In a groundbreaking survey, Modern's readers offer for the first time their views of where industry stands today and where it's headed. For the foreseeable future, they expect to increase their purchases of materials handling equipment, systems and related software to keep pace with expanding business activity. And when it comes to demands on their operations to continuously improve, they offer insights into the practices, issues and metrics that are most important now and going forward.

What's top-of-mind for managers in manufacturing, warehousing and distribution today? In a few words— growth, cost containment, and continuous improvement. Furthermore, they say those same words will be guiding their day-to-day activities for at least the next couple of years.

But that's only the top level view. When asked to drill down and identify other leading priorities, the list gets much longer. It includes activities such as lean manufacturing, shipping accuracy, on-time shipping, value-added services and build-to-order, to name a few.

That, and much more, is what managers told Modern Materials Handling in response to a survey earlier this year. For details on who the survey went to and who responded, see the box at right.

This first-of-its-kind overview of manufacturing, warehousing and distribution was conducted at a unique point in time and mindset. The economy continues to recover yet there is a notable combination of guarded optimism and tight risk analysis by U.S. industry.

Materials handling orders during the past year have increased at a double digit rate. However, there are many projects that are running on an extended schedule. Others are on hold for the time being, even though there is broad acknowledgement that new equipment and software are needed.

In addition to this Special Report, the survey is discussed in an archived video Webcast from Modern's Global Supply Chain Conference. To access the archive, which is entitled 'The State of Materials Handling in Manufacturing, Warehousing and Distribution,' visit www.gscc.mmh.com. The archive will be posted until mid-January 2005. To order the full report of this survey, visit www.research.mmh.com.

Across the board, managers say that their operations are working at 80% of capacity. That's almost the exact same percentage the U.S. government has pegged factory capacity utilization rates as 2004 closes out.

And while the Federal Reserve Board has long tracked manufacturing capacity levels, our survey is the first time we are aware of any organization doing the same for warehousing supporting manufacturing and warehousing/distribution.

When asked how they expect activity levels to change during the next two years, managers in manufacturing were more positive than those in warehousing supporting manufacturing and those at stand-alone warehouses and distribution centers.

In manufacturing, a strong majority (61%) expect activity levels to increase. Meanwhile, 34% expect activity to remain the same.

In warehousing supporting manufacturing, the tables were turned with 49% expecting the same activity levels two years from now. An increase is expected by only 44%.

In stand-alone warehouses and distribution centers, the balance of expectations was nearly identical with 49% calling for activity to remain the same and 46% looking for an increase.

Clearly, this is the fulcrum of that balance today between guarded optimism and tight risk analysis. On the one hand, managers are not pessimistic, with only 5–7% expecting activity levels to decline in the next two years. Yet, they are clearly not expecting business to expand rapidly in the foreseeable future.

At the same time, company growth was identified by 99% as either a very important or somewhat important issue facing them today. In other words, growth is certainly on their minds, but they are not yet convinced how much growth there will be.

Managers are, however, ready to spend on both materials handling equipment and related software. Seventy-one percent expect to increase those expenditures in the next two to three years. Only 26% say they will spend the same dollars, and a paltry 3% foresee a decline in expenditures.

Perhaps just as important, managers have money to spend. Modern asked managers if they had pre-approved capital expenditure budgets. A resounding 59% said they do. And of those who have those budgets in place, 65% plan to spend $100,000 or more in the next year. In fact, 28% have $1 million slated for materials handling equipment and related expenditures.

It's also clear where these expenditures are going. The vast majority, 72%, say they are looking to modernize an existing facility. In addition, 39% plan to expand an existing facility. As would be expected at this point in the economic cycle, a fairly small number, only 16%, are focused on equipment and software for a new facility. The fact that responses to this question exceed 100% says that managers have multiple objectives rather than a single focus when it comes to new equipment.

They also have an excellent idea of what they will be buying.

At the top of shopping lists for the next year are lift trucks and accessories with 55% of managers saying they have plans to buy this equipment. Next on the list are rack and shelving (46%) and totes, bins and containers (38%). Other leading types of equipment include dock equipment, packaging, and conveyors.

But materials handling hardware is not alone on the list. The information side of managing materials and inventories is also well represented. Bar coding holds the fourth spot with roughly a third of managers citing plans to buy. Meanwhile, wireless terminals (#8 on the list), supply chain software (#9), controls (#10), and RFID solutions (#11) figure prominently in buying plans.

In other words, the information side has a high profile. Managers increasingly realize that being able to identify and track inventory and materials at all stages of production and distribution is the price of being in the game. That capability no longer differentiates a company. Instead, it's just as basic as having lift trucks and conveyors to move inventory from point A to point B.

That point was made resoundingly when managers were asked: Which will be more important to you in accomplishing your goals in the next 2–3 years—materials handling equipment and systems or information management systems? Fifty-nine percent cited information systems and 41% said materials handling.

The source of this emphasis on information systems is, in all likelihood, a reflection of various conditions.

To begin, materials handling hardware is certainly more ubiquitous than information systems in industry today. No one is going to try to run a facility without core materials handling equipment such as lift trucks and conveyors. However, the information system out on the floor is still paper based at some facilities.

Although bar codes in particular are so widely used, there are still many facilities that do not use the technology as extensively as they could. Much the same can be said about wireless terminals, supply chain software and controls. Meanwhile, RFID is in its early stages, and, if nothing else, has the attention of many people today.

