Warehouse & Distribution Best Practices Special Report: Creating competitive advantage

Optimizing the network
Mergers, acquisitions, and consolidation are facts of life for any company intent on growing market share. But, what happens the morning after the acquisition is complete? Then, it’s a little like getting married: After the honeymoon, you have to figure out what to do with two sets of everything. In the supply chain, you have to figure out what to do with two manufacturing and distribution networks that often serve the same geographies.

“Network optimization is a factor we’re seeing across all industries,” says Kelly Reed, a partner with Tompkins International. “Companies are asking us how they can make their network most efficient from a transportation cost and a labor cost.”

In some instances, Reed adds, a company may just have two DCs that it wants to combine into one. For larger organizations, however, the questions are more strategic and complex. “In some instances, we have companies focused on the cost of operating a facility or the cost of labor in a location,” Reed says. “In other areas, the network strategy is driven by customer service requirements.” Tompkins recently worked with a client that located a new facility in Fresno so that it could serve both Los Angeles and San Francisco with next-day ground deliveries.

Those types of distribution strategies are also resulting in networks with facilities designed for a specific purpose. Tompkins, for instance, has worked with companies to consolidate all of their slow-moving items into one central facility with regional DCs for faster-moving products. Another strategy is to create one or two large centralized DCs with smaller “forward-located” DCs that can turn around orders very quickly for Internet fulfillment, flash sales, or store replenishment of fast-moving items.

“I read recently that Macy’s is using their store rooms as Internet fulfillment centers and picking from store inventory,” Reed says. “As the way we engage with customers changes, many companies are making up the rules as they go along. We’re all learning what works and what doesn’t. It’s going to have implications for distribution networks and how orders are filled.”

Managing SKU proliferation
Like mergers and acquisitions and the growth of multi-channel retailing, SKU proliferation is another fact of business life for retailers and wholesale distributors. “Everyone is trying to find the magic bullet to increase sales,” says Norm Saenz, senior vice president for the supply chain group at TranSystems. “The perception is that more product offerings, more styles, and more colors give a competitive advantage.”

In the distribution center, that translates as too little storage space and too few pick positions to get the product out the door. “We had one client that was storing 8,000 SKUs in 500 pallet positions,” says Saenz. “They were reduced to putting as many as 20 different SKUs in one pallet position in their picking area. Instead of picking just from the lower levels, they were picking from all of the levels in the storage area.”

The solution was not complicated. Pallet rack was converted to static wide span shelving with three openings instead of one 6-foot pallet opening. In addition, the storage area was converted from 10-foot aisles to 4-foot wide narrow aisles. “We went from a conventional lift truck to a worker-assist vehicle that will work in a 3-foot aisle,” Saenz says.

“They have 8,000 pick locations today,” Saenz says. “They are much more efficient and there are far fewer errors.”

Designing the workforce of the future
Despite the recession, labor availability remains one of the most persistent issues confronting warehouse and distribution center managers. Training and retaining experienced personnel is almost impossible when many facilities experience a 50 percent turnover in the workforce every year.

“We began hearing about this five or six years ago from Canadian clients as warehouse workers moved out west to work in the oil fields,” says Chris DeLisle, a senior engineer with Witron. “Today, it’s a universal issue, across all industries and regions, especially as the economy begins to improve.”

It’s not just the availability of labor. As the workforce ages, distribution centers are being forced to rethink labor intensive processes, such as manual palletizing or case picking.

As a result, DeLisle says, clients with sufficient scale and volume are taking a harder look at automation. “First and foremost, automation can reduce the number of people required to operate a facility,” DeLisle says. “But we also have an opportunity to make the manual processes as ergonomic as possible.”

The result, he adds, is that the employee retention rate in automated sites is generally higher than in conventional facilities. “One of the challenges to our industry is how do we enrich the job so that the associate isn’t bored after 10 minutes,” DeLisle says. “That’s why I think that automation is more attractive to younger kids. If we can offer them a solution that exposes them to technology and provides a path to grow in their careers, that is attractive to them.”