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VOLUME 24 • NUMBER 2 • JANUARY 2009
2009
VOLUME 24 • NUMBER 2 • JANUARY 2009
Contract or Public Warehousing?The Wrong Question!!
Prior to 1980, almost all of the third-party warehousingin the United States was performed under 30-day agree-ments. How, and why, did this change?
Contract warehousing is the term used to describe awarehousing agreement having a term longer than 30days. Public warehousing is used to describe the perfor-mance of short-term warehousing services, usually 30days or less.
Why ask the question of which to use? The investmentbanking community has had an unprecedented interest inwarehousing during the past decade. For those unfamiliarwith the warehousing industry, the emphasis on contractsis natural. Contracts represent stability; therefore, a busi-nessman who operates without one must at best be a spec-ulator, and, worst on par with a river boat gambler!
The Historical PerspectiveContract warehousing was relatively rare in the United
States prior to 1980. Early adopters were users of ware-house services having unusual requirements. For exam-ple, E. I. duPont de Nemours, one of America’s oldest andlargest producers of chemicals, was a leader in theoutsourcing of logistics services during the 1960s and1970s. The nature of its operations created a need for largewarehouses in small communities, where its productionfacilities were located. Recognizing the unreasonable in-vestment risk of developing big buildings in small towns,duPont offered its warehousing suppliers long-term con-tracts, in order to allow the construction to be financed. AsduPont’s business evolved from the manufacture of gun-powder to include consumer products, such as nylon andhouse paints, its need for outside warehousing increased.With that increase came an even greater use of contractwarehousing than ever before.
Two events during the 1980s changed the supply chainmanagement situation. First was the de-regulation oftransport, which lowered the cost of moving goods, andallowed common carriers flexibility in their pricing andservice offerings. This, in turn, increased awarenessamong senior managers of the advantages of outsourcinglogistics services, including warehousing. For the firsttime, manufacturers and retailers were seeking tooutsource giant distribution centers, not the small inven-tories in traditional public warehouses.
The second event was the scarcity of mortgage money.Major banks had taken serious losses in funding LatinAmerican ventures, so the Federal Reserve tightened themoney supply. The 1980s saw the worst real estatedown-turn since the Great Depression of the 1930s. Man-agement in lending institutions was pessimistic about realestate loans. The result was substantial nervousness, eventimidity, in financing new warehouse construction.
With these events happening almost simultaneously,the only solution for both the warehouse operator and thecustomer was the development of long-term contracts thatwould provide the security that lending institutions re-quired. Not only duPont, but a growing number of manu-facturers and chain retailers, were seeking to outsourcewarehousing in a big way, requiring the construction ofexpensive mega-centers that could not be financed with-out a contract. The result was a rapid expansion of con-tract warehousing services, and a new generation of ware-house operators who were engaged exclusively in con-tract warehousing.
The Lodging AnalogyEveryone knows the difference between a hotel and an
apartment. Apartment dwellers sign leases which can belong-term agreements. In contrast, few users of hotel ser-vices want the space for more than a few days, and con-tracts for hotel rooms are rare enough to be virtuallynon-existent.
Perhaps because they have been around since ancienttimes, hotel operators are not considered to be specula-tors. The risk that every customer can leave without noticeis balanced by the fact that new guests will arrive at thewell-managed hotel as fast as old ones vacate the pre-mises. Furthermore, few hotel users would consider rent-ing an apartment, because the space is needed only for ashort time. As a result, hotels and apartments are not everin competition with each other.
Public warehousing is like a hotel for merchandise. Itsnatural customer cannot commit to a long-term contractbecause of seasonality, or the need for maximum flexibil-ity in space usage. Consider the producer of gift wrap,whose changing need for warehouse space corresponds tomajor holidays that include the highest volume of gift giv-ing. Or, think about the packer of tomato products, who
Cube Route To Better SlottingBy Peter Bradley, DC Velocity, Dec. 2008, pg. 79.
