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Manage your distribution center like a grocery store

By Jeff Primeau, West Monroe Partners

Jeff PrimeauGrocery stores’ operating models haven’t evolved drastically in the last decade – mainly because it works. And yet, many distribution centers are not able to replicate some of their basic management principles.

Marketing departments have always been proactive in making sure products are flying off the shelves; they use many different tools in their arsenal to make sure we, the customers, have the best experience while shopping. Given their proven success, it’s clear that retail marketing in grocery stores can teach us a thing or two about running a more efficient distribution center.

Grocery store standby: End cap for items on promotion
When an item is put on the front page of the weekly supermarket flyer, it is expected that sales of these items will increase during the promotion period. The ends of in-store aisles, often referred to as end caps, are used to store larger quantities than usual of the sale item due to the high demand expected. While these products get stocked on end caps, they typically don’t lose their regular spot on the shelf to make sure shoppers can still find it in its standard place.

If warehouses don’t react the same way when an item is coming up for promotion, chances are there will be congestion where the product is stored, and multiple replenishments will be required because the picking slot isn’t sized proportionately to the peak in demand. Warehouses should plan to allocate dedicated slots for these items throughout the warehouse and before promotional quantities are received, and then update the promotional pick slot so employees are directed to this “temporary” location.

Best of breed Warehouse Management Systems shouldn’t require distributors to remove the product’s current pick slot when adding alternate promotional pick slots. In order to be successful, there must be collaboration between marketing, procurement and operations in order to proactively plan these promotional items; once the products hits the dock and orders start flowing in, it’s usually too late to react.

Dedicate entire areas for seasonal items
With the majority of seasonal items now imported from overseas, they typically show up well in advance of any given holiday to mitigate the risk of delays. This, combined with the lack of space in most warehouses, means its no surprise we now see Halloween items hit stores’ in early August. Marketers dedicate entire areas of their stores to seasonal items, and understand they need to make room for the next holiday by making sure the area is empty as soon as last one has passed.

While few warehouses have the luxury to dedicate entire areas for seasonal products, there are some definite advantages in planning space requirements ahead of time. If you don’t have visibility into what’s coming, talk to your purchasing group. Better communication between warehousing and purchasing will ensure that you know what and when products will arrive well in advance. You might need to translate their dollar figures in cases and pallets for it to make sense, but the raw information alone will help develop a formal Sales & Operation Planning (S&OP) process.

In a perfect world, there would be no post-holiday leftovers occupying valuable space in the warehouse, but that’s rarely the case. Even when space is not at a premium and seasonal items have no expiration dