Using a third-party logistics (3PL) warehousing technology provider can make a manufacturer's business easier to run, increasing product visibility and outsourcing in what can be a challenging aspect of manufacturing. But, depending upon the line of business, some prefer to keep warehousing management closer to home.
"Most manufacturers have recognized that this isn't their core competency, and that they can get better performance and lower costs by outsourcing to someone who does this as their business, " said Simon Ellis, practice director, supply chain strategies at IDC Manufacturing Insights.
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The technology to support product tracking and shipment visibility "takes a lot of continuous investment," added Jack Ampuja, president of Supply Chain Optimizers, a management advisory firm. "As a manufacturer, do you want to spend money on those things or let somebody else do it?"
Contracting a 3PL for warehousing technology services might include outsourcing the running of the physical warehouse that sits next to a manufacturing facility, or outsourcing the running of a distribution center. The actual warehouse is a storage facility with only goods produced at that factory, sayid Ellis, and "factory warehouses tend to be owned by the manufacturer more frequently than a distribution center would be."
A distribution warehouse facility, which carries a full range of products, is usually located somewhere in the country close to where demand is. "It's driven by the regional footprint of demand," Ellis said. "Distribution centers tend to be outsourced more than factory warehouses."
When choosing a warehousing 3PL, the first thing to consider is whether the provider has a long track record. Manufacturers also need a high level of visibility into systems. "If I can't get online and see the production schedule, I'm up the creek," said Ampuja. Product visibility is a top priority for manufacturers outsourcing their warehouse to a 3PL.
Another technology consideration is radio frequency identification (RFID), which is replacing bar codes in warehouses. RFID can help increase accuracy and visibility and reduce the need for warehouse workers walking around the floor looking for products. As the cost of RFID tags comes down, Ampuja said, it will becomes affordable for every product to be tagged and a reader show the location of inventory.
For some manufacturers with proprietary technology or intellectual property concerns, retaining control of their warehouses is important. High-tech manufacturers, concerned about intellectual property protection or theft, are more likely to keep warehousing management technology in-house, said Ellis. But those in consumer packaged goods (CPG) might be more willing to outsource warehousing automation, unless there are safety concerns, as in the case of aerosol products.
Unlike transportation, "warehousing is not so black and white," explained Ellis. There isn't much industry differentiation with transportation 3PLs -- everyone needs trucks. "But there are certain kinds of warehousing requirements unique to manufacturers," Ellis said.
In general, trends for the future point to more warehouse automation, as well as increasing sophistication in the systems that control distribution centers.
About the author: Christine Cignoli is a Boston-based freelance writer who covers IT infrastructures and storage technology. She is a regular contributor to SearchManufacturingERP. Contact her through her website.
This was first published in January 2010