Count the ways distribution centers add value 2nd--supply chain digital september 2012

Warehousing & Storage

September 2012Visit us online at www.supplychaindigital.com

Count the Ways Distribution Centers (DCs) aDD Value (Part 2)Supply Chain Digital’S SECOnD Of fiVE part fEaturE SharES With buSinESSES hOW DiStributiOn CEntErS arE impOrtant tO thE Supply Chain

By thomas L. taneL CtL, C.P.m., CCa, CIsCm PresIdent and Ceo, Cattan servICes GrouP, InC.BusIness unIt, oraCLe

rapid changeS confronted by the global economy in the last years have had a notable impact on the procedures adopted for global distribution; perhaps more rapidly now than at any time since the close of the last century. With those changes comes a shift in the

way we handle their challenges and recognise their value to operations. Companies are searching for efficient distribution methods that enable broad product assortment, a lower level of inventories, shorter customer order fulfilment and lower transportation costs in order to achieve a more efficient procurement process plus an improved level of customer service.

The introduction of corporate portals, online trading exchanges and internet-driven commerce brings opportunity and challenge. It is not just a matter of “click, pick, pack, and ship.” The Distribution Centre (DC) must be more nimble and flexible than in the past as inventory restocking arrives earlier and remains longer.

As a result, DCs are balancing inventory costs against tight domestic transportation capacity, rising freight rates and volatile energy prices. An adverse financial impact has occurred due to huge inventory versus transportation tradeoffs in time and cost that are taking place in many companies as supply chain strategies are being challenged.

The concept of distribution has evolved past the traditional DC toward an

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Distribution centres must balance demands

COunt thE WayS DiStributiOn CEntrES aDD ValuEWarehousing & Storage

emphasis on generating a configurable stock keeping unit (SKU), product customisation and e-commerce, plus the creation of a corresponding need for operations with higher throughput demands and shorter order cycle response times.

A pull don’t push ordering and planning philosophy mean DCS have shifted emphasis from an inventory-based logistics to a replenishment-based logistics orientation. From an e-distribution standpoint, the DC must now be adaptable enough to handle a confluence


of multiple SKUs in the same carton or package. This trend has resulted in a greater amount of less-than-case picking and “pick, pack, and slap” operations.

At the same time, from an e-fulfilment order management standpoint, the DC must now be able to handle online orders that involve a wider range of line items or SKUs within a given customer order. As these new e-fulfilment operations face much higher throughput demands than the traditional DC scenarios, there is increased use of sortation systems as well as the need for highly mechanized or automated material handling and storage equipment options.

Distribution operations have become more complex, and as order cycle times have become shorter, what was previously four types of operations have evolved into twelve. Each one has the potential to add new value to your operation. Finding the right balance of storage space and product movement may require thinking through the various types of operational concepts.

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Distribution is becoming a more complex notion


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1. Service parts dc – the use of a distribution centres to

hold spares or repair parts for the support of capital

equipment with a large inventory investment for a wide

array of external customer needs.

2. product transformation – the use of a warehouse as a

central gathering point for product transformation to a

shelf-ready state in a manufacturing/retail environment,

or altering inventory to meet customer specifications.

3. order assembly – the use of a distribution centre to fulfil

as dIstrIButIon oPeratIons have BeCome more ComPLex, and as

order CyCLe tImes have BeCome shorter, the four tyPes of oPeratIons

have BeCome 12. eaCh one has the PotentIaL to add new vaLue

to your oPeratIon Thomas L. TaneL, PresidenT and Ceo,

CaTTan serviCes GrouP LTd

unpredictable order patterns, to

accommodate a broad sKu mix and

ship same-day orders, as well as to

use cross docks whenever possible.

4. product Mixing – the use of a

distribution centres to combine

items in the entire product line for a

single manufacturer from product-

oriented manufacturing facilities in

different geographic locations.

5. cross docking – requires a truck to

pull up to a warehouse dock and

transfer stock directly from the back

of one truck into the back of

another for deployment to different

distribution centres or retail stores.

6. transloading – a form of

cross-docking that involves

switching transportation modes,

usually with unloading and

reconfiguration in between.

7. Merge-in-transit – the ability to

pick up separate loads from two or

more different warehouses,

transports the loads to a location

near their final destination, and

then perform a “merge” operation

by combining components into one

order while the goods are in transit.

8. pre-positioned stock – the

positioning of stock to meet a

perceived or anticipated need in a

‘bonded’ warehouse for ensuring a

timely response to customer order

fulfilment needs.


