A warehouse isn’t just a building where inventory is stored.

Often called a company’s “profit center,” it is where money is made or lost. Savvy distributors — more and more — are turning to their warehouses as a way to improve business profitability.

“What’s absolutely critical today are inventory turns,” says Grant Watkinson, president of Coastwide Laboratories, Portland, Ore., a distributor of jan/san supplies. “Before, everything was margin focused, but now it’s turn and earn. Sales can even be declining, but if you can improve your turns, then you can still be profitable.”

In order to “turn and earn,” a distributor needs an adroit warehouse manager — or an adroit warehousing management system (WMS) — to find “dead” inventory, communicate the right delivery information (both externally and internally) and consistently push products through the supply chain with efficiency.

But haven’t distributors always turned and earned? Yes, but only a prosperous minority have been diligent about evaluating their cycle-time management (CTM), says Bob Shaunnessey, executive director of the Warehousing Education and Research Council (WERC), Oak Brook, Ill. All the methods distributors use to leverage the intervals between incoming deliveries from manufacturers and when those products actually get to a customer comprise CTM. It’s not just a warehousing theory, it’s something that keeps a distributor profitable.

“The leading companies have found out that they can use their logistics services to differentiate themselves from competitors,” says Shaunnessey. “When warehousing logistics are organized to respond quickly and accurately to the needs of customers, for example, that’s one of the major things that separates Fortune 500 supply companies from other supply companies.”

Technology is opening up four major areas of warehouse management, allowing jan/san distributors to reach a maximum revenue — even as profit margins continue to shrink: real-time inventory data, product tracking, routing layout and transportation logistics.

The Sooner, the Better
It’s a scenario that occurs far too frequently; after visiting with a major customer and promising quick delivery of a large order of product X, the salesperson returns to the office and discovers that product X is sold out. A new shipment won’t be in for a few days (or worse, a few weeks). The salesperson sheepishly calls his or her customer and engages in the latest round of damage control. The best possible outcome? The customer forgives the salesperson for the delay. The distributor’s reputation, however, has likely been tarnished.

Coastwide Laboratories recently invested in laptops and Palm Pilots with real-time access to warehousing data, which aids salespeople whenever they’re on sales calls. “Now our sales are in real time, 24 hours a day, seven days a week,” says Watkinson. “Regardless of where they are, they have the ability to connect with our warehousing data and give their customers the right information.”

However, there is one drawback to the real-time technology, he says: “It often takes a certain amount of time for our salespeople to get connected to the real-time data, so many of them just use their cell phones to call the warehousing people and confirm their orders.” Because a few minutes can seem like an eternity on a sales call, salespeople have to be able to use the warehousing technology they’re given, quickly and comfortably.

Whether it’s by phone, laptop or personal digital assistants (PDAs), jan/san salespeople can be more effective if they have access to warehousing data in real time. That way, customers can get the products they need whenever they need them. As real-time technology improves — perhaps by combining cell phones and PDAs — salespeople will have more tools to do this. The biggest real-time tool that currently exists is simply the Internet.

“Our research tells us that many customers want to communicate over the Internet,” says Shaunnessey. “Whether you’re a large company, a mid-sized company or even a small company, it’s wise to have some kind of Web-enabled software that allows customers to order online.”

Although Coastwide doesn’t get much new business from its company website, Watkinson says the site has been a boon to its existing business. “We’re really seeing profits pick up from customers who have been with us a while. They know our inventory — and they like the convenience of ordering online. It might sound like it’s part of our sales division, but the warehousing department is really what makes it all work.”

Not all company websites reflect real-time inventory levels. Those that do have the warehousing efficiency to ensure the veracity of their website content. First-time customers can’t tell the difference between real-time offerings and those that are outdated, but the difference will become apparent over time.

“Warehousing logistics is what separates a good online ordering experience from a bad one” says Shaunnessey.

Know Thy Products
As the peak selling point in a particular product’s sales cycle arrives — ice melt is often purchased in late fall, for example — warehousing managers need to have a full supply of that product.

The best way to quickly and accurately monitor these cycles is with the aid of a warehouse management system (WMS). There are a variety of WMS options — usually in the form of a software program — ranging in price from $100 to well over $10,000, depending on the size of a distributor’s warehouse and the features desired. Most WMS models remind a distributor when a product cycle is approaching its peak sales time. Another example: a reminder about carpet extractors, which are often purchased by schools and universities in late summer, could appear on a warehousing computer screen in July or August.

With or without a WMS, a distributor can identify slow-moving items. Once a product line is deemed slow-moving, the next step is to choose between a manufacturer and a wholesaler.

“A wholesaler is sometimes a good option that can free up your warehousing space,” says Watkinson. “If [the wholesaler] is reliable, they can serve as extra warehouse space for your company, and you can rearrange your layout in a way that makes you more profitable.”

