the most cost-effective way to bring materials to the center or get shipments to their destinations.

"These days, there's an information-related solution to just about every logistics challenge," Dixon said. "There are programs that can tell you where to locate a facility, how to design routes and schedules, and how to determine what roadways are accessible to trucks and trailers. It's just a matter of finding the ones that are right for your business."

But less is better when it comes to automation
In today's state-of-the-art business environment, it's tempting to go with the most "high-tech" warehousing equipment available. But that could be a mistake according to GATX Logistics executive vice president of operations Mike Gardner.

Few companies can afford to lay out the $30 to $40 million it costs to build a fully automated distribution facility -- or to take the chance that this type of facility will continue to meet their needs for years to come.

"A high degree of automation only makes sense for a company like an automobile manufacturer that's absolutely sure its business plan calls for long-term use of the machinery it's buying," said Gardner. Otherwise, he advises companies interested in going high-tech to opt for the more open-ended approach of a mechanized warehouse. This kind of warehouse still has machinery (notable examples include gravity flow racks, carousels, and automated pick lines); but it's of the far less expensive, more flexible variety.

"Logistics centers can't overlook the need to build flexibility into their operations," said Gardner. "If they do, they're probably not going to get the financing they need." Nor will they be able to sell off the equipment if their needs change, which is an important economic consideration.

Listen to your market
Although transportation, construction, technology and equipment are undeniably important considerations when buying or leasing a logistics center, it's equally critical to pay attention to logistics-related market demands.

"Years ago, logistics centers were just places to store goods. But now it's getting to the point where few items leave a facility in the same form as they entered it," said Gardner.

The driving force behind this evolution is price club retailers, which have managed to cut prices by doing away with their back-room warehousing operations and by selling bigger quantities of products through the use of pre-packaged configurations. This has made it necessary for products to arrive at their stores ready to be sold -- and essential for many logistics centers to become adept at doing everything short of actual manufacturing or marketing.

"By providing value-added services at their logistics facilities, businesses can postpone how they want a product configured, priced or packaged until the very last minute," Gardner said. "This allows them to more accurately match product supply or availability with consumer demand. Therefore they don't have to have nearly as much inventory in stock. In the long run, that can save them a lot of money."

Ask for help if you need to
If the prospect of building, equipping and running a logistics center for the long-term sounds overwhelming, don't despair. Your company could opt to delegate these functions to one or more contract logistics providers.

Right now, that's still an unconventional decision: The top 10 providers of contract logistics services, for example, currently service less than 10 percent of the United States' total logistics requirements. But, as the logistics function gets more complicated, more companies are turning to these providers for help.

Contract logistics providers come in all shapes and sizes, from the locally based, third-generation mom-and-pop operation to large national interests. But regardless of which type of provider companies opt to work with, they get the benefit of reduced capital costs and flexibility -- not to mention the luxury of making someone besides themselves think out of the box.

Lori Lockman is a freelance writer specializing in logistics.

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