Warehouse Operational Challenges In Shanghai’S Retail Industry

1. Introduction

With the ever-changing customer demand, the retailers who are focusing on end customer-oriented operations are confronted with several challenges in terms of warehouse operation. The Shanghai’s retailers who are grappling with a great deal of foreign competitors and with relatively low level of technology adoption are facing serious challenges in warehouse operation.

2. Two current warehouse operational challenges faced by Shanghai’s retailers.

2.1 Warehouse operation efficiency

With increasingly repaid changes of customer purchase preference, the warehouse operation efficiency is highly demanded to cut down the new product introduction time worldwide to ensure fast market penetration. In the past several years, product introduction times were getting shorter by nearly 50percent (on average) every five years. While in some industries this rate of changes was less sever, in other industries the rate of change was even more rapid. Automotive industry, for example, new product introduction times changed from around 60 months to a target of approximately18 months, or a sharp reduction of around 70 percent from the mid-1980s to 2003! In several industries, the total time taken to introduce a new product into the market can be the key difference between a blockbuster and a mediocre performing new product. Therefore, the retailers who take on the responsibility of delivering products and services to consumers for their personal or family use play a crucial role in time saving. Shanghai’s retailers who are confronted with fierce competition from foreign counterparties are grappling with the challenge of operation efficiency.

It is not unusual for us to find that when we do shopping in some relatively smaller Shanghai supermarkets, a few categories of new products are not in place and even worse is that when these kinds of products would be in stock is also unknown. However, the same circumstance in some foreign counterparties, like Wal-Mart and Carrefour is completely different: as long as you want, you can find any kind of product with various choices and abundant supplements. These embarrassed situation point out a serious challenge for Shanghai’s retail industry, says high warehouse operation efficiency.

Defects, transportation, human motion, waiting, says four wastes, are prevalent in current warehouse operations. “Many retail operations continue to suffer from significant inefficiencies, as forklift operators waste time and resources hunting and digging, because they lack adequate information on the location of items and the optimal route for putaway, replenish and retrieval actions,” says Michael Giuliano, the President of Meridian.

Image that 2.5 minutes are wasted during the average retrieval cycle, and that figure is multiplied by hundreds or thousands of cycles per week. The inefficient warehouse operations not only lead to slower commodity movement, longer delivery time, but also give rise to unexpected stock-out and bumping up operational costs as well. However, one thing worthy of most attention is the customer service level. Making customers wait will undermine customers’ buying experience and even lose customer loyalty

For efficient warehouse operation, the major goal is maximize the flexibility by better storage and handling performance. Flexibility is also an essential part of being able to respond to ever-changing customer demand in terms of product assortments, value-added services, and the way shipments are sequenced and presented. Information technology may facilitate flexibility by allowing warehouse operations to quickly respond to changing customer requirements and I will discuss it in details in the third part.

2.2 Rising warehousing costs

It is known to all that warehousing, making up two to five percent of the cost of sales of a corporation, is expensive. In Shanghai, the cost of warehouse operation is becoming higher and higher for the rising financial indicators (see TABLE 2-2-1)

TABLE 2-2-1

MAIN FINANCIAL INDICATORS OF WHOLESALE AND RETAIL SALES

ABOVE THE SET SCALE (2004пÐ...Ñ›2006)

Unit: 100 million yuan

Indicators 2004 2005 2006

Current Assets 2 369.88 2 929.27 3 229.85

# Inventory 579.87 722.78 811.94

Fixed Assets Original Value 527.89 546.78 632.69

Accumulative Depreciation 146.30 169.94 201.05

# Depreciation 27.15 31.20 38.47

Total Assets 3 330.24 3 926.22 4 317.05

Total Liabilities 2 501.02 2 727.25 2 961.32

Total Owner’s Equities 1 029.23 1 198.97 1 355.73

Paid-up Capital 795.74 862.49 858.18

# State Capital 138.83 132.19 123.22

Hongkong Maiwan Capital 23.76 38.17 40.74

Foreign Capital 163.29 242.71 222.50

Prime Operating Revenues 9 459.53 11 236.19 13 065.98

Operating Costs 8 304.33 9 874.12 12 065.15

Operating Expenses 474.95 501.98 553.29

Sales Taxes and Extra Charges 8.68 10.10 14.81

Profits of Major Management 664.62 737.71 952.92

Management Expenses 215.38 243.12 256.52

Financial Expenses 20.46 24.09 23.52

Operating Profits 183.79 248.71 283.07

Total Profits 164.00 223.35 325.83

Total Payable Salaries Involved in Major Business 112.88 130.25 137.49

Total Payable Welfare Involved in Major Business 15.06 21.89 20.44

Note: Data in this table is provided by Survey Office of the National Bureau of Statistics in Shanghai.)

From the table above, we can see that the warehouse operation costs in Shanghai retail industry showed an upward trend in the past 3 years. From the prospective of return