Trends in distribution, warehousing and manufacturing
In our third annual survey, plans to buy materials handling equipment and related information systems remain strong as companies adjust their priorities for improving operations.
By Gary Forger, Editorial Director -- Modern Materials Handling, 1/1/2007
Every one wants to know how they stack up to their peers. It's true on a personal as well as corporate basis.
And now you can see exactly where you stand based on the results of our third annual survey of distribution, warehousing and manufacturing. While the box below tells you who responded to this survey, here's the top line profile for your company outlook, equipment and systems buying trends, and the key practices, metrics and issues facing you today.
Company outlook
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Two-thirds expect company revenues will grow in 2007
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Top three reasons for company growth: new customers, expanded product line, more buying by existing customers
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Top three factors impacting profitability: higher materials prices, energy prices, shipping prices
Buying trends
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Significantly more say information management systems are more critical to their operations success than materials handling equipment and systems
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Nearly two-thirds expect their spending on information systems and materials handling will be unchanged during the next two to three years
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Buying teams, rather than individuals, make most expenditure decisions
Practices, metrics and issues
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Most important practices in manufacturing: continuous improvement, lean manufacturing and build-to-order
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Most important practices in warehousing: continuous improvement, value-added services and lean inventories
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Most important metrics for all: shipping accuracy, on-time shipping and inventory accuracy
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Most important issues for all: cost containment, training and ergonomics/safety
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Compared to the first two years of the survey, there are no seismic shifts in any of these areas. But there are some shifts underway that appear to be precursors of future trends. For instance, expectations are high for company growth but decidedly more pessimistic about future activity levels. Meanwhile, equipment and systems expenditures are expected to grow but by fewer people than a year ago. And while many of the top practices, metrics and issues remain in the same relative position, there are some new ones moving into the leading spots, especially in metrics and issues.
Company outlook
Overall, people are upbeat about their company's prospects. While company revenues did not grow by as much in 2006 (13%) as in 2005 (19%), double-digit growth is still double-digit growth. Looking forward, growth in 2007 is expected to average 14%. Perhaps just as important, the percentage of people looking for growth did not change year over year.
While the top three reasons for company growth remain new customers, expanded product lines and more buying by existing customers, there was a shift among second tier factors. Most notably, foreign sales jumped from sixth position to fourth with 20% identifying it as a key strategy.
The top threats to profitability are the rising costs of materials, energy and shipping. Of those three, shipping cost increases are more of a concern than before. Only 11% saw shipping as a factor in the last survey while 15% identified it this time around. Furthermore, shipping costs jumped ahead of labor costs as a threat to profitability for the first time.
More than half of the people (52%) expect manufacturing activity to increase in the next two years. That's down from the 58% who expected increases in the last survey.
At standalone DCs, only 42% expect activity to increase in the next two years, a decidedly more pessimistic outlook than in manufacturing. It's also three percentage points below the previous survey.
Buying trends
There's no question that interest in new materials handling and information systems is strong. However, 62% says information systems are the more important of the two for accomplishing their goals. Only 38% say the same of materials handling. Notably, the materials handling percentage is three points higher than the last survey while information systems is three points lower.
Buying is expected to remain high for the foreseeable future, too. In fact, 94% say they will either increase their spending (64%) or spend the same amount (30%) on all materials handling and information systems during the next two to three years. That total number is exactly the same as the last survey and only three percentage points below the first survey in 2004.
Regardless of what is being bought, buying teams typically make the decision for all information systems from wireless terminals to supply chain software. For materials handling expenditures, the decision to buy totes/bins/containers is the only one typically made by an individual. Automated storage, conveyors and guided vehicles are the three systems with the highest level of team involvement.
Interestingly enough, companies seem to be giving unit managers more autonomy than before in capital expenditure decision making. In our first survey, the purchase amount is what triggered corporate involvement 70% of the time. In the second survey, that number dropped to 63%, and this time to 58%. In addition, the trigger amount for corporate involvement rose from $142,500 in 2005 to $201,500 now.
Meanwhile, the size of pre-approved budgets has risen from $482,800 in 2005 to $526,200 now. At the same time, 58% have pre-approved capital budgets, the same level as in 2004, but six percentage points less than last time.