Provided in this article is a useful review of the ad-vantages of using electronic equipment to capture thedimensions of every new product, then using that in-formation to bring about effective use of space. Twosources of dimensioning equipment are referenced:Cubiscan and Mettler-Toledo.
The Role of Transportation In The Supply ChainBy J. K. Hazen & C. F. Lynch, ©2008, 322 pages. Avail-able at www.ctsi-global.com.
This hardcover book is likely to find a place in theliterature of education, as well as in business. The roleof transportation in the supply chain, and the historyof transportation regulation and deregulation are ad-dressed within the book. A chapter is dedicated toeach of the transportation modes, including pipelines,domestic water carriers, and special carriers. Otherchapters are focused on pricing, management, and in-formation systems, ending with a chapter about ship-per/carrier relationships. Included in the appendicesis a sample carrier contract. Full-color illustrationsare found throughout the book. Each chapter is fol-lowed by several questions for the reader.
Positive Results Of Drugs And Alcohol PolicyBy John Paterson, Logistics & Transport Focus, Octo-ber 2008, pg. 20.
The author of this article is the human resources di-rector at a British logistics service provider. His com-pany uses an outside resource, Grendonstar, toconduct all drug and alcohol testing. They treat anydrug or alcohol problem in the same way that theywould treat an illness. Testing for substance abuse iscarried out quickly, and in private. Any employeefound to be under the influence can be invited to dis-cuss problems either with a line manager or an exter-nal advisory service. The company recognizes itsobligation to protect all of its employees while theyare at work.
Loading Dock 2.0By Mary Aichlmayr, Material Handling Management,September 2008, pg. 22.
Based on interviews with equipment vendors, thefocus of this article is on the transformation of load-ing docks into “material transfer zones” that havecritical importance in distribution center operations.Many older buildings have 8 foot by 9 foot dock doorsthat are not adequate to handle the newer trailers thatare 8.5 feet by 13.5 feet. Included in the article is adock maintenance checklist.
Top 10 Reasons Good Employees QuitBy Dan Charney, Material Handling Management,October 2008, pg. 48.
In a U. S. Department of Labor study, it was foundthat turnover can cost a company 35% of an em-ployee’s total compensation. The author, a searchconsultant, listed the following as the top 10 reasonspeople leave their jobs:
The job was not as expected.Work/life imbalance.Mismatch between the job and the new hire.Management freezes raises and promotions.Feeling undervalued.Lack of decision-making power.Too little coaching and feedback.Management lacks people skills.Too few growth opportunities.Loss of faith and confidence in leaders.
Warehousing Salaries and WagesWarehousing Education and Research Council, copy-right 2008, 155 pages, Details available atwww.werc.org.
This report is an update of the 2006 study pub-lished by WERC. It covers five hourly wage positionsand ten salaried occupations. The 2008 and 2006 re-sults are compared in an executive summary. Surpris-ingly, three of the salaried positions showed adecrease from 2006, and the wage increases for mostof the hourly jobs were modest. In the 2006 study,42% of the warehouses surveyed had one work shift,but the current study shows that only 32% are on oneshift. Wholesaler/distributors accounted for 35% ofthe responses, and another 33% were from logisticsservice providers. The details in this study will be ofgreat value to anyone concerned with benchmarkingsalary and wage compensation.
Employee MotivationBy N. Nohria, B. Groysberg and L. Lee, Harvard Busi-ness Review, July-August 2008, pg. 78.
The authors developed a powerful new modelbased on their belief that these four drives underliemotivation:
P The drive to acquire.P The drive to bond.P The drive to comprehend.P The drive to defend.
Management should address these drives with ef-fective reward systems, job design, and performancemanagement processes. Also, the role of the directmanager is of critical importance.
builds inventory during the seasonal harvest each year.How is it that the same investment banker who judges
“the warehousing space” by the number of client con-tracts, readily will finance the construction of a hotel,which loses customers on a daily basis?
