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For this global industrial manufacturer of vehicles and engines, production depends on exceptional and reliable service throughout the supply chain. When the manufacturer was looking for a partner to manage its distribution centers, it sought a company familiar with the challenges of automobile supply chain management and decided on Penske Logistics. Penske has managed inventory in two of the manufacturer's facilities in Mexico since 2002.

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No two shippers — or supply chains — are the same. Some require more complicated freight management (FM) solutions owing to the nature of their businesses. Heavy haul shippers or those with specialized trailer loading requirements are examples; companies with rapidly changing organization structures or high growth trajectories can also fall into this category. When specialized product meets rapid change, the need for support becomes more critical.

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As rising warehouse labor costs eat into their logistics budgets, many manufacturers seek ways to improve warehouse productivity and reduce facility headcount. But meeting these goals is not easy, given the sheer number of technological tools and strategies available to managers.

A useful starting point is to ascertain your current level of technological sophistication. Are your warehouse operations still grounded in manual processes or run by high-tech systems that maintain downward pressure on labor costs?

To help manufacturers make this call, Penske Logistics has created a four-stage guide to warehouse automation. Manufacturers can use the guide to help them develop a strategy for automating warehouses that is in line with their budgetary and business goals.

Personnel Premium

The cost of labor can account for up to 65% of total warehouse fulfillment costs (excluding trucking), depending on how a facility is owned and managed. It represents the most significant slice of a manufacturer’s warehousing budget.

And that slice has increased in size over recent years. Worker-related costs have soared in response to increased economic activity and a tight labor market. The growth in e-commerce volumes, as well as the number of SKUs, has driven up demand for storage space — hence, demand for people needed to run facilities.

But hiring enough workers is not the only problem; retaining them can also be a headache. In the 2018 Warehouse and Distribution Center (DC) Operations Survey published by Logistics Management magazine, the “labor crunch” is described as the number one issue. Fifty-five percent of respondents — up six percent compared to the previous year — cited an inability to attract and retain a qualified hourly workforce as the leading industry issue.

“Labor shortages and high turnover make it harder for warehouse managers hoping to control costs and boost productivity by improving workforce capabilities through training programs. As a result, more companies are seeking technological solutions to cost and productivity challenges,” says the 2018 State of Logistics Report, co-sponsored by Penske Logistics.

Making the Leap

While technology is key, choosing the most effective mix of solutions can be a daunting challenge, especially for manufacturers that lack relevant expertise.

Penske’s four-stage guide to warehouse automation can get you started.

Crawl, Walk, Run and Sprint chart

Penske’s four-stage guide to warehouse automation comprises four evolutionary stages: Crawl, Walk, Run and Sprint.

As can be seen in Figure 1, the guide comprises four evolutionary stages: Crawl, Walk, Run and Sprint. Crawl, the most basic level, denotes largely manual, paper-based warehouse management practices and systems that most manufacturers have left behind. At the opposite end of the scale are members of the Sprint group: companies that have invested heavily in high-end solutions such as advanced picking robots, automated guided vehicles and extremely sophisticated storage systems.

For many industrial manufacturers, the middle two evolutionary steps are of the most interest. Companies in the Walk phase have introduced some automation using their existing IT resources, typically an Enterprise Resource Management system (ERP). The problem is that ERPs are not designed to handle the complex processes that drive modern warehouses.

Importantly, while Walk is a step up from Crawl, it does not harness the power of the advanced warehouse management systems (WMS) that characterize the Run phase. As a result, a critically important task when migrating from Walk to Run is mapping standard ERP-based interfaces such as one that confirms orders have been received to a WMS (see the 10 Walk interfaces depicted in Figure 1). The migration can take months and requires extensive knowledge of warehouse solutions — which is why manufacturers often turn to third-party logistics providers to help them make the jump.

“You can then optimize warehousing operations, for example, by implementing systems that put inventory in bulk locations or active locations to pick orders at ground level to increase pick speed,” says Don Klug, vice president of distribution center management, Penske Logistics. Introducing wearable scanners is another way to drive up pick speed. Goods flows can be accelerated by configuring operations to handle inventory items that are slow, intermediate or fast movers.

The possibilities for improving warehouse productivity and reducing head count are limited only by the scope of the WMS and the skills of the logistics management team using it.

Having identified potential solutions, warehousing professionals can apply technology to select the best options. “For example, Penske has engineering tools that can show customers the ROI of different solutions; if you spend “X” amount of capital, you will capture “Y” amount of productivity,” says Klug.

Increased Use of 3PLs

In a volatile economic climate, it is difficult to project with certainty how warehouse labor cost pressures will trend over the next few years. But even if there is some retrenchment, technology will be at the heart of strategies for raising the efficiency of warehousing.

