Wednesday, November 28, 2007

Warehouse Vs. Distribution Center

There was a lively PowerPoint slide show today by the good people at Logistics Management, based on research conducted by Reed Business Information and Gross & Associates. It can be found here, and I hope they don't mind all the free publicity I am pushing their way.

In a nutshell, they note the difference between a traditional warehouse (where stuff is stored until it is needed) with the more modern sounding distribution center (where stuff is brought together, repackaged and then sent back out into the world).

The differences between these two types of buildings are stark and almost discomforting. The traditional warehouse represents the old and familiar low ceiling metal building in the bad part of town next to the railroad tracks where strange and bizarre items sit and collect dust. The distribution center is a little more sinister in that it represents the way the world will be, an entire secret network of information and products floating in both directions, stocking shelves and ordering products as if by a giant invisible hand.

The old saw goes that the warehouse is transportation at zero miles per hour and indeed it used to be that warehouses were a necessary evil used as a buffer against those capricious whims of human nature: demand. Since the information chain between consumer and producer is a long and tangled one and since the supply chain between producer and consumer isn't perfectly responsive and isn't perfectly reliable, producers needed a way to store their product locally to weather out these storms of unknowns.

Warehouses were born as a way for firms to jump the hurdle of what economists like myself like to call "market inefficiencies", which is just reality getting in the way of our convenient theories. Two very significant hurdles basically created the need for a warehouse in the supply chain; imperfect/ incomplete information as well as transportation costs.

If demand for a firm's product were known in advance and products could be created as needed and delivered to the point of consumption instantaneously, then there would be no need for a warehouse and the world would ultimately be a better place. Unfortunately we live in the real world and not in the future.

As Just-In-Time practices (warehouse management software, RFID tags, demand forecasting) proliferate and the rest of the world wakes up to the Wal-Mart reality of a nimble global supply chain that can react and adapt to changing demand, then the world will be ready for the modern distribution center.

The distribution center is a behemoth to be feared, of a size and scale that is beyond a rational sense of proportion; from a couple of hundred of thousand square feet to well over a couple of million, and with a height of 20 to 40 feet these buildings serve as the only physical markings of a vast and mysterious supply chain that reaches into the lives of every consumer on the planet.

The days of the warehouse are not over, but their role in modern society has been greatly downgraded, much like the horse at the dawn of the automobile.


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Wayne Baxtrom said...

Impressive and incredible post. Thanks for sharing, Cheers

Gratia Latin said...

Thank You so much for providing Warehouse Vs. Distribution Center detail. i really need it.
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Anonymous said...

Thank you, you saved my day!