At the same time, companies are finding that these information systems not only make their own operations more efficient but are essential to success elsewhere in the supply chain. As a result, they are upgrading their own systems as well as building them out beyond the four walls. The end result is a new look and reach for information systems.

None of these expenditures would be made, of course, without a specific purpose. To that end, Modern asked managers what are the key practices, issues, and metrics today and in the near future.

The survey broke down practices by warehousing and manufacturing to identify specific activities that managers say make a difference in their daily activities. They were asked to rate each practice as 'very important,' 'somewhat important,' or 'not at all important.'

The top five practices in warehousing today are: continuous improvement, value-added services, lean inventories, workload planning and same-day order shipping. Managers were asked to evaluate 12 practices in all.

Continuous improvement scored significantly higher than the other four, which were grouped together relatively tightly. Interestingly, there were 18 percentage points between continuous improvement and value-added services on the 'very important' scale. Meanwhile, continuous improvement's 'somewhat important' score was significantly lower than that for the others rounding out the top five.

Given the business climate today, it's hardly a surprise that continuous improvement was cited as the leading practice in warehousing/distribution. And while value-added services are certainly important, to be named more important than lean inventories or same-day order shipping was somewhat unexpected. But perhaps the largest surprise in the top five was workload planning. While considered essential by many leaders, it appears to have taken on even new importance on a broader scale than anticipated.

Managers were also asked to rank their expectations for these practices two years from now. Continuous improvement remained in the lead. Lean inventories moved into the second spot. Value-added services and workload planning tied for the next position followed by same-day order shipping.

Aside from those shifts, all of the top practices scored higher in the 'very important' column two years from now than they did today. They moved up four to five percentage points across the board.

Both today and two years from now, the same three practices were at the bottom of the list. Those are reverse logistics, outsourcing, and postponement. Not only did postponement score the lowest of all at 'very important' (11%), it had the highest score for 'not at all important' (44%).

A list of 10 practices important to manufacturing was also rated by managers. Once again, continuous improvement came out on top by a wide margin. It was followed by: lean manufacturing, JIT production, build-to-order and just-in-sequence production.

Compared to the practices in the top five positions for warehousing/distribution, the top five in manufacturing did not have as high mean scores. And in the case of manufacturing, practices in spots three, four and five all registered significantly lower mean scores than their counterparts in warehousing.

Apparently, there is much less consensus among managers in manufacturing on what are the most important practices. For instance, it was quite unexpected that just-in-sequence production would be in the top five, yet it is. And while various industry observers are saying that manufacturing has moved on from lean manufacturing, that does not appear to be the case.

Looking ahead, managers do not foresee the top manufacturing practices changing in relative importance two years from now. Furthermore, the 'very important' scores for all five increased. While continuous improvement moved up only one point in that category, the other four jumped an average of 10 points. That indicates these practices are going to become even more important to manufacturing in the near future.

The bottom three practices are actually parallel to warehousing: outsourcing, lot sizes of one, and postponement. What's especially interesting here is the lack of importance given to outsourcing in light of all the manufacturing that has moved outside of the U.S. lately. Given all of the dynamics of outsourcing production today, this may be no more than an expression that this practice is one that has little interest to managers for obvious reasons.

The survey then moved on to ask managers about the key issues facing them today. Thirteen issues were evaluated. All responses were lumped together without distinguishing between manufacturing and warehousing as in the practices section of the survey.

The most important issue today and in the future is cost containment. This is hardly surprising since it is the spiritual sister of continuous improvement from the practices question. In addition, cost containment easily outdistanced the next four: company growth, throughput, ergonomics/safety and training. In fact, the 'very important' score for cost containment was 89% with training coming in at just 61%.

As was said earlier, company growth certainly has managers' attention. And throughput is a logical follow-on to that. However, both ergonomics/safety and training were surprises to be so high on the list.

Both are often cited as important, but companies have traditionally given them less attention than consultants and others often recommend. The survey shows that more than 60% rated both as 'very important' with another 30% calling them 'somewhat important.' Just 4% said both were 'not at all important,' an encouraging sign.

Looking ahead two years, all five issues are in the same relative position on the list, with all posting increases in the 'very important' category.

At the bottom of the list of issues both today and two years from now are: facility consolidation, trading partner collaboration, and outsourcing. The great surprise here is trading partner collaboration rates so low given the degree of investment being made to improve information systems that provide data across the supply chain. In all likelihood, this rating is a combination of two forces: other higher priorities and the enormous challenge of raising the trust level in trading partners from the standard corporate mindset.

When it comes to metrics, the focus is clearly on accuracy, timeliness and inventory. These are the nuts and bolts of manufacturing, warehousing and distribution, and are no surprise to be at the top. As the chart on this page shows, the most important metric is shipping accuracy. That is followed by: on-time shipping, inventory accuracy, inventory levels and picking accuracy. Those five top off the list both now and two years from now.

About the only surprise here is that 7% of managers considered picking accuracy to be 'not at all important.' Those people must have some secret weapon for fixing errors before they go out the door.

In short, managers don't see key practices, issues and metrics changing significantly in the foreseeable future. But they are looking for more help from materials handling hardware and related software to raise the performance levels of their operations.