A major discounter wants custom packaging for items in product displays.

A sporting goods store wants personalized soccer jerseys for each local team.

Another retailer wants special tags on some products, and standard tags on others.

These and other value-added services are in strong demand today. Not only that, but now they are less likely to be done in a manufacturing facility. Instead, all of this product customization is occurring on the floor of distribution centers. And most of the time, there is a wide range of value-added services being performed at once.

"The reason it's going on so much more is that the customer is king," says Jim Tompkins, president and founder of Tompkins Associates (919-876-3667. "Warehouses are trying to reduce inventory, yet maintain responsiveness, and now handle value-added services. It's certainly a conflict, and it comes to rest in the DC."

Off the top of his head, Tompkins rattles off a dozen types of value-added services he's recently seen performed in warehouses:

• Pack garments on/off hanger
• Pack products many different ways (packing three or five in a bag, with complementary products, etc.)
• Kitting
• Customizing
• Ticketing/pricing
• Branding/labeling
• Assembling
• Rework
• De-assort and assign separate stock keeping units (SKUs)
• Repair, instead of shipping back to factory
• Pre-assemble displays
• Store-ready product; ship according to store's layout, not DC's layout.

How can a warehouse handle such a range of demands? To begin, say the experts, the DC needs to have in place good warehousing practices. If the basics aren't solid, adding additional activities will only hurt efficiencies further. Other best practices in managing value-added services operations in the warehouse include; better forecasting and collaboration with customers, hiring a skilled labor force and using people's abilities, creating flexible warehouse layout, processes and practices as well as upgrading the information system.

"Your fundamentals of basic warehousing have to be automatic, smooth and certain; where people fail is when the basics don't work," says Albert Avalos, president and chief executive officer of Q4 Logistics (714-543-1116). "You must tighten up on your basics before doing anything extra," he adds.

That's because everything happens so quickly now. "Bring in value-added services that customize inventory, and the warehouse will handle ever smaller order quantities, and more frequent orders in shorter time windows," explains Don Derewecki, executive vice president at Gross & Associates (732-636-2666).

Better forecasting and a closer partnership with suppliers will also help efficiencies, especially with so much of demand coming at the last minute. "Forecasting has usually been done within links of the supply chain, but now you need visibility between links," Tompkins says. As the difference between warehouse and factory blurs, customer and supplier need to share more data, he adds.

Derewecki strongly recommends that warehouse managers coordinate forecasting with their customers, so some of the work can be done when it is most advantageous for the DC and its staff.

Another pillar of success lies in the skills of the DC's labor force. Skillful workers are essential to making so many changes to products. But since the demand for value-added services is unpredictable, it's hard to keep them trained.

"You can't work them 40 hours one week and zero hours the next, because you won't maintain a quality workforce," says Tompkins. Some warehouses may even take jobs they wouldn't otherwise, so they can handle a rush order when it comes.

"Staffing is often a bigger problem than the service itself, to keep extra people busy in the down times," agrees Avalos. "The harsh reality is you need to be nimble, agile, and adaptable, and that costs money and demands talented people," Derewecki says.

Another approach is to build flexibility into the facility's physical layout, process and practices. The demand for value-added services affects all stages: equipment, layout, training, and work standards, says Derewecki. "You may need more floor space. You can ask 'Can I get this done on a mezzanine?' But if so, how do you get the product up there?" Making that happen requires layout and process changes.

Yet be careful of using machines to do all the work: "You can't over-automate value-added services because they're constantly going to change," Avalos says. "So you must use flexible value-add stations that can do a variety of services."

For instance, some warehouses handle ticketing, kitting, and reconfiguring on the inbound side of product flow, before the items are even shelved. That reduces the number of times they must be put away and picked, Avalos says.

There is also the practice called postponement. In an attempt to minimize the number of SKUs on the warehouse floor, postponement requires that the product be customized only at the last minute.

One example of this approach is food. "Most of it you have to make when God tells you to—when apples are ripe, you make applesauce," Tompkins says. But that doesn't mean the factory already knows whether it needs to print the jar labels in Spanish or English. So today, it will ship the food anyway, and ask the warehouse to slap last-minute labels on the "naked applesauce."

At the same time, there are certain value-added services that will not optimize a DC's operations. And that requires a special kind of flexibility. For instance, some facilities accommodate dynamic routing, shipping items to the customer's preference. That lets the customer shave a few cents off the handling of each item at its facility, but robs the warehouse of the chance to maximize its own efficiencies.

Likewise, some DCs now pack pallets so they're easy to unload at the retail site, instead of choosing the most efficient shipping method within their own warehouse.

Another contributor to efficient value-added services is an upgrade of the DC's information system.

On the one hand, this can improve the productivity and throughput of the DC. A more flexible warehouse management system (WMS), for instance, combines manufacturing and distribution tools, while still providing visibility and order tracking.

Furthermore, an advanced information system itself can become part of the value-added package. For instance, some DCs are now providing greater shipping visibility by sharing electronic data interchange (EDI) or advance shipping notice (ASN) data.

When all is said and done, however, performing value-added services with your staff may not be the best option. The secret is in knowing which jobs you just aren't equipped to handle. "If you don't have the space in your facility, you can end up spreading an order all over your floor and picking it two or three times instead of once," Avalos says. In this case, the best that can be done is to outsource the value-added activities, either sending product to another company's facility or bringing their staff into your DC.

The bottom line is that there's no single answer. The definition of value-added services is constantly changing, as the industry becomes accustomed to each new task. "It requires flexibility, because what you're doing today is in all likelihood not what you're going to be doing next month," Derewecki says.