A Contract Written In Disappearing InkMany of the financial analysts who study the logistics
service industry either ignore, or fail to recognize, the factthat nearly every contract existing between the warehouseoperator and the customer can be canceled on short noticefor operations failure. Nearly all contracts contain clausesenabling prompt separation in the event of unacceptableperformance. They include a listing of key performanceindicators, abbreviated as KPIs. Failure to maintain theseKPIs, or to cure a defect after receiving notice, is groundsfor termination of the contract.
One cynic described the typical warehousing servicecontract as a creative device used to fool the bankers.
Surveying The MarketRecognizing that trends toward public or contract
warehousing are best discovered in the marketplace, wecommissioned two surveys, one by each of the trade asso-ciations representing warehousing service providers, theInternational Association of Refrigerated Warehouses(IARW), and the International Warehouse Logistics As-sociation (IWLA).
The methodology varied for each. IARW solicitedopinions from ten of its more active members, and re-ceived responses from eight. IWLA sent an e-mail surveyto 553 member executives, and received 112 responses.Although the methodology differed, responses from bothsurveys were strikingly similar.
The results indicated a mix of long- and short-termagreements. Only one IARW respondent reported thatmore than 50% of revenue was from three to five year con-tracts, and three of the eight indicated that more than halfof their revenue came from 30-day agreements, or othercontracts of less than 12 months. A substantial plurality ofIWLA respondents, (44%), responded that 75% of theirbusiness was public, rather than contract warehousing.Only 38% reported that public warehousing was less thanhalf of their revenue.
When asked about trends, the results were mixed. OneIARW respondent observed that there is more demand forcontracts when the supply of space is tight. Anotherpointed out that the larger customers are those wantinglong-term agreements. IWLA respondents overwhelm-ingly reported an increase in demand for both public andprivate warehousing, and also predicted that an equalgrowth opportunity exists for both types of service. Thereis evidence that respondents recognized the “disappear-ing ink” feature in long term contracts.
Admittedly, there is a problem in surveying these tradegroups. Many of the largest warehouse service providersare not members of either one.
A View From The TopAs a supplement to the two market surveys, we dis-
cussed the subject with the chief executives of fourmulti-city providers of logistics services. Each gave an
opinion about the relative future of public warehousingand contract logistics services.
All considered contract business to be the faster grow-ing of the two options. Most recognized that public ware-housing is in decline but definitely not dead. One told usthat the larger users preferred contract arrangements, butthe public warehouse model fits small and mid-rangecompanies up to $600 million in sales. Furthermore,believing that the smaller companies are more loyal cus-tomers than the larger, he prefers a 50/50 mix of publicand contract services. Others prefer a ratio that favorscontract warehousing, ranging from 70/30 to 90/10.
Higher margins are necessary for public warehousingbecause of the increased risk. One respondent observedthat the smaller operators are better able to provide thepersonal attention that the smaller customer deserves. Ashis company has grown in size, it has become increasinglydifficult for his managers to offer that level of service;therefore, his marketing is directed toward the larger us-ers who want contracts.
Another executive described a shared environment inwhich contract and public warehouse customers are allkept under the same roof. He believes that the shared envi-ronment inherently is more practical than the use of a ded-icated building for a single customer.
Another respondent described the continuing need forpublic warehousing in port cities, where many users can-not justify a long-term commitment for space. At the sametime, the warehouse operator frequently is in competitionwith a municipal port authority that offers free storage fora short period of time.
Some respondents pointed out that public warehousingis best used to fill unused space in buildings that are underlong-term lease or ownership. In contrast, the best dedi-cated warehouse contracts feature a lease that expires atthe same time as the contract, enabling the logistics ser-vice provider to remain asset light. One executive re-sponded that he would do as little public warehousing asnecessary. None of them believed that public warehous-ing will disappear.
So What Is The Right Question?If the question of whether to use public or contract
warehousing is wrong, what is the right question? Lon-gevity of customer relationships is a far better measure ofstability than longevity or quantity of contracts. There-fore, the most important question that a prospective ware-house services buyer should ask his supplier is this:
How long has each of your top 25 clients been doingbusiness with your company?
