The current economic climate in the U.S. has many worried about their business this year, and with good reason. But while doom and gloom dominate the headlines, the less reported story remains: the diversification inherent in global trade is helping to offset domestic weakness for many companies. That doesn’t mean, however, that these companies have their heads in the clouds. On the contrary, many are scrutinizing their supply chains even more to wring out inefficiency. And, the warehousing and distribution component of those supply chains are no exception.

Site selection

According to Grubb & Ellis’ 2008 Global Real Estate Forecast, although the U.S. economy will remain sluggish this year, the average asking rates for available warehouse/distribution space will increase 2 percent this year, with increases of 10 percent or more predicted for two major markets-San Jose and Oakland/East Bay, California. Gains of 5 to 10 percent will likely be seen in Houston, Memphis, Kansas City, Mo., California’s Inland Empire, Jacksonville, Fl., and Raleigh/Durham, N.C. In addition, logistics activity is driving growth in markets such as Atlanta, Dallas, Memphis, Chicago, and Columbus, Ohio.

“Kansas City is clearly on the move,” confirms John Wagner Jr. of Wagner Industries (www.wagnerindustries.com), which has warehousing, distribution, and logistics services in 7 states, including 1.5 million square feet of warehouse space in the Kansas City area. Ironically, the region is one of several in the nation’s interior that is actually seeing a resurgence in NAFTA trade flows as importers look for sourcing opportunities closer to the U.S.

“Mexico is attractive once again,” says Wagner. “It’s closer to home so transportation costs aren’t as high and companies can still benefit from cheaper labor. I wouldn’t be surprised to see the maquiladoras, which have been suffering in recent years because of China, make a comeback. Ultimately, the landed costs are cheaper.”

Wagner notes that the abundance of affordable land in the Midwest is also a selling point when it comes to site selection. “We’re not encumbered by oceans or mountains. We have space to build industrial parks and build them with adequate trailer storage.”

One of Wagner’s “pet peeves,” however, is a facility that doesn’t have enough dock doors or places to drop a trailer. “I was at an industrial facility in Denver recently, and it was difficult to drive through the surrounding streets because there were so many dropped trailers. A well-planned DC allows carriers to come in, drop an empty, pick up a full trailer, and get back on the road. The hours-of-service regulations make this all the more imperative.”

Proximity to major rail and road networks is also key to improving distribution efficiency. Not only does this facilitate quicker movement of freight, it also figures significantly in reducing drayage and fuel costs.

Inside the four walls

John Colborn, director of reach trucks at The Raymond Corporation (www.raymondcorp.com), emphasizes the importance of utilizing vertical space in DC design.

“We are seeing a lot of vertical warehousing,” he remarks. “Because of the capability of the lift trucks in the market today, any new facility is probably going to be 400 inches elevated height (421 inches in refrigerated storage). The capacity retention of lift trucks at higher heights has allowed warehouses to store product higher instead of expanding horizontal space.”

Indeed, forklifts alone are an important consideration to the overall operations of any warehouse.

“Fuel cell-powered lift trucks are another evolving technology that will have an impact on warehouses,” says Colborn. “Research indicates that fuel cells have the long-term potential to generate significant cost savings through higher operator productivity, longer lift truck run times, and the elimination of battery-charging infrastructure-especially in high throughput applications.”

“Warehouses can also add accessories to their lift trucks to assist the operators. Accessories include visual assistance systems to aid operators when performing pallet storage and retrieval tasks at greater lift heights. These accessories can help lift truck operators be more efficient and productive,” explains Colborn.

Monitoring systems for both the operator and the equipment are also increasingly common. “We are seeing more incentive programs and standards for the lift truck operators. Standards are created and benchmarked so that warehouses can monitor how much product operators and moving each hour, encouraging operators to be more efficient.” And as for the lift trucks, warehouses are looking for equipment that can work “faster and longer and require less maintenance, helping move more product faster with less downtime. Many lift trucks today offer AC technology for improved acceleration and more efficient battery utilization,” he says. “Secondly, warehouses are looking for fleet management systems and programs to better manage their fleets, create greater efficiencies, find areas for improvement, and lower costs.”

Colborn notes other trends taking place in the four walls. “In the past, bulk storage or drive-in racking systems used to be quite popular. Now, storage facilities require more selective racking systems based on the type and number of SKUs being handled. We are also seeing facilities use push-back racking where they can go three or four pallets deep by pushing the current pallet back. Pallets are on carts or rollers so they can push back in to the racking.”

