tough customers

Conventional wisdom has it that if you offer your customers more service options, provide service faster and execute that service flawlessly, you'll be rewarded. Not so, in the demanding world of distribution center and warehouse management. Some updated research conducted for the Warehousing Education and Research Council (WERC) makes that all too clear.

During WERC's annual conference in San Francisco in late April, academicians Arnold Maltz of Arizona State and Nicole DeHoratius of the University of Chicago presented the results of a study they recently completed. Their conclusions won't come as welcome news to warehouse/DC operators.

"The warehouse is being asked to do more things," said Maltz, associate professor at Arizona State's W.P. Carey School of Business. "It looks more and more like manufacturing. Yet the customers who are making these demands for new services don't want to pay extra for them."

As the economy continues to sputter, many businesses have been frustrated in their efforts to raise prices. But most have decided that if they can't raise prices, they can at least improve profits by increasing inventory velocity, Maltz continued. "That leads directly to the idea that inventory is evil," he said."Increasingly, fast response is the issue. Forget about storage.You have to discuss flow and process."He says that the warehouse is rapidly evolving into the distribution center, operations center, return center or fulfillment warehouse.

The demands on distribution management closely resemble those that drove manufacturing improvements like six sigma and just-in-time in the 1980s and 1990s.Now,Maltz says,warehouses are expected to achieve perfect shipment accuracy, perfect inventory accuracy and on-time delivery in excess of 99 percent. In addition, customers expect shipments to go out the door the day they send the order. "Same-day shipment is almost a gimmee," he said.

But even as DCs scramble to meet those new demands, Maltz is not persuaded that senior management perceives logistics as a value creator. For many years, he says, Bernard LaLonde, the retired Ohio State professor, argued that well-executed logistics created value. Maltz disagrees. "Sorry, folks," he said,"it's really about cost and the cheapest place to do business."