Which company is stronger: A public warehouse oper-ator who has never lost a major account in the past thirtyyears, or a contract operator whose oldest client has beenwith him for less than three years?
ConclusionWhile it is clear that contract logistics services have
captured the attention of large companies, as well as thetrade press, we found no evidence that public warehous-ing will disappear.
(Continued on page 3)
All of us know that we are living in a difficult time, andmost of us are frustrated by the bad news we receive daily.We need the hopeful outlook of cheerleaders, exemplifiedby the letter written by Charles Kantner with AIP Logis-tics, that is reproduced below. If you like what you read,spread the word!
Dear Fellow Business Leaders:As we reflect over the past three months, we’ve seen an
unbelievable and unpredictable business climate. Futuregenerations will study these turbulent times and learnfrom the collapse of commodity prices, stock prices, andthe pending economic slowdown. As we move forward,we will eventually see business return to a new normal.The new normal undoubtably will include a shift in con-sumer spending, causing some businesses to fail and someto prosper.
Our economy needs confidence, our employees needconfidence, and we need to be confident. I believe that theAmerican economy will persevere and eventually re-bound. As business leaders we must look at our businesslife as a roller coaster ride and remember that the rollercoaster never ends at the bottom of the hill.
As we progress into 2009, the successful businesseswill lead, maneuver, rebuild, innovate, and charge into thestorm. I believe that these are other important ingredientsin this return to stability: communicating with and sup-porting our political leaders, continued business and per-sonal spending, exhibiting a positive presence in our com-munities, and understanding what is ahead.
When thinking about what 2009 holds I often reflect onthis quote by Henry Ford II: “Nobody can really guaranteethe future. The best we can do is size up the chances, cal-culate the risks involved, estimate our ability to deal withthem, and then make our plans with confidence.”
Wishing all a prosperous and innovative 2009.
The Origins OfCommercial Warehousing
According to popular history, Joseph is the inventor ofcommercial warehousing. The Old Testament describeshow this adviser to the Egyptian king interpreted thedreams of the monarch with his predictions of substantialcrop surpluses followed by famine. Joseph’s recommen-dation to build and fill food storehouses was applied suc-cessfully, and the management consultant from a nearbyland became a local hero in Egypt.
Other evidence exists about warehousing in Neolithictimes, around 8000 BC. Tom Standage, author of A His-tory of the World in Six Glasses, described storage of sur-plus food in temples. Deposits of surplus food came to beseen as offerings to the gods, a practice that survives inTaoist temples today.
“We HaveNothing To Fear
But...”
A Declaration ofProfessionalism
Our thanks to Carlo Graffeo, of Colonial Electric Sup-ply in suburban Philadelphia, for permission to publishthis inspiring document.
We believe that professionalism in our company will bedeveloped only as we, the managers, model and live outthis example in all that we do. Thus, we will passionatelystrive to:
See our work as service towards others, both inter-nally and externally.Be responsible and accountable for our speech andactions.
Speak in a manner acceptable to the ears of a child.Keep agreed-upon deadlines.Return calls and other communications in a timelyfashion.Treat company resources as though they were ourown.Maintain a proper appearance and attire.Refuse to participate in, or condone, gossip.Persevere in the face of difficulty, without com-plaint.Seek solutions to problems and challenges.Treat every situation as a learning experience.Work harder at listening; seeking to understand,not merely be understood.Believe in the potential of our coworkers.Never give up!
This document is displayed prominently on the com-pany premises.
(Contract or Public Warehousing...Cont. from page 2)While the contract business will have faster growth
and may be more attractive for many users, the need forshort-term public warehousing is just as pervasive as everand it will remain so in the future.
For this reason, the majority of warehouse operatorswill find it necessary to offer both services. There are dis-tinct and appropriate roles for both contract and publicwarehousing. The prime question is which approach isthe best fit for any particular customer.
builds inventory during the seasonal harvest each year.How is it that the same investment banker who judges
“the warehousing space” by the number of client con-tracts, readily will finance the construction of a hotel,which loses customers on a daily basis?