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Warehousing technology has improved immensely


11. order consolidation – the use of the distribution centre to

gather product which is to be shipped to a final destination.

12. hub and Spoke distribution – the reverse of order

Consolidation.

adaptation to change

There are two important dimensions of distribution


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the output expectation of warehouses has increased

COunt thE WayS DiStributiOn CEntrES aDD ValuE

9. postponement – the use of a warehouse as a final step

deferment or postponement until a customer places an

order for a quantity.

10. flow-through – the use of the warehouse, in order to

support a manufacturing or distribution operation, as an

inventory staging process which relies exclusively on forward

picking locations and fills them with only enough inventory

for the immediate future.

according to yellow freight Corporation, a major uS trucking firm, there are four main activities generally included under the broad heading of flow-through. they are: • Supplier consolidation – consolidates purchase orders

from multiple suppliers going to a single distribution centre. • Pool distribution – a truckload of product from a

distribution centre is sorted into individual orders for delivery.

• Import deconsolidation – similar to consolidation, with import deconsolidation the product flow originates at the port and goes to a distribution centre.

• Flow through order fulfilment – product arrives from vendors in bulk at a flow through centre where it is then allocated to orders.


operations: space and movement. Space involves storage requirements and protection for physical handling activities. Movement includes the transfer of material and products within the DC itself and between the DC and the transportation system. We cannot forget that the two dimensions are interrelated; nor can we overlook the trends that make that relationship more and more complex.

In a world of increasing uncertainty, scenarios provide focus on things you can’t avoid. Don’t wait for

things to happen; plan for contingencies through scenario planning options.

Look at how distribution assets, resources, and processes can help your business through constant consideration about how you will anticipate and respond to turbulent conditions. DC operators should think about alternative scenarios and how they would respond to them before they occur. Scenario planning tests whether a current strategy makes sense, as well as points out the limitations for doing business in


COunt thE WayS DiStributiOn CEntrES aDD ValuE page 14

all parties should have Supply


turbulent times. Sometimes it’s easy to forget that opportunities are

usually created by difficult, turbulent conditions. DC operators get paid to manage the exceptions, not just the routine. According to Philip Kotler, one of the world’s experts on the strategic practice of marketing, “you need to be able to withstand stresses, pressures, or changes in procedure or circumstance and to cope well with variations in operating environments with minimal

damage or alteration.” DC operating management are used to quickly reacting and rebounding in the face of risk and uncertainty – however today sensitivity to the “New Normal” must have a more heightened sense of awareness than ever before.

If such resiliency is to be exercised and exploited, companies must have adequate control and visibility of both its supply and demand chain. To do that, sound distribution logistics decisions must form the foundation for the development of strategic flexibility and responsiveness at the DC level.

For the next several years, DCs are likely to face the continuing challenge of doing more with less. This challenge can, and should be, embraced as an opportunity to make dramatic improvements. Based on DCs’ costs breakdown, the order picking area is the most opportune place to attack because of travel time and distance. Experience indicates that enormous opportunities for improving the productivity of our distribution logistics lay ahead if we are smart,


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leading logistics solutions


innovative, and courageous in rethinking the status quo. Labour for all activities below represents 60-70 percent of the costs inside the four walls of the DC.

order picking StrategieS MuSt conSider at leaSt Six different VariableS:

1. Unit of measure (pallet, cases, eaches, etc.)

2. Storage mode to be used (floor stacking, selective rack, pallet flow, carton flow, etc.)

3. Potential use of automation (pick-to-belt, carousels, ASRS, etc.)

4. Order release method (discrete order release, waves, etc.)

5. Picking method (discrete order pick, cluster picking, batch picking, etc.); this is usually directly connected to the order release method

6. Order picking communication and validation approach/technology (RF, pick by label, voice, RFID, etc.)

Ask yourself, “How prepared am I to keep my distribution centre facilities more nimble and flexible than they’ve

been in the past?”

The answer lies in recognizing the true value of your distribution centre operations – and incorporating into your planning

those elements that will keep you flexible and responsive to an inevitably changing environment.

Assessing and adapting your DC early and often can be one of your best assurances that you’ll survive with the fittest. scd

thomas tanel iS a fOunDEr anD CEO Of Cattan SErViCES grOup, inC. tOm haS an intErnatiOnal rEputatiOn aS a SubjECt mattEr ExpErt anD SEminar lEaDEr in lOgiStiCS anD Supply Chain managEmEnt.

‘pie chart depicting Distribution Centre functions


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order picking 55%

Shipping 20%

receiVing 10%

Storage 15%


Business

Count the ways distribution centers add value 2nd--supply chain digital september 2012