3PLs will continue to play a central role. In the 2020 Third-Party Logistics Study, co-sponsored by Penske Logistics, 73 percent of the shippers surveyed outsourced warehousing to third-party logistics providers, a four percent increase over the previous year.

The research “highlights once again how important it is for 3PLs to provide a range of IT-based services to help create value for their shipper customers,” the study says. And warehouse/distribution center management is one of the most frequently cited technologies in the study. In the 2020 study, 63% of shippers said they need warehouse/distribution center management IT capabilities from their 3PL providers.

Additionally, the study noted that optimization is occurring within the warehouse, which plays a crucial role in speeding deliveries, managing inventories and cutting costs. “Logistics providers can track the flow of inventory through and around the warehouse, monitor product velocity, and provide advanced notice of arrivals, which drive reduced dwell time and engine idling and increased efficiency,” the study says. “Data on incoming and outbound loads can be transmitted electronically between supply chain partners to reduce downtime.”

A leading building products manufacturer sought to improve and streamline its supply chain operations. With over 3,000 employees and more than two dozen manufacturing facilities from coast to coast, the manufacturer wanted to expand its trucking fleet while also improving overall visibility through the implementation of fleet management technology.

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A national wholesale distributor of heating and air conditioning supplies was struggling to manage its complex supply chain and maintain high levels of customer service, which is a top priority. With over 20 decentralized sites spread across five states, communicating delivery needs between sales staff, professional drivers and each distribution center was creating challenges.
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Time is money, so it pays to complete tasks as quickly as possible. In supply chain management, that involves maximizing velocity—the speed at which products move from the sourcing of raw materials and components to customer delivery and returns.

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The manufacturing industry is changing at a rapid pace. You may be facing new economic factors or increasing competition. If you currently operate a private truck fleet, utilize common carriers, or are evaluating your available options for ground transportation, one way to handle your changing environment may be to consider if a Dedicated Contract Carriage (DCC) solution is right for you.

There are many factors to consider in making such an important decision. Before starting the selection process, it’s imperative to identify your requirements and fully understand the benefits of a well-structured DCC arrangement.

To help determine if DCC is right for you, Penske Logistics created this Guide to Dedicated Contract Carriage in the Manufacturing Industry. Download the guide to learn how to select a specific provider as your dedicated carrier.

Truck driver shortages, increased economic activity and the growth of e-commerce are among the market forces that are driving up logistics costs in manufacturing. Companies must respond by finding ways to reduce and control the cost of logistics operations.

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Driver shortages, tight capacity and increasing freight costs are among the forces that are reshaping truck transportation—and prompting many manufacturers to re-evaluate their trucking options.

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In tandem with the challenge of adopting smart manufacturing technology, manufacturers are grappling with the digital disruption of supply chains.

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For a national manufacturer of custom-designed vinyl windows, transportation can be a challenge. Windows are sensitive. If they're dropped on a corner or fall to the ground, they are ruined.

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In the global manufacturing industry, inconsistencies related to seasonal volumes are common. Volumes can fluctuate based on the weather or the time of year. If not managed properly, that inconsistency can result in waste and clutter, which increases costs.

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Inaccuracies within the supply chain can create significant problems, particularly if those errors affect the production line or the end product. One key metric companies use to measure quality is parts-per-million (PPM) defects. Penske Logistics has helped drive a reduction in PPM defects for a global component manufacturer, resulting in improved quality and customer service.

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To stay relevant, manufacturers must focus on continuous innovation and improvement. They have to find new ways to drive out costs while improving customer service. With decades of experience optimizing supply chains for market-leading manufacturers, Penske Logistics uses its processes and people to help customers increase efficiency, reduce costs and optimize operations. As a result, many are able to free up resources to grow their businesses.

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Data is at the heart of the supply chain, and in today's operating environment, information flows from multiple sources faster than ever. The precision and accuracy of data is essential. People within the supply chain have greater expectations for data transparency and visibility. They also expect real-time data that can be used and analyzed quickly.

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While advances in automation and robotics continue to expand their presence in the supply chain, people remain integral for the foreseeable future.

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The truck driver shortage that is inflating supply chain costs has provoked heated debate over how the industry can solve this perennial problem. Much of the debate centers on how driver recruitment and retention policies can be changed, but another response is to reconfigure supply chains to operate in a driver-constrained environment.

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Industrial manufacturing supply chains are complex communities of trading partners that must work together to drive efficiency and maximize productivity. However, collaborating in this way is not easy when the entities involved have very different business models and levels of operational sophistication.

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The digital transformation of manufacturing is underway, and companies are under pressure to piece together a cohesive strategy for adopting the technologies that are driving dramatic changes across the industry.

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