A Contract Written In Disappearing InkMany of the financial analysts who study the logistics
service industry either ignore, or fail to recognize, the factthat nearly every contract existing between the warehouseoperator and the customer can be canceled on short noticefor operations failure. Nearly all contracts contain clausesenabling prompt separation in the event of unacceptableperformance. They include a listing of key performanceindicators, abbreviated as KPIs. Failure to maintain theseKPIs, or to cure a defect after receiving notice, is groundsfor termination of the contract.
One cynic described the typical warehousing servicecontract as a creative device used to fool the bankers.
Surveying The MarketRecognizing that trends toward public or contract
warehousing are best discovered in the marketplace, wecommissioned two surveys, one by each of the trade asso-ciations representing warehousing service providers, theInternational Association of Refrigerated Warehouses(IARW), and the International Warehouse Logistics As-sociation (IWLA).
The methodology varied for each. IARW solicitedopinions from ten of its more active members, and re-ceived responses from eight. IWLA sent an e-mail surveyto 553 member executives, and received 112 responses.Although the methodology differed, responses from bothsurveys were strikingly similar.
The results indicated a mix of long- and short-termagreements. Only one IARW respondent reported thatmore than 50% of revenue was from three to five year con-tracts, and three of the eight indicated that more than halfof their revenue came from 30-day agreements, or othercontracts of less than 12 months. A substantial plurality ofIWLA respondents, (44%), responded that 75% of theirbusiness was public, rather than contract warehousing.Only 38% reported that public warehousing was less thanhalf of their revenue.
When asked about trends, the results were mixed. OneIARW respondent observed that there is more demand forcontracts when the supply of space is tight. Anotherpointed out that the larger customers are those wantinglong-term agreements. IWLA respondents overwhelm-ingly reported an increase in demand for both public andprivate warehousing, and also predicted that an equalgrowth opportunity exists for both types of service. Thereis evidence that respondents recognized the “disappear-ing ink” feature in long term contracts.
Admittedly, there is a problem in surveying these tradegroups. Many of the largest warehouse service providersare not members of either one.
A View From The TopAs a supplement to the two market surveys, we dis-
cussed the subject with the chief executives of fourmulti-city providers of logistics services. Each gave an
opinion about the relative future of public warehousingand contract logistics services.
All considered contract business to be the faster grow-ing of the two options. Most recognized that public ware-housing is in decline but definitely not dead. One told usthat the larger users preferred contract arrangements, butthe public warehouse model fits small and mid-rangecompanies up to $600 million in sales. Furthermore,believing that the smaller companies are more loyal cus-tomers than the larger, he prefers a 50/50 mix of publicand contract services. Others prefer a ratio that favorscontract warehousing, ranging from 70/30 to 90/10.
Higher margins are necessary for public warehousingbecause of the increased risk. One respondent observedthat the smaller operators are better able to provide thepersonal attention that the smaller customer deserves. Ashis company has grown in size, it has become increasinglydifficult for his managers to offer that level of service;therefore, his marketing is directed toward the larger us-ers who want contracts.
Another executive described a shared environment inwhich contract and public warehouse customers are allkept under the same roof. He believes that the shared envi-ronment inherently is more practical than the use of a ded-icated building for a single customer.
Another respondent described the continuing need forpublic warehousing in port cities, where many users can-not justify a long-term commitment for space. At the sametime, the warehouse operator frequently is in competitionwith a municipal port authority that offers free storage fora short period of time.
Some respondents pointed out that public warehousingis best used to fill unused space in buildings that are underlong-term lease or ownership. In contrast, the best dedi-cated warehouse contracts feature a lease that expires atthe same time as the contract, enabling the logistics ser-vice provider to remain asset light. One executive re-sponded that he would do as little public warehousing asnecessary. None of them believed that public warehous-ing will disappear.
So What Is The Right Question?If the question of whether to use public or contract
warehousing is wrong, what is the right question? Lon-gevity of customer relationships is a far better measure ofstability than longevity or quantity of contracts. There-fore, the most important question that a prospective ware-house services buyer should ask his supplier is this:
How long has each of your top 25 clients been doingbusiness with your company?
Which company is stronger: A public warehouse oper-ator who has never lost a major account in the past thirtyyears, or a contract operator whose oldest client has beenwith him for less than three years?
ConclusionWhile it is clear that contract logistics services have
captured the attention of large companies, as well as thetrade press, we found no evidence that public warehous-ing will disappear.
(Continued on page 3)
All of us know that we are living in a difficult time, andmost of us are frustrated by the bad news we receive daily.We need the hopeful outlook of cheerleaders, exemplifiedby the letter written by Charles Kantner with AIP Logis-tics, that is reproduced below. If you like what you read,spread the word!
Dear Fellow Business Leaders:As we reflect over the past three months, we’ve seen an
unbelievable and unpredictable business climate. Futuregenerations will study these turbulent times and learnfrom the collapse of commodity prices, stock prices, andthe pending economic slowdown. As we move forward,we will eventually see business return to a new normal.The new normal undoubtably will include a shift in con-sumer spending, causing some businesses to fail and someto prosper.
Our economy needs confidence, our employees needconfidence, and we need to be confident. I believe that theAmerican economy will persevere and eventually re-bound. As business leaders we must look at our businesslife as a roller coaster ride and remember that the rollercoaster never ends at the bottom of the hill.
As we progress into 2009, the successful businesseswill lead, maneuver, rebuild, innovate, and charge into thestorm. I believe that these are other important ingredientsin this return to stability: communicating with and sup-porting our political leaders, continued business and per-sonal spending, exhibiting a positive presence in our com-munities, and understanding what is ahead.
When thinking about what 2009 holds I often reflect onthis quote by Henry Ford II: “Nobody can really guaranteethe future. The best we can do is size up the chances, cal-culate the risks involved, estimate our ability to deal withthem, and then make our plans with confidence.”
Wishing all a prosperous and innovative 2009.
The Origins OfCommercial Warehousing
According to popular history, Joseph is the inventor ofcommercial warehousing. The Old Testament describeshow this adviser to the Egyptian king interpreted thedreams of the monarch with his predictions of substantialcrop surpluses followed by famine. Joseph’s recommen-dation to build and fill food storehouses was applied suc-cessfully, and the management consultant from a nearbyland became a local hero in Egypt.
Other evidence exists about warehousing in Neolithictimes, around 8000 BC. Tom Standage, author of A His-tory of the World in Six Glasses, described storage of sur-plus food in temples. Deposits of surplus food came to beseen as offerings to the gods, a practice that survives inTaoist temples today.
“We HaveNothing To Fear
But...”
A Declaration ofProfessionalism
Our thanks to Carlo Graffeo, of Colonial Electric Sup-ply in suburban Philadelphia, for permission to publishthis inspiring document.
We believe that professionalism in our company will bedeveloped only as we, the managers, model and live outthis example in all that we do. Thus, we will passionatelystrive to:
See our work as service towards others, both inter-nally and externally.Be responsible and accountable for our speech andactions.
Speak in a manner acceptable to the ears of a child.Keep agreed-upon deadlines.Return calls and other communications in a timelyfashion.Treat company resources as though they were ourown.Maintain a proper appearance and attire.Refuse to participate in, or condone, gossip.Persevere in the face of difficulty, without com-plaint.Seek solutions to problems and challenges.Treat every situation as a learning experience.Work harder at listening; seeking to understand,not merely be understood.Believe in the potential of our coworkers.Never give up!
This document is displayed prominently on the com-pany premises.
(Contract or Public Warehousing...Cont. from page 2)While the contract business will have faster growth
and may be more attractive for many users, the need forshort-term public warehousing is just as pervasive as everand it will remain so in the future.
For this reason, the majority of warehouse operatorswill find it necessary to offer both services. There are dis-tinct and appropriate roles for both contract and publicwarehousing. The prime question is which approach isthe best fit for any particular customer.
VOLUME 24 • NUMBER 2 • JANUARY 2009
2009
VOLUME 24 • NUMBER 2 • JANUARY 2009
Contract or Public Warehousing?The Wrong Question!!
Prior to 1980, almost all of the third-party warehousingin the United States was performed under 30-day agree-ments. How, and why, did this change?
Contract warehousing is the term used to describe awarehousing agreement having a term longer than 30days. Public warehousing is used to describe the perfor-mance of short-term warehousing services, usually 30days or less.
Why ask the question of which to use? The investmentbanking community has had an unprecedented interest inwarehousing during the past decade. For those unfamiliarwith the warehousing industry, the emphasis on contractsis natural. Contracts represent stability; therefore, a busi-nessman who operates without one must at best be a spec-ulator, and, worst on par with a river boat gambler!
The Historical PerspectiveContract warehousing was relatively rare in the United
States prior to 1980. Early adopters were users of ware-house services having unusual requirements. For exam-ple, E. I. duPont de Nemours, one of America’s oldest andlargest producers of chemicals, was a leader in theoutsourcing of logistics services during the 1960s and1970s. The nature of its operations created a need for largewarehouses in small communities, where its productionfacilities were located. Recognizing the unreasonable in-vestment risk of developing big buildings in small towns,duPont offered its warehousing suppliers long-term con-tracts, in order to allow the construction to be financed. AsduPont’s business evolved from the manufacture of gun-powder to include consumer products, such as nylon andhouse paints, its need for outside warehousing increased.With that increase came an even greater use of contractwarehousing than ever before.
Two events during the 1980s changed the supply chainmanagement situation. First was the de-regulation oftransport, which lowered the cost of moving goods, andallowed common carriers flexibility in their pricing andservice offerings. This, in turn, increased awarenessamong senior managers of the advantages of outsourcinglogistics services, including warehousing. For the firsttime, manufacturers and retailers were seeking tooutsource giant distribution centers, not the small inven-tories in traditional public warehouses.
The second event was the scarcity of mortgage money.Major banks had taken serious losses in funding LatinAmerican ventures, so the Federal Reserve tightened themoney supply. The 1980s saw the worst real estatedown-turn since the Great Depression of the 1930s. Man-agement in lending institutions was pessimistic about realestate loans. The result was substantial nervousness, eventimidity, in financing new warehouse construction.
With these events happening almost simultaneously,the only solution for both the warehouse operator and thecustomer was the development of long-term contracts thatwould provide the security that lending institutions re-quired. Not only duPont, but a growing number of manu-facturers and chain retailers, were seeking to outsourcewarehousing in a big way, requiring the construction ofexpensive mega-centers that could not be financed with-out a contract. The result was a rapid expansion of con-tract warehousing services, and a new generation of ware-house operators who were engaged exclusively in con-tract warehousing.
The Lodging AnalogyEveryone knows the difference between a hotel and an
apartment. Apartment dwellers sign leases which can belong-term agreements. In contrast, few users of hotel ser-vices want the space for more than a few days, and con-tracts for hotel rooms are rare enough to be virtuallynon-existent.
Perhaps because they have been around since ancienttimes, hotel operators are not considered to be specula-tors. The risk that every customer can leave without noticeis balanced by the fact that new guests will arrive at thewell-managed hotel as fast as old ones vacate the pre-mises. Furthermore, few hotel users would consider rent-ing an apartment, because the space is needed only for ashort time. As a result, hotels and apartments are not everin competition with each other.
Public warehousing is like a hotel for merchandise. Itsnatural customer cannot commit to a long-term contractbecause of seasonality, or the need for maximum flexibil-ity in space usage. Consider the producer of gift wrap,whose changing need for warehouse space corresponds tomajor holidays that include the highest volume of gift giv-ing. Or, think about the packer of tomato products, who
Cube Route To Better SlottingBy Peter Bradley, DC Velocity, Dec. 2008, pg. 79.
Provided in this article is a useful review of the ad-vantages of using electronic equipment to capture thedimensions of every new product, then using that in-formation to bring about effective use of space. Twosources of dimensioning equipment are referenced:Cubiscan and Mettler-Toledo.
The Role of Transportation In The Supply ChainBy J. K. Hazen & C. F. Lynch, ©2008, 322 pages. Avail-able at www.ctsi-global.com.
This hardcover book is likely to find a place in theliterature of education, as well as in business. The roleof transportation in the supply chain, and the historyof transportation regulation and deregulation are ad-dressed within the book. A chapter is dedicated toeach of the transportation modes, including pipelines,domestic water carriers, and special carriers. Otherchapters are focused on pricing, management, and in-formation systems, ending with a chapter about ship-per/carrier relationships. Included in the appendicesis a sample carrier contract. Full-color illustrationsare found throughout the book. Each chapter is fol-lowed by several questions for the reader.
Positive Results Of Drugs And Alcohol PolicyBy John Paterson, Logistics & Transport Focus, Octo-ber 2008, pg. 20.
The author of this article is the human resources di-rector at a British logistics service provider. His com-pany uses an outside resource, Grendonstar, toconduct all drug and alcohol testing. They treat anydrug or alcohol problem in the same way that theywould treat an illness. Testing for substance abuse iscarried out quickly, and in private. Any employeefound to be under the influence can be invited to dis-cuss problems either with a line manager or an exter-nal advisory service. The company recognizes itsobligation to protect all of its employees while theyare at work.
Loading Dock 2.0By Mary Aichlmayr, Material Handling Management,September 2008, pg. 22.
Based on interviews with equipment vendors, thefocus of this article is on the transformation of load-ing docks into “material transfer zones” that havecritical importance in distribution center operations.Many older buildings have 8 foot by 9 foot dock doorsthat are not adequate to handle the newer trailers thatare 8.5 feet by 13.5 feet. Included in the article is adock maintenance checklist.
Top 10 Reasons Good Employees QuitBy Dan Charney, Material Handling Management,October 2008, pg. 48.
In a U. S. Department of Labor study, it was foundthat turnover can cost a company 35% of an em-ployee’s total compensation. The author, a searchconsultant, listed the following as the top 10 reasonspeople leave their jobs:
The job was not as expected.Work/life imbalance.Mismatch between the job and the new hire.Management freezes raises and promotions.Feeling undervalued.Lack of decision-making power.Too little coaching and feedback.Management lacks people skills.Too few growth opportunities.Loss of faith and confidence in leaders.
Warehousing Salaries and WagesWarehousing Education and Research Council, copy-right 2008, 155 pages, Details available atwww.werc.org.
This report is an update of the 2006 study pub-lished by WERC. It covers five hourly wage positionsand ten salaried occupations. The 2008 and 2006 re-sults are compared in an executive summary. Surpris-ingly, three of the salaried positions showed adecrease from 2006, and the wage increases for mostof the hourly jobs were modest. In the 2006 study,42% of the warehouses surveyed had one work shift,but the current study shows that only 32% are on oneshift. Wholesaler/distributors accounted for 35% ofthe responses, and another 33% were from logisticsservice providers. The details in this study will be ofgreat value to anyone concerned with benchmarkingsalary and wage compensation.
Employee MotivationBy N. Nohria, B. Groysberg and L. Lee, Harvard Busi-ness Review, July-August 2008, pg. 78.
The authors developed a powerful new modelbased on their belief that these four drives underliemotivation:
P The drive to acquire.P The drive to bond.P The drive to comprehend.P The drive to defend.
Management should address these drives with ef-fective reward systems, job design, and performancemanagement processes. Also, the role of the directmanager is of critical importance.
