Adam J. Fein: Capturing the full benefits of technology

The link between technology and productivity in wholesale distribution is well-established. (See Where productivity is growing in wholesale distribution.) However, wholesaler-distributors can only capture the full benefits of technology when new business practices are also adopted at roughly the same time as major technology investments. Making a major technology investment without also changing internal processes will not yield the same benefits.

Consider the trend toward automated product handling among wholesaler-distributors. (See The coming automation boom.)  The automation of product handling creates the potential for an interrelated set of changes in sales, operations, and business planning. If you ignore these important feedback relationships, then your company will not reap the full benefits of its technology investments. 

To understand this cycle of change, consider the core business systems that most wholesaler-distributors use to run their companies. There are immediate, obvious productivity improvements as customer transactions are entered into a wholesaler-distributor’s business management system. Examples include faster order processing, quick access to current business activity, and simplified billing. For the purposes of this example, it is not important how the order gets into the system. The customer could enter the order themselves online using self-service technologies or the customer could send a fax that is re-keyed by a wholesaler-distributor’s employee.

However, there is an important second-order feedback effect between electronic order data and improvements in warehouse productivity. Once a customer’s order is in electronic form, it can be re-sorted to conform to the location of products in a warehouse. A document can then be created to tell employees where items are located in the warehouse, allowing an order picker to travel within the entire warehouse using the shortest route. This seemingly straightforward task can not easily be accomplished when orders are tracked on paper. Thus, having customer’s ordering information in the system leads to increased warehouse productivity. 

Warehouse automation also lets wholesaler-distributors introduce new processes for how products get picked off shelves. For instance, each order picker could picks items for several orders simultaneously, sorting while picking. This method, called batch picking, does not maintain order integrity because the order picker completes several orders in one trip through the warehouse. Since this technique requires the extra step of sorting accumulated items, the adoption of batch picking yields the greatest benefits when pickers apply bar-coded labels to items and scanners are used for automated sorting. 

These new methods will inevitably require some employee retraining, but wholesaler-distributors can get greater benefits of technology with new ways of doing business. Other related innovations include lightweight wearable scanner computers. A wireless network can transmit the pick list to a small display screen mounted on the (human) picker’s forearm, which includes the exact location of the item to be picked. (See Warehouses go wireless.)

In other words, there are reinforcing productivity effects between electronic customer orders, warehouse automation, new picking techniques, and the automation of product handling. Other new practices now become possible, such as reducing inventory costs by analyzing historical data to forecast customers’ ordering patterns. Productivity growth is greatest when these practices are adopted together.

Automated product handling and warehouse productivity also create ripple effects on salesforce productivity. For example, greater accuracy in the warehouse will obviously increase reduce errors and increase customer satisfaction. But the biggest return may come from the resulting transformation in the role and activities of the salesforce. Reducing error rates frees the salesforce from their roles as problem fixers and relationship menders. Instead, they can do what they are supposed to do—sell the benefits of your company and penetrate accounts to increase your share of the customer’s total spend. Thus, warehouse automation will also have the indirect effect of increasing revenue. 

Automation also creates opportunities for developing new services for customers. For example, an automatic product identification system, such as a machine-readable bar code or a radio frequency identification (RFID) tag, allows customers to easily transmit electronic data about a customer’s sales and inventory stock. By gaining visibility into customer’s actual usage rather than just seeing customer orders, a wholesaler-distributor can then offer a fee-based service for maintaining the proper level of inventory at a customer’s location. This type of relationship, often called a Vendor Managed Inventory (VMI) relationship, is used by less than one-third of wholesaler-distributors, although its use is forecast to double over the next five years. 

As you finalize your company’s technology investment plans for 2007, be sure to consider the many ways in which automation could reshape other aspects of your business. Can you reduce the time that your salespeople spend resolving or discussing fulfillment mistakes with customers? Can you offer new services, such as VMI, for customers that need to better their stock levels? The full value of warehouse automation may well come from outside the warehouse.