The chart on page 33 details what is being bought. Lift trucks and accessories, rack and shelving as well as totes, bins and containers are the top items now and for the next two to three years. In information systems, the leaders are printers, bar code scanners and warehousing software. While the actual numbers differ slightly from the last survey, there are no significant changes in what people are buying or intend to buy in the near future.
Practices, metrics and issues
When it comes to practices most important in manufacturing, the relative position of the top five (see chart on right) have not changed since our first survey. But there are some shifts in how important each of the top five is perceived.
For instance, continuous improvement originally cited by 80% of people, is now only at 74%, but still leads the list. No change is expected through 2008.
On the other hand, lean manufacturing's importance has stayed about the same over the three surveys, holding onto the second spot. However, it is expected to become noticeably more important both this year and next. Much the same can be said about both just-in-time and just-in-sequence production.
On the warehousing side, continuous improvement continues to dominate at a steady level (80%) with a mixed reading on its future importance. Following much the same pattern are value-added services, lean inventories, workload planning and same-day order shipping.
Second tier warehousing practices such as trading partner collaboration, crossdocking, outsourcing and reverse logistics are all expected to become significantly more important by 2008. However, none are expected to break into the top five spots on the list.
When it comes to most important metrics across warehousing and manufacturing, shipping accuracy still leads the pack at 89%. That is a slight decline from other surveys, and lower than where it is expected to be going forward. Picking accuracy, which had been in the fifth spot in the first two surveys, has moved up to the fourth spot. Replacing it in fifth is on-the-job injuries, which is expected to be even more important by 2008.
Those two shifts dropped inventory levels out of the top five for the first time. And the drop was unexpectedly large, going from 75% last time to just 67% now. This may just be a fluke, however. Projections for 2008 put inventory levels as an important metric by 82% of people.
There was also some shifting around among key issues in manufacturing and warehousing. Cost containment still leads the list at 85%. Company growth, which was second, dropped to fifth, swapping places with training. In third spot is ergonomics and safety followed by throughput. Looking at projections for 2008, it appears that there may well continue to be some jockeying for position among those four as cost containment clearly remains the most important issue going forward.
| *Projected by readers in 2005 **Projected by readers in 2006 |
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| What practices are most important? | |||||
| Manufacturing | |||||
| Practice | 2004 | 2005 | 2006 | 2007* | 2008** |
| Continuous improvement | 80% | 78% | 74% | 77% | 75% |
| Lean manufacturing | 61% | 62% | 61% | 71% | 67% |
| Build-to-order | 49% | 52% | 48% | 59% | 53% |
| JIT production | 47% | 47% | 45% | 56% | 54% |
| Just-in-sequence production | 33% | 33% | 30% | 47% | 42% |
| Warehousing | |||||
| Practice | 2004 | 2005 | 2006 | 2007* | 2008** |
| Continuous improvement | 80% | 80% | 80% | 85% | 81% |
| Value-added services | 62% | 60% | 63% | 67% | 66% |
| Lean inventories | 59% | 59% | 61% | 71% | 66% |
| Workload planning | 56% | 61% | 55% | 71% | 63% |
| Same-day order shipping | 53% | 57% | 56% | 66% | 65% |
| Which metrics are very important? | |||||
| Distribution, warehousing and manufacturing | |||||
| Metric | 2004 | 2005 | 2006 | 2007* | 2008** |
| Shipping accuracy | 93% | 92% | 89% | 92% | 90% |
| On time-shipping | 89% | 88% | 87% | 92% | 89% |
| Inventory accuracy | 87% | 86% | 84% | 91% | 91% |
| Picking accuracy | 78% | 76% | 77% | 81% | 80% |
| On-the-job injuries | 72% | 71% | 75% | 73% | 78% |
| Which issues are very important? | |||||
| Distribution, warehousing and manufacturing | |||||
| Issues | 2004 | 2005 | 2006 | 2007* | 2008** |
| Cost containment | 89% | 89% | 85% | 91% | 88% |
| Training | 61% | 64% | 71% | 70% | 74% |
| Ergonomics and safety | 65% | 67% | 69% | 70% | 73% |
| Throughput | 65% | 66% | 66% | 75% | 74% |
| Company growth | 70% | 69% | 65% | 73% | 71% |
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