REALITY CHECK: WAREHOUSE EXECS SEE STRONG US ECONOMY; NO Y2K BUILDUP
09:10 EDT 09/20
By Gary Rosenberger
NEW YORK (MktNews) - U.S. warehouse executives say the U.S. economy continues to chug along with no signs of slowing from higher interest rates, that Y2K-related inventory-building is largely a myth and optimism abounds over the upcoming holiday retail season.
The industry is in a growth mode thanks mainly to real-time inventory systems that were designed to put warehouses out of business but instead have generated an unprecedented need for storage. They say the conventional concept of inventory is in a state of flux as warehouses come to play previously unimagined roles in the manufacturing and distribution chain.
The head of a North American trade association of public warehouse operators said ongoing buildups of inventory are impressive -- have everything to do with the upcoming holidays and little to do with Y2K.
"Retailers are building up inventory at high levels in anticipation of a robust holiday selling season," said Michael Jenkins, president and CEO of the International Warehouse and Logistics Association.
"Many of our members (who warehouse) for retailers are seeing a larger-than-normal buildup, especially of consumer appliances and garments," Jenkins said.
At the same time, "there has been substantially no Y2K-related buildup in public warehouses. There may be the odd manufacturer increasing safety stocks, but it's not noteworthy," he added.
Manufacturers and distributors of the most Y2K-sensitive items -- date-sensitive materials like film, batteries and pharmaceuticals -- "had to have their computer issues in order since 1997 or 1998," Jenkins observed.
Jenkins acknowledged the irony that the trend toward real-time inventory has resulted in unprecedented demand for warehouse space in the same way that computers generated an unanticipated demand for paper.
"Inventory in the U.S. has been up around 6% for three consecutive years" as "major retailers like Sears and Wal-Mart instigated inventory reduction programs and demanded that manufacturers pre-position inventory to be delivered at a moment's notice," Jenkins said.
That has made warehouses a fast-growth industry, expanding at a 15%-20% annual clip (measured in floor space and revenues), he said.
One warehouse operator in the Southeast, currently focused on the issue of Hurricane Floyd, otherwise exuded optimism about the state of the economy, his industry and his own business.
"The big issue that warehousers are dealing with now is the upcoming Christmas season, which looks very promising," said Herbert Harriss, chairman of Baxter-Harriss Co. with warehouses in Charlotte, North Carolina and Charleston, South Carolina.
His warehouses cover a gamut of industries, including retail, but one special indicator for him is the number of gift-boxes that a regional retailer has ordered for the holidays.
"For that specific niche, the holidays look busier this year than last year," Harriss said. "On the Y2K issue, we're really not seeing any inventory buildups," Harriss said the only concern about Y2K has been from clients requesting assurances that there will be no Y2K-related breakdowns along a distribution chain in which he plays a part.
"We would expect some inventory building later on in the year -- but they'll just be minor adjustments -- an extra truckload or two," he said.
Harriss likewise observed that the entire complexion of the warehousing industry has changed in the past decade. "Don't call us warehouses anymore -- we're now product transformation centers -- how's that for a euphemism?" he said.
Expanding on Jenkins' point, Harriss says warehouse companies no longer simply store things but have become an integral part of the assembly line. Manufacturers now often supply warehouses with machinery that outsources part of the manufacturing process -- no longer passive gatekeepers in the flow of goods.
For instance, Harriss's warehouses actually produce the above-mentioned holiday gift boxes -- using machines supplied by chemical companies to transform plastic resins into a variety of semi-finished and finished products.
"I once listened to a professor predict the demise of our industry because of just-in-time -- but it's actually expanded our business," he said. "We're doing things now that I didn't dream we'd be doing 10 years ago."
Nor does he worry about the economy, despite higher interest rates.
"Am I concerned about interest rates going up? Yes. Will it harm things? Not yet," he said.
"As far as I'm concerned, interest rates are still in a favorable period," he said.
Harriss said that he is so optimistic about the future of the U.S. economy that he is expanding his facilities on expectations of further growth.
He added that the only economic issue he is concerned about is low unemployment, which has made hiring difficult and forced him to provide greater-than-usual wage packages, in the 5% range of late.
The chief of a trade association, which focuses on the after-market auto parts warehouse business, projects slow and steady expansion ahead -- and no Y2K-related buildup.
"The auto market is a relatively mature business -- our rate of expansion tends to be in the 2-4% range annually," said John Creamer, president of the Automotive Warehouse Distributors Association, based in Kansas City, Missouri.
But he also believes that future growth is being predetermined by demographic factors.
"There are 200 plus million cars and light trucks that require instant service," he said.
Creamer added that with older cars now on the road and a new generation of drivers behind the wheel, the need for warehouse space for auto parts grows rather than shrinks.
"Inventory management is a big issue because the demands on the system are growing -- the average vehicle is 10 years old, the system has to have parts for 30-year-old vehicles," he said.
"The parameters that we look at indicate that growth in our market has been positive and will continue to be positive," Creamer said.
He also noted no Y2K buildups of any significance. "In my view, Y2K is a non-issue," Creamer said.
A distribution supply specialist for a major food producer also envisions a continuing need for warehouse space, while minimizing Y2K concerns.
"I don't think (Y2K inventory-building) is entirely a myth -- there are some seasonal items that we are taking a hard look at to make sure we have an adequate supply," said Rick Blasgen, vice president of supply chain with Nabisco in Parsippany, New Jersey.
"On the other hand, we're not building excessive inventory in anticipation of Armageddon," he added.
The seasonal product in question is 'Cream of Wheat', which is in heavy demand during winter -- and so Nabisco is building an extra cushion of "a couple of days supply," Blasgen said.
Blasgen also noted that a strong economy has created opportunities for warehouse operators. While there is a limit to how much extra people can eat in a good economy, it has "set up opportunities as convenience stores and other food retailers have popped up." And they all require storage space even with the best inventory systems in place, he said.
"From where I sit, the economy continues to be good," he said. "I know that every time Greenspan says something everyone freaks out, but I don't see that anything's changed."
In fact, he sees the economy in a state of transformation with inventory playing an increasingly important role.
"There's good inventory and bad inventory," he stated.
"Information that's available among partners in the distribution chain can play an important role in increasing the velocity in which products move along the distribution pipeline," he said.
"Time is money, and if we can put good information into good inventory, we're all better off," he said.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S. economy.
>>>Relevant to real world not being too concerned about
>>>Greenspan or Y2K. |
