Warehouse & Distribution Best Practices Special Report: Creating competitive advantage

For years, warehousing, distribution and manufacturing were largely invisible to the corporate enterprise. Of course senior-level executives knew they had plants, warehouses and distribution centers, but they didn’t necessarily know what purpose they served. How else do we explain the trend toward outsourcing manufacturing to contract manufacturers and distribution to third-party logistics (3PL) providers? The attitude was: Let them own all those assets and figure out how to make a profit.

Today, supply chain processes have come out of the business shadows. Increasingly, the C-suite recognizes the contribution that warehousing and distribution makes to the bottom line. More importantly, there is the recognition that, when done right, warehousing, distribution, and manufacturing can create a competitive advantage.

As a result, logistics and supply chain professionals are more connected to the business than ever before and are now playing a critical role in furthering business objectives. What then are the biggest business issues affecting the design of materials handling systems as well as the warehouse and distribution best practices that run today’s game-changing operations? We put that question to seven system integrators and consultants to find out what is top of mind with their customers and potential customers.

Optimizing in a multi-channel world
Multi-channel selling is transforming the retail industry. The challenges are big enough for retailers that once sold through stores and now are selling online. It’s more pronounced for those companies that once sold wholesale and now have their own stores, their own e-commerce shopping carts, or both.

The hurdles range from adapting facilities that were designed to handle cases and pallets to piece picking to grappling with SKU proliferation. “We do a lot of retrofit projects for retailers,” says Jeff Ross, vice president of consulting for Forte. “We see semi-automated or automated solutions that worked great when direct-to-consumer was 5 percent of the business, but now it’s 30 percent of the volume.
We have also seen direct-to-consumer retailers that have opened their own brick-and-mortar stores. Either way, we have to think differently for the client.”

How does that translate to the shop floor? In many cases, it means applying familiar technologies and equipment in different ways to create to new processes. “For one retailer, we waited until the packing station to differentiate between e-commerce and retail orders,” says Ross. “We pick in batch regardless of the type of order, but once items hit the sorter, single line orders are sent to one section of the building for packing while multi-line orders are sent to another area for packing.”  

In another application, multi-line orders use a sort-to-light, or put-to-light, process that features a light-enabled cubby wall with spots for a group of totes for outbound orders. Items are picked to a tote that is transported into the put wall area.

There, an associate scans the license plate bar code label on the tote to launch the sort-to-light process. As the associate removes and scans pieces in the picking tote, the lights identify the outbound tote that has been designated for that order. Once all the items for an order have been put to the tote, it’s transported to a packing station.

“The technology is not new,” says Ross, “but we’re applying it to a new process.”

From multi-channel to omni-channel
When the Internet burst onto the scene a decade ago, many retailers segmented their customers by sales channels. They had brick-and-mortar customers and they had online customers. They also had two channels of distribution, one for retail store replenishment and another for online order fulfillment, which was often managed by a 3PL.

That thinking is changing, says Mike Dunn, group vice president for Fortna. “Retailers with some degree of sophistication understand that all these channels play together to create a single face to the customer,” says Dunn. “As retailers and e-tailers put together their plans and trajectories, they expect to gain new customers and grow their businesses, but they don’t know which channel that growth will come from.” 

Bringing those channels together is affecting the design of distribution centers in several ways, says Dunn. One is in systems that can handle the pallets and cartons that historically went to retail stores along with individual item picking associated with direct-to-consumer order fulfillment. The second is in the ability to scale. “Our retail customers are asking how can they invest the right level of capital to maximize throughput during average days and still meet peak demand.”

On the one hand, that is leading to technological solutions, like putting in a dual-speed sortation system. “The majority of the year, we run the sorter at a slow speed and get a high utilization of the chutes,” says Dunn. “At peak periods, we run the sorter at a higher speed with lower utilization of the chutes, but the ability to handle the throughput.”

On the other hand, retailers are also recognizing that in an omni-channel world, the experience should be the same regardless of how a customer engages with a retailer.

“Retailers that are running their retail and e-commerce channels through the same distribution center are trying to drive consistency in how a product is packaged,” Dunn says. “We’re designing packaging processes that ensure that the presentation to the e-commerce customer and the wholesaler are consistent.”  

Information is the coin of the realm

Businesses thrive on information. Marketing and sales organizations are striving to learn as much about their customers’ habits, likes, and dislikes as they can so they can turn that information into sales. That is the promise of social media sites like Facebook and the genius of iTunes and Amazon.

Information has been the coin of the realm in the supply chain as long as there have been supply chains. But, just as sales organizations are turning to the information collected by social media sites, cookies, and other Web-based systems to learn more about their customers, operations managers are trying to get more information out of their systems, says Ken Fry, business segment manager for Rockwell Automation.

“The large customers and machine builders we work with want to know what information can they pull off of a sorter to get more out of the system, or how they can use a conveyor that may not have been part of the original design of the system,” says Fry. “That information has always been out there. But it has not always been easy to get.”

Certainly it wasn’t easy to distribute once you got past the maintenance technician who understood the system. “Today, with the proliferation of control systems and Ethernet as a standard, all of the different information networks within a system are converging,” Fry says. “The plant scheduler now has equal access to that information, and we can filter that information so you get what you need in order to make decisions.”

Similarly, the rate of product change today is staggering. Flat screen televisions are getting bigger than ever while other products, like iPods and cell phones, are getting smaller than ever.  “You need flexibility because the products change so often,” Fry says. “That is calling for control systems that are easy to install and can change from one type of product to the next.”

The importance of cycle time

For years, distributors have focused on productivity and accuracy in order fulfillment processes. The goal was to reduce the cost per case of filling an order. Typically, that was the result of doing more work with less labor. No one is saying that controlling costs is no longer important, but as the need for order fulfillment speed heats up, there is increased focus on cycle time, says Bryan Jensen, senior principal at St. Onge.

“More and more, the focus is shifting from accuracy and productivity to cycle time diminution,” Jensen says. “Clients want to know what it will cost to take an order by 5 p.m. or later and still get it out in time for overnight delivery.”

While the need for speed has mostly been a direct-to-consumer phenomenon, thanks in part to Amazon, the question is now being asked by businesses selling to other businesses. “Whether they are pursuing these strategies for a competitive advantage or because that’s what they have to do to compete, there is a belief that faster is always seen as more valuable by the consumer,” Jensen adds.

The attention to cycle time is impacting DC design in several ways. For one, some sellers are developing systems that help them recognize just what level of speed a consumer really wants and is willing to pay for. Some customers may be more than happy to wait a week for an order. Some truly want the product next day.

“We’re developing systems to batch orders in waves by order priority for those customers who will pay for speed,” Jensen says. “We might also put more money into high-speed sortation systems or goods-to-person picking solutions to cover peak periods than in the past.”

More importantly, companies are looking beyond the cost of labor. “Leading retailers and e-tailers are no longer just looking at how many people they can remove from the process to justify a system,” Jensen says. “Instead, they’re putting more value on the ability to respond to peak demand in a very short window of time.”

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.”