“Information systems are also becoming more important. Warehouses are focusing more on fleet management and fleet management programs. Many lift truck users in North America do their own maintenance and are looking for programs to assist in the management and timing of maintenance schedules. Facility managers also want to know how their equipment is being used, and they want to be able to monitor and benchmark the performance of the lift trucks and the operators. Additionally, the demand is increasing for new technologies, such as XML, that allow information to be shared in electronic format. XML allows large amounts of information, such as dealer manuals, to be viewed on a computer or even on a PDA. Finally, warehouses are also becoming more of a hybrid due to increased customer demand for efficiency and more SKUs in one DC. Therefore, warehouses may have three or four different systems under one roof, such as different types of racking, both refrigerated and ambient temperatures, different levels of refrigeration under one roof, etc. This blending of activity causes warehouses to have a variety of equipment with different capabilities, including lift trucks, based on the activities they perform.”

According to Wagner Industries’ John Wagner Jr., warehouses are also playing a bigger role in the value-added aspects of supply chain management. “Distribution centers today are high velocity facilities. Product is coming in and often times it undergoes some type of customization, which could include repackaging, for instance, depending upon the end-customer’s requirements.” Wt

Sidebar: Why Warehousing Isn't Going Away, by John Hurst

Anyone who’s worked in warehousing for more than a few years has heard the rumors about the demise of warehousing. It’s clear the reports have been ill founded.

But it’s easy to see how the misconception started. In the 1990s and early 2000s, the pressures to minimize and ultimately eliminate the use of warehousing were intense. Information systems were becoming more advanced, giving companies visibility and forecasting capabilities they’d previously only dreamed about, which reduced their need to keep as much safety stock in warehouses. Inventory carrying costs were (and still are) one of the most expensive aspects of most supply chains, so when most people saw product sitting in warehouses, all they saw was more cost. 

Plus it was commonly believed that warehousing wasn’t as modern or efficient as more up-and-coming practices like just-in-time. 

But times-and perceptions-have changed. Today, your chances of reading warehousing’s obituary are slim-to-none-because the practice and its level of respect continue to grow. 

Here are just a few reasons why.

Manufacturing in Asia isn’t a new phenomenon. Remember, for example, how many of your childhood toys and household goods said “Made in Japan?” However China’s entry into the World Trade Organization earlier this decade was a production watershed like nothing the world has ever seen.  

As a deluge of manufacturing moved there, numerous U.S. companies saw their supply chains transformed from the fairly predictable and precise into something far more complex that involved thousands more miles, a wider mix of modes and carriers, and a variety of new factors such as Customs inspection. 

The end result was a new era of supply chain volatility. And as any supply chain professional will tell you, warehouses can be a very effective hedge against logistical uncertainty.

If the longer nature of supply chains had been the only new challenge logistics professionals faced when their companies’ manufacturing moved to Asia, perhaps warehousing wouldn’t have enjoyed quite the renaissance it has.

But when Asia-to-U.S. shipments expanded so dramatically, it wrought havoc with North America’s smooth transportation flow. Ports found themselves struggling to keep up. Plus there were rail service issues, and a longtime truck driver shortage to contend with. This has raised the specter of bottlenecks and delays.

International transportation congestion is a huge concern, even though the public and private sectors both are working diligently to correct it. Why? Because solving landside infrastructure constraints and intermodal bottlenecks is the kind of thing that can’t take place overnight or even over the course of a few months; it takes years. 

Meanwhile, warehouses have emerged as one of the most practical ways companies can help maintain consistency and equilibrium.

The rising cost of fuel has also made warehousing more viable.

Skyrocketing prices made getting prime utilization out of transportation providers and assets a high priority. As a result, some companies have found that shipping raw materials and finished goods in higher volumes allows them to better optimize their transportation buy. And that’s where warehouses come in, because they make it possible to store the extra raw materials and finished goods until these materials are needed. 

Thanks to the events of the past seven years, the possibility of a contingency has more urgency for companies than it once did. There’s a lot to be said for warehouses as contingency management tools.

 For example, by having “just-in-case” inventory positioned in warehouses, companies can be assured that at least some of their products or raw materials will be in-country and ready to use, even if something happens to delay some of their international shipments.

Additionally, by using warehouses as deconsolidation centers, companies can take advantage of DC bypass to get goods directly to customers instead of sending them to and from a distribution center, shaving several days off transit time when late deliveries aren’t an option. 

While many companies have discovered that manufacturing in Asia is more economical, they’ve also discovered that managing the flow of raw materials and components into and out of their new Asian production venues is anything but a picnic.

 For example, many Asian countries still have lower quality roads (as well as fewer of them) and fragmented transportation industries. 

Additionally, companies are often working with new suppliers over there-suppliers whose supply chain reliability is still an unproven commodity.

Based on these circumstances, using Asia-based warehouses for everything from sequencing to pre-shipment inspection has proven to be a smart supply chain strategy for many companies.

In closing, consider this: As long as raw materials and finished goods remain tangible, they’ll need to be physically moved. And in many cases-especially in today’s world-they must be moved and managed with the help of at least one warehouse along the way.

That means our industry isn’t going way anytime soon.