Market know-how: Intelligent Warehouses

In Russia the re-equipment of warehouses is also taking place, however it is too early to call it a strong trend as the format of "intelligent" warehouses has not yet received wide circulation. Its development is constrained by a number of factors - from problems with looking for a suitable land plot to the cheapness of unqualified labour.

Technology solves everything

In Russia the annual growth of the logistics market, according to analytical company IDC, is 18-23%, including western operators, whose arrival has increased the requirements of warehouses. Logistics companies are paying more and more attention to new technologies, and allocating more money for them. Modern warehouses are completely automated enterprises with a minimum number of workers where technology moves goods and manages account information.

Oleg Razin, deputy general director of Vesco Consulting notes that such warehouses are equipped with a management system with the necessary infrastructure. For example, WMS completely manages a warehouse, allowing to not only store information on all goods - where they are placed, but also provide coordinated, fast and exact performance of warehouse operations. Warehouse Management Systems (WMS) trace the receipt, movement and shipment of goods from the warehouse along the whole cycle to all countries and regions from the manufacturer, for example a factory or plantation, to the final buyer.

If the warehouse is small then ERP-system (Enterprise Resource Planning System, a resource management system of the enterprise) which only automates accounts, while information on the movement of goods in the warehouse is carried out manually, is used. "The automated system of "intelligent" warehouses manages all warehouse operations, including the receipt and shipment of goods, their movement in the warehouse, inventory, sorting and also packing. Plus document circulation, management of employees, and management of clients," he adds.

The cost of WMS ranges from $100,000 to $500,000 and more. This sum includes the cost of the equipment, the software and any alterations. Servicing costs are irrelevant. It’s not a secret for example that modern Japanese technology works without repair for 15-20 years. The programs with the computer equipment usually last for an average of five years (there is no sense in it being longer), and well-established firms will guarantee its uninterrupted work/service (the client will then use them again for new products).

"Intelligent" warehouses are most highly demanded among companies engaged in the sale of goods with a limited shelf life. These include foodstuff, drinks, and also medical and cosmetic products. An automated warehouse management system among other things can track the approach of an expiry date. In general WMS is used in all branches of the economy. There are a lot of WMS software products. Among them are automatic identification and data gathering (AIDC), which traces warehouse freight traffic without the participation of people.

AIDC includes radio-frequency identification (RFID) or different ways of identifying objects, processing and storage of information. Radio-frequency identification in itself has been used for 20 years already. In this time it has considerably improved. Today wireless technologies with Internet connection by means of mobile devices are used. The goods have a chip which sends a signal to reception devices - aerials which, in turn, transfer a signal for processing to a computer/server. The receiver with the aerial can work with mobile communication systems, i.e. the employee can trace the movement of cargo around the world by mobile phone. Motorola, in particular, offers such a service on the basis of the Oracle Warehouse program.

In 1999 global association Auto-ID Center which includes 100 of the largest companies in the world, and also development companies and science research centers, was created. The goal of the association was to create a world information system of tracking goods. This would stop goods going missing or getting lost, improve marketing policy and, accordingly, save money. Radio microcircuits measuring no more than 0.3mm and costing about $0.05 are being developed for this purpose and will be able to be placed on all goods. By means of special reading devices information on the movement of goods within global tracking systems will be on the computer/server of the warehouse and furthermore in the data-processing centre of this or that company. Under the forecasts of IDC, this year the world market of RFID will increase 7.3% compared with last year and will reach $5.29 billion (equipment, programs, systems integration and installation/consultation).

Among the most advanced management products experts at Korus Consulting name Oracle. According to research by analysts at Gartner, the following firms also offer various high quality products for warehouse complexes: Manhattan Associates, RedPrairie, IBM and Microsoft.

Repeating mistakes

The development of logistic center chains in Russia, considers Alexander Semenov, general director of Korus Consulting, is repeating the experience of Eastern Europe, i.е. to a certain point it is being automated. Such an approach is fraught with several specific problems, namely a lot of mistakes and failures in the current work of a warehouse complex due to the low qualification of workers, complexities with hiring and training employees, and also with the growth in the general costs of maintaining attendants. This could be avoided if development of the sector was based on the western way of creating automated warehouses with a minimum number of workers.

Only class A and B+ warehouses that meet western standards are under construction in Russia. Now, according to Colliers International 2.5 million sq.m of high quality warehouses have been built. Of them more than half are concentrated in Moscow and the Moscow suburbs.

At the same time, Semenov notes, in Russia there is a shortage of quality warehouse space. At the same time there are plenty of class C and D warehouses, the owners of which do not always want to invest in reconstruction, but that is understandable. "The approximate cost of constructing the highest quality warehouse complex is $1,000 per sq.m,” says general director of Espro Development Vitaly Antonov. “Such a complex takes 7-10 years to recoup the costs.” Not so advanced complexes take an average of 3-5 years.

By class A, as notes Polina Vinokurova, advertising and public relations expert at National logistics company, we mean buildings with high ceilings (not less than 12m, a lot of gates, heating, WMS, etc. Maxim Shakirov, regional director of the warehouse and industrial warehouse department at Colliers International, also thinks that modern "intelligent" warehouses should without doubt be equipped with WMS, a system providing the most effective functioning of a warehouse, movement of goods, and also the management of the warehouse. SLG-Domodedovo warehouse terminal is an example.

"However the costs on constructing and installing the equipment of a modern warehouse are quite high, as are the periods of the recovery of outlay. For this reason there are not many such storehouses in the Russian market," Shakirov adds.

What’s the problem

For every country’s warehouse real estate market, automated systems are optimum, Razin considers. However, although western technologies are considered better and offer more functions, such systems are not suitable for the Russian market. Sometimes, to introduce such a system, it is necessary to completely reconstruct the structure of the business of the client, and from the point of view of financial expenses are not always justified.

"The main problem is that to equip an "intellectual" warehouse is not only expensive, but also rather difficult. The given format is not widespread yet in the Russian commercial real estate market. The significant shortage of experience and the low qualifications of warehouse workers leads to the fact that that creating such a warehouse takes a lot of time. Significant funds - from tens and hundreds of thousands of dollars and more, spent on the introduction of such technologies, as a rule, are quite insignificant in comparison with the cost of the system. As a result it takes a long time to recoup the costs of "intellectual" warehouses - no less than seven years. Nevertheless "intelligent" warehouses are becoming a new concept in logistics.

Among the reasons for the technological delay to Russia, Vinokurova names the lower cost of manpower in Russia than in the West. Some firms employ workers from the near abroad more cheaply rather than burden themselves with the introduction of expensive technologies.