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Other Voices: Key trends outside the box

By Ram Krishnan
Senior consultant, Karma Logistics
July 06, 2011

Editor’s Note: The following column by Ram Krishnan, a senior consultant with Karma Logistics, is part of Modern’s new Other Voices column. The series, published on Wednesdays, will feature ideas, opinions and insights from end users, analysts, systems integraters and OEMs. Click on the link to learn about submitting a column for consideration.

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In the coming years, I believe that five trends happening outside the Warehouse Box are going to impact how you operate your facilities inside the box. Each of these trends has a bearing on how we should design and run the warehouse. And we make a strong case for ‘profiling your customers, their orders and the inventory.

Here are some of the key national, economic and demographical trends and how I believe they will affect strategies in the warehousing business.

1. Dow Jones Index is currently around 12,400.

At the depth of the recession in March 2009, the DJ was around 6,500. The Dow Jones index is now around 12,400. At the same time, the unemployment figure is stuck at 9%. It is no surprise that many of the Dow 100 companies like GE, 3M, Intel, Motorola, Caterpillar and others have focused their attention on countries outside the US. Many of these companies derive almost 80% of their sales and revenues from other countries.

2. Baby boomers enter age of retirement.

The boomers are entering their golden years. This group, born between 1946 and 1963, is also wealthy. They have money in their pockets that they plan to spend. They like new products (electronics, medical drugs) and services (cruises, healthcare, vacation packages, condos). Many companies are creating products and services for this group to capitalize on their spending habits.

3. Gen X and Millennial

Gen X and the Millennials, the groups in their 20’s and 30’s, were literally born with PC’s, the Internet and now IPads. They tend to shop more often, buy fewer items at a time, and often use on-line ordering and shipping methods

4. The middle income class is under pressure while the lower income group is expanding. That is putting pressure on Walmart shoppers who are down-sizing to dollar stores.

Even with the every-day-low-prices at Wal-Mart, many shoppers are shunning giant big box retailers to the much smaller dollar stores. Instead of 300,000 sq ft of shopping space and 90,000 SKUs, they’re shopping for essentials in a 25,000 sq ft store with just 5,000 SKUs and 2 check-out counters. The selection may be limited but the pricing is attractive.

5. 3PL shipments increased 14% last year.

This is good news if you are in the 3PL business. But it is bad news if you are in the private warehouse business. 3PL operations often combine warehousing and trucking to the retail stores. Their warehouse costs match those of other private warehouses. Given the fact that their DC’s need to be flexible to accommodate different clients and products, their warehouse-only cost factors may be higher by 5%. But the 3PL’s enjoy a 10% productivity advantage, in my estimation, when they co-mingle different client’s products, consolidated in the same truck, delivering to the same retail markets. They pass a small portion of this consolidation benefits to entice the private DC to use the 3PL’s service.

I’ve created a chart below to illustrate how I think each of these trends will impact warehouse designs and operations. Give each a read and ask if these trends apply to you and your operation.

Walmart shoppers going to dollar stores: Review the selection of your products that represent the size and price range of the products that will be offered at the dollar stores and ask how can you compete in this new low-price first environment. After all, the percentage of the population living in the poverty level or at the median income level in the US is increasing.

Baby boomers with money retiring: While the dollar store phenomon will cause some companies to go downscale, the retiring baby boomers should force you to rethink your product selection and ask what portion of your order volume represents shipments to this group now, and what that percentage should be in the future.

Serving GenX and the Mellenials: More frequent and smaller order profiles will require more of an emphasis on each and split-case picking.

Dow Jones has doubled despite 9% unemployment: Are you ready to do business globally, since that is where the growth is coming from?

3PL shipments increasing: If your operating costs are even mariginally higher than your competitors, then a 3PL might put your DC out of business.


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About the Author

Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.

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