It wasn't too long ago that the warehouse was considered the weak link in the supply chain. Well, times have changed. And it's a welcome development noted by many experts in the field—practitioners, academics, and management consultants.

Reflecting on warehousing's new role, Rick D. Blasgen, vice president of supply chain operations for Nabisco, has observed that "many of us are finding that we are moving from a liability to [becoming] a competitive weapon in the marketplace."

Adds Thomas W. Speh, director of the Warehouse Research Center at Miami University of Ohio: "Five years ago, we were predicting the demise of warehousing. But I think this is the most exciting time there has ever been in warehousing. The opportunities are fantastic. We read about all the dot-coms and all the changes. Yet most of the dot-coms are building warehouses and realize that they need to go through warehouses."

Though the role of warehousing is now more prominent than ever, it's important to remember that the warehouse is just one part of the supply chain. Not so long ago, conventional wisdom held that if a company had a great internal supply chain, it could win the competitive battle. However, with the advent of e-commerce and the never-ending pressure to squeeze costs out of the supply chain, it's no longer enough to be efficient within your company's four walls. Companies today need an efficient supply chain from end to end—that is, from the purchase of raw materials to the point where product reaches the consumer or end user. One failure at any point along this supply chain process can spell doom.

"It's about your supply chain vs. mine, and the company with the best supply chain will win," says Jim Tompkins, a business author and principal of Tompkins Associates. "People have to ask, 'What is the impact of the Internet on the supply chain, and what role will it have on warehousing?' With the Internet, everything must change. If you talk to somebody who says 'I'm not affected by that because I don't deal with consumers,' [his or her company] won't be a successful venture over time."

The Internet's powerful impact is certainly evident in the Big Three automakers' joint effort in forming Covisint. This is an innovative, global, Web-based buying consortium involving three staunch competitors—General Motors, Ford, and DaimlerChrysler. Meanwhile, 40 of the world's leading manufacturers and retailers have developed the Global Commerce Initiative, a joint industry organization that will enable data transfer and interpretation between Web-based trading exchanges and other Internet B2B activities. As with Covisint, this initiative speaks to the tremendous power and potential of the Web.

Yet even with all the technology advances associated with these e-commerce initiatives, the job of making things work in the supply chain often falls to the warehouse. A good example of this can be seen at General Motors. GM recently required all vendors to include 2-D bar coding on all shipments arriving at the automaker's docks. Failure to follow the new regulation could result in the vendor's receiving a Problem Reporting and Resolution notice (PRR) for having an unacceptable number of boxes arriving at GM's receiving docks with incorrect labels. PRRs affect the supplier's quality points standing. A large number of PRRs could ultimately lead to termination as a supplier.

Who is responsible for this critical task of affixing the correct bar code on the packages being sent to GM? In most cases, it is the warehouse—just one more example of this unit's critical importance within the supply chain.

As the responsibilities increase, more educated and experienced managers are needed to run and manage the warehouse facilities. Evidently, companies are willing to pay to attract and retain the management resources they need, especially in a tight labor market. A study we conducted last year among warehousing managers found that 10 percent of respondents had master's degrees, while 41 percent held undergraduate degrees.

Not surprisingly, we found a strong correlation between education level and compensation. Respondents with MBAs reported an average salary of $99,550—fully 43 percent higher than salaries paid to their colleagues with undergraduate degrees. That group earns an average of $69,000—well ahead of the $49,615 average of those respondents without undergraduate degrees.

The advent of e-commerce is another development increasing the supply chain's reliance on warehousing. Consumers today are demanding 24-hour delivery and flocking to another company's Web site if their orders are delivered late or damaged. The pressure is squarely on the warehouse to deliver.

Many warehouses are ramping up to meet e-commerce needs by installing new fulfillment equipment and investing in other technologies. Picking and shipping methods are being upgraded, too. Customer service has become of the utmost importance in today's environment, and warehouses increasingly are being tasked to manage call centers. In addition, with the increased returns generated by the Internet, they are playing a lead role in developing and executing reverse-logistics programs.

In response to all of these changes and added responsibilities, many companies are turning to third-party logistics (3PL) providers to run their warehouses. Sure, there is an additional cost involved in this option. But companies like Nabisco and International Paper, among many others, are discovering that by outsourcing their warehouse operations, they can concentrate more intensely on other core competencies, like manufacturing and product marketing.

The rapid growth of the 3PL industry reflects the attractiveness of outsourcing. Many third-party companies report growth rates in the high teens, and some actually are refusing work in order to manage their growth more efficiently. Warehousing Management annually conducts a "Big 50" report of the country's largest operators of warehousing space. Among the top 15 operators in the most recent survey were a number of third-party logistics companies, including Exel, GATX Logistics, Tibbett & Britton Group, Kenco Logistics Services, Standard Corp., and USCO Logistics.

Third parties aren't for everyone, however. In fact, SmarterKids.com, an e-tailer of children's educational toys, recently opted to build a brand new 140,000-square-foot distribution center after its third-party provider was overwhelmed with orders during the 1999 holiday season. Now, SmarterKids.com expects to save about 20 percent in warehousing costs with an in-house system that is scalable to handle peak orders. Ace Hardware is in a building mode, too, having broken ground on a 778,000-square-foot distribution center last fall. The company is in the process of building a West Coast distribution center as well. Ace officials say they are able to provide better customer service to their stores with the larger facilities and by keeping distribution functions in house.

Clearly, these are changing times for the warehouse industry. Those who sit idly by and watch these developments unfold could be jeopardizing their company's future growth. Today's rapidly changing business conditions require a re-examination of current methods—everything from management policies, to finding qualified labor, to fulfillment and packaging needs, to shipping. Companies also need to keep abreast of the new consortia and Web exchanges that are being born every day. Many of these have the potential to cut costs, simplify shipping, improve communications, and, ultimately, provide better customer service.

The company that isn't willing to invest in its own warehouses—or in a capable third-party provider—and consider new technologies and strategies will face an uphill struggle in the future.

John R. Johnson is editor-in-chief of Warehousing Management. He can be reached at jj@wm.cahners.com.