The past decade has seen a monumental shift in the requirements placed on distribution centers. As customers continue to trend toward online sales and demand faster delivery times, retailers and wholesalers are feeling the pressure.
Retailers must manage existing store volumes while accommodating the shift to higher levels of direct e-commerce. Wholesalers, meanwhile, are often required to dropship on behalf of retailers direct to customers or store fronts. In addition, inventory planning systems and technology are causing changes in the way product is ordered and stored. These shifts have been gradually coming together, and are now dramatically impacting the supply chain.
Prior to these events, DCs were commonly single-channel facilities storing and picking in bulk quantities. Inbound loads consisted mostly of full pallet truckloads or floor-loaded containers. Reserve storage consisted of full pallets stored in relatively dense forms of pallet rack; outbound orders were composed of efficient full-carton or pallet picks, and warehouse layouts, processes and systems were designed around these very specific characteristics.
Fast forward 10 years, with corresponding technological and societal changes, and these DC requirements look substantially different. Lean planning processes have driven inbound loads to shift from pure pallets to include partial or mixed-SKU pallets. The changes not only impact the receiving process, but have also altered the requirements for managing reserve storage. Many DCs are also still picking bulk orders in support of traditional channels, but have added order complexity from direct-to-consumer and customer dropship requirements. Companies operating traditional DCs under these new requirements are experiencing rising costs, capacity challenges, service issues and quality risks.
Most companies have tried to incrementally adjust their DC strategies in line with these changing requirements. While this can be a good plan in the moment, it often leads to suboptimal longer-term results. Companies might encounter a specific catalyst that causes them to take a step back to look at the bigger picture. It might be unit costs exceeding a threshold, service levels dipping below targeted levels, space issues creating the need for offsite storage, or some other stimulus.
When taking that step back, the first strategic question is whether to maintain the DC as a multi-channel operation, or consider splitting the channels into separate facilities. The answer is often dictated by the current and projected volumes of those channels, in combination with the value that can be derived from separate warehouse operations. For orders destined for the end consumer, placing a new DC in a strategic location can drive benefits inside the facility, as well as result in quicker and more cost-effective delivery to the consumer.
If the decision is made to continue with the multi-channel DC, the trick becomes how to optimize current procedures to meet vastly different processing requirements, while keeping the facility operational. These changes can be bucketed into a few categories, including physical layout, processes and systems, and operating plans. The complexity of the effort is often tied to the level of existing automation within the DC, with higher levels increasing costs and coordination requirements.
Physical changes for optimal warehouse layout require granular analyses of both current and projected operational requirements, which translate into needed layout refinements within the DC. For example, for inbound operations, an assessment of load characteristics might dictate the need for a small sort loop or more open floor space. For reserve storage, a detailed look at inventory profile by SKU (e.g., number of pallets per SKU) will determine if adjustments to rack types or beams can improve storage density and capacity. For outbound operations, a close look at overall handling unit volumes might dictate changes in conveyor routings, sort points, or flow capacities. There are many areas to explore that can drive substantial benefits or mitigate risks.
The best way to reveal operational inefficiencies and opportunities to attack is through a lean process analysis. Detailed process reviews can uncover unnecessary process steps, coordination challenges in handoff activities, incremental travel, or opportunities to do things differently. One example of an often-overlooked opportunity for piece-pick operations is to batch single unit orders, which enables a single associate to complete all pick tasks into a hopper in one pass through the pick area. This drives significant productivity in pick operations, and single unit orders can then be processed individually at a downstream pack station.
Typically dictated by the local management team, the changes can have wide-ranging impacts. Areas of focus include outbound wave management, labor force balancing and SKU slotting programs. Some might require or benefit from investments in DC reporting tools to help provide proper visibility, but the payoff can be substantial once operational refinements get dialed in. For example, an assessment of the balancing of labor across functional tasks can reveal vastly over- or under-utilized resources, with improved reporting and a strategic plan quickly addressing this opportunity to increase productivity and efficiency.
With DC optimization opportunities revealed, it’s time to bring it all together into a cohesive plan. Your audit team should prioritize opportunities by both cost and benefit to determine how to sequence through the changes and obtain quick wins where possible, while also progressing with more strategic moves. The actions might require careful coordination to minimize the impact to operations, so change-management strategies should be considered to ensure the more significant innovations get embedded in the operation.
As new procedures are implemented, DC metrics will begin to improve, and the entire staff will feel the difference. Early results should then be used as a catalyst to keep continuous improvement as a mindset within the facility. The targeted end result is a DC that is more tailored to “new normal” business profiles, operational results that fuel the omnichannel business, and a workforce committed to sustaining ongoing improvements.
Trevor Howard is senior director of DC design solutions with enVista.