Finding a suitable warehouse space in emerging markets can be a challenging undertaking. It is unlikely that you will come across best in class standards. Third party warehouse suppliers might lack the required skills and professionalism. Normally, ongoing training and support are required. Also, due to poor remuneration, staff turnover is high, which has a negative impact on cost. Below are a number of issues to consider:
Assessing the 3rd party
Capability of provider – Assess the capability of the provider. Determine their reliability and speak to other customers. Is the operation trained to handle your product category? What type of items do they currently store in the warehouse? Does that include dangerous and hazardous items?
Organization – Assess the warehouse organizational chart. Do they have the required people in place to do the job? What is the mix between temporary and permanent staff?
Assessing the infrastructure & enablers
Structure – What does the structure look like? Assess the storage facility and ensure the structure meet your requirements. Many warehouses for rent are poorly designed, with poor yard management, ventilation and equipment. Consider the layout of the building. It is important to assess if the layout assists with the product flow, especially taking into consideration the receiving, staging and dispatching of items. Review the loading and offloading bays, including the warehouse and yard flooring. This is especially important when operating forklifts. What infrastructure adjustments are required?
Risk – Does the facility have the required fire equipment? What are the security and access controls in the warehouse?
Receiving – How do they check for quality and how do they conduct product inspections? How do they document receipt of products? How do they provide information to management on receipts, issues, and stock balances?
Space – Does the warehouse have adequate space for stock and safety stock?
Storage practices – Has the operation implemented the recommended storage practices such as FIFO and FEFO? How do they organize inventory classes and what information do they collect e.g. batch numbers, expiry dates?
Temperature control – How do they regulate and keep track of temperature in the warehouse? Also, check the warehouse ventilation.
Cold chain – Do you require cold chain facilities? Is the infrastructure in place?
Storage equipment – What storage equipment do they use? E.g. racks, bins.
Movement – How do they keep track of movement of items?
Handling – Is the operation palletized? Is the required handling equipment in place? Or is it mainly manual labour?
Picking and packing – Have they designed and implemented the required picking and packing procedures? Do they move items to picking locations? How do they check for accuracy?
Dispatching – Have they implemented the dispatching procedures?
Disposal & returns – Have they implemented the required disposal practices and return procedures?
Visibility – How much visibility is there in the warehouse? Poor information technology may lead to a lack of visibility in the supply chain with increased out of stocks (OOS). Increasing visibility can take time and might include a combination of technology and manual processes. How will they track and trace items? Are they tracking batch number and what equipment have they implemented to track items?
Information technology – What IT is in place? Information in emerging markets is not always electronic. Review what they have implemented e.g. warehouse management software, ERP. In most emerging markets, labour remains relatively cheap compared to expensive information technology systems. The use of manual processes can save money. Often companies operate on a combination of software (e.g. ERP), Excel, pen and paper.
KPIs – How do they monitor performance in the warehouse? Which KPIs are being tracked?
Cost – Assess the cost implication to the organization.
Contingency plans – What are your contingency plans if the 3rd party warehouse operator fails to deliver against your expectations?