There was a time when warehouses were, well, sort of like big old warehouses. They were places to store things until a customer needed them. But those days are long gone. Today's warehouses have evolved into modern distribution centers that have become the center of the supply chain universe.

Inside these high-tech buildings, there's a lot more than storage taking place. The facilities house activities like cross-docking, sequencing, postponement, value-added services and same-day processing,to name just a few."Instead of being a depository of inventory, the distribution center is now used as a service center," says Bob Shaunnessey, executive director of the Warehousing Education and Research Council (WERC). "This requires facilities to be more flexible to respond to the different needs of the supply chain."

That need to remain nimble—to adapt easily to changing circumstances, customer needs, order profiles and products handled—is reflected in the design of today's DCs. Many, for example, feature new bolted racking that's made to be quickly disassembled and erected elsewhere as needs dictate.

Like the equipment, the buildings themselves may be configured for flexibility. This is particularly true of very large DCs, says Mike Ogle, senior director of technical and engineering services for the Material Handling Industry of America (MHIA). Ogle explains that it's not unusual among today's super-sized DCs—those that occupy more than 500,000 square feet—to be set up as "warehouses within the warehouse." "All product is under one roof," says Ogle, "but you have certain products clustered together." These items are placed into separate pick and pack areas that are duplicated throughout the building, he says. Each area operates as its own mini warehouse and may even have separate shipping doors. They are built for flexibility and to be reconfigured easily, with product re-slotted frequently as various areas grow.

New jobs
It's not just their layout and equipment that distinguishes today's DCs from the warehouse of the past. It's also the activities taking place within their walls. For example, DCs have taken over many tasks once relegated to the manufacturing center.

In the past, most products arrived at the DC as finished goods. But these days, it's not unusual for suppliers to ship partially finished goods to the DC and have the DC associates carry out the final steps. For example, DC workers might handle tasks like installing plugs and transformers on refrigerators to accommodate electrical outlets in the country of final sale.

That practice of delaying final manufacturing until the last possible moment, known as postponement, is gaining traction in a variety of industries. For example, clothing company Gear For Sports receives most of its shirts, sweatshirts and other college apparel as "blanks," that is, without team imprints or logos. Once it determines its order demand, the company sends the items to special areas within its Lenexa, Kansas, DC where designs are stitched or screened onto them.

Likewise, Siemens brings in basic DSL modems to its DCs and holds them until it receives an order. At that point, associates flash specific software needed by the customer onto the modems.

Third-party logistics service provider Menlo Worldwide provides a similar service for a customer that sells copy machines under four different brand names. The supplier ships a single copier model to Menlo's facilities. When an order is received for a particular brand, DC associates insert a name plate onto the copier through a window in the carton.

In addition to light manufacturing, DCs are performing a variety of other value-added services. These range from pre-ticketing items for specific stores to placing garments onto hangers, special packaging and labeling, and building end-of-aisle store displays.

Workers at Del Monte Foods' Lathrop, Calif., DC, for example, label the incoming cans of fruit and package them into store-ready multi-packs. Del Monte found this to be the most cost-effective approach to labeling. Labeling equipment is expensive. By installing the equipment at a single DC, the company eliminated the need to equip all of its fruit processing plants.

Many DCs also offer sequencing service, in which products are picked in a particular order to facilitate subsequent operations. For example, distributors picking parts that will be used in automobile assembly might pick them to match the sequence in which they'll be needed on the line. Other items might be sequenced to speed up put-away at the store level, with workers picking items destined for a particular aisle or area of a retail store into the same carton or tote.

Just passing through!
In some facilities, a large volume of product never enters storage at all. These facilities serve merely as cross-docking centers, where workers receive shipments, break them down, reassemble them and then send them on their way. Cross-docking requires the facility to be both information rich and highly flexible. Sophisticated conveyors and sorters are often employed to accept a pallet load of cases and then sort them to a multitude of destinations, each representing a customer, location or process. These facilities must also have plenty of space available to accumulate products until they are ready to be shipped.

In many instances, cross-docking is made possible by suppliers who perform value-added services before the products are shipped. Customers often ask their distributors to pre-label cartons for individual stores or their own select customers so that when the products arrive as a full truckload, workers at the receiving docks can quickly unload individual cartons and send them through sortation systems that read the individual bar-coded labels and then sort each carton to its designated shipping dock. Once there, the cartons are gathered with products from other suppliers into a load destined for the retail outlet or customer.

The Virtual DC
Customers who have their suppliers perform these functions are bound to ask an obvious question: If I'm already getting my supplier to pre-label and organize my receipts for me so that they can be cross-docked upon arrival, why do I even need a distribution center? Couldn't I save money simply by having my supplier ship the product directly to the store?

That is where the concept of the Virtual DC comes into play. Best Buy currently uses 34 different suppliers for electronic and appliance repair parts. National Parts, a subsidiary of third-party service provider Fidelitone, coordinates the supply chain for these parts and acts as a clearinghouse on behalf of Best Buy. But National Parts does not warehouse these parts. Nor do they pass through a Best Buy DC. Instead, National Parts has a virtual warehouse with a paper inventory only. Its stock bypasses the traditional warehouse and is shipped directly from suppliers to service repair locations on a consistent, predictable basis.

"It is designed to bring standardization for all their repair parts," explains Tom Giovingo, executive vice president of Fidelitone. Giovingo explains that this direct-ship arrangement, which eliminates the need for a DC to handle the parts, saves time and money, reduces transportation requirements, and minimizes the potential for damage caused by handling.

"It sometimes comes down to an economic decision," explains Giovingo. "Is it better to stock products or to pay freight directly from the supplier to the customer?"

Of course, no virtual warehouse can function without accurate and current information on what inventory is in the pipeline and where it's going. "It is just as important for us to provide clients with information as it is to ship their items," says Giovingo.

It is this explosion of information in recent years that has created the biggest opportunities for the distribution center. With its strategic role at the center of the supply chain, the DC is poised to be the point where much of the information is received, channeled, captured and filtered. In addition to serving as the main hub for order fulfillment, the DC is also the place where critical data is captured and distributed, notes John Fontanella, senior vice president of research at Aberdeen Group, a research and consulting company.

Software that provides real-time visibility into inventories, processes and location of products plays a pivotal role in allowing the DC to be the nerve center of information. Suppliers and customers alike can share in this information to track demand and orders or improve their own processes. "Visibility is a major element of typical RFPs [requests for proposals] today," notes Tim Feemster, director of operations for Menlo Worldwide. "In fact, a lot of people are outsourcing just to get that event management capability."

What will the role of the DC be in the future? Well, that depends on how much it transforms itself into a service center.

"The traditional reasons of having storage are declining," says John Langley, professor of supply chain management at Georgia Tech. "DCs of the future are those that add value in other ways."