Whenever warehousing gurus talk about product tracking and WMS benefits, the topic of radio-frequency identification (RFID) is sure to come up. Unlike barcoding, RFID technology allows a warehousing employee to easily scan an entire pallet (or small area) of incoming or outgoing products, rather than individually scanning every box. Although RFID promises increased warehousing efficiency and tighter product-cycle management, the technology is still too unreliable for jan/san distributors.

“RFID will become more important with time,” says Watkinson. “The Wal-Marts and other retail giants are trying to use it, but it will take a while until it trickles down to industrial warehouses.”

Shaunnessey agrees that RFID won’t be embraced by distributors in the near future, but he says the reason is that RFID currently has no technology standards. “Right now, there are two major RFID models, and one still has to win out so that there is a standard technology,” he says. “It’s like when VHS and Betamax were battling for the most user-friendly videotape technology. Once there is a clear standard, then I think you’ll see more distributor warehouses using RFID.”

Bar-coding — and eventually RFID — technologies do create efficiencies, but if a warehouse is already properly organized with a WMS, the advantages aren’t drastic, says Brett Marshall, president of All-Type Vacuum and Janitorial Supply, St. Louis.

“If a company isn’t running its warehouse efficiently, then bar-coding and RFID can help that company get organized,” he says. “However, if inventory is being tracked and organized already, then those scanning devices probably aren’t going to benefit you that much. Our warehousing data is updated every time we get an incoming order, so we haven’t had the need to invest in bar-coding.”

No More Obstacle Courses
Organization is the name of the game for warehousing managers, and the strategy a manager uses to put products in the best locations possible within a warehouse — what’s often called a “route layout” — is a critical step to ensuring quick and accurate deliveries. It helps build trust with partners all along the supply chain.

“You have to build up a reputation of trust with your customers and your suppliers,” says Bill Zeitlin, chairman and CEO of Edmer Sanitary Supply Co., Inc., Long Island, N.Y. “I happen to be an old Marine Corps. drill instructor, and I take our internal efficiencies very seriously.”

For example, Zeitlin demands that product lines be organized according to how quickly they move. Fast-moving items are closer to the front of the warehouse (where delivery trucks can access them easily), and slow-moving items are toward the back — perhaps they are not even in the warehouse at all. Most WMS models can help distributors get their warehouses as efficient as possible, storing the quickest-moving inventory in strategic locations.

“Our customers have access to thousands and thousands of products, but that doesn’t mean we keep all of them in our warehouse,” says Zeitlin. “If we did that, they would just take up dead space for most of the year. If we sell item X only five times a year, then we don’t keep it in our inventory.”

Dead inventory space can cripple a warehouse. “A lot of people talk about lean manufacturing and lean logistics, and there’s a movement toward lean warehousing as well,” Shaunnessey explains. “It means getting rid of those obstacles or things that are getting in the way of providing the core needs for your customers. Customers don’t care about slow-moving items and fast-moving items — they only care about the speed and accuracy of their own deliveries. The right layout and monitoring system can provide that speed and accuracy.”

“People talk about ROI, but ROII is really what’s important,” says Watkinson. “Distributors need to understand that profitability is driven by return on investment inventory.”

An entire cottage industry has been built on improving warehouse route layouts and organization. Although every warehouse is different, there are warehousing consultants who specialize in helping companies eliminate logistical impediments.

The Delivery Dilemma
Distributors also need to be able to send product information externally, especially to suppliers, customers and trucking companies. Advance ship notice (ASN) technology — another warehousing program that often comes in the form of software — is proving to be a trenchant solution.

Over the course of the last year, the reliability of the trucking industry dropped from 99 percent to 97 percent. That might not seem like a lot, but it’s significant if your company finds itself in that two or three percent, and your truck doesn’t show up for a delivery, says Shaunnessey. “There’s a capacity problem with transportation,” he says. “The trucking companies are under a lot of stress — and some of them aren’t showing up at their destinations at all — so the more a warehouse can do to be accommodating to those drivers, the more likely they’ll get the service they need.”

ASN technology allows distributors to send clear product and location instructions directly to the trucks servicing suppliers, customers or both. In addition, ASN meticulously keeps records of where products need to be at each stage of the supply chain.

All-Type Vacuum and Janitorial Supply has experienced the monetary benefits of clear communication with suppliers. “When our family business first started in 1988, we had a pretty steep learning curve as far as [finding out] how to run a warehouse,” says Marshall. “If you’re only selling 10 widgets a month, and your manufacturer is sending you 15 widgets a month, then you’re not having good communication and you’re actually losing money. Now, we have great communication with our suppliers, and our company is thriving because of it.”

If a distributor has a reputation for having an inefficient warehouse, manufacturers — and the trucking companies that serve them — won’t feel pressure to be efficient either. In some cases, they trucks have been known to pass by an inefficient warehouse completely. “Again, it goes back to the reputation that you’ve built up with your suppliers,” says Zeitlin. “At Edmer, our suppliers know that we’ll be ready to receive an order as soon as we place a call to them, and they know that we won’t make the delivery trucks wait around. For that reason, they rush every order to us, and we’re able to make a turn to our customers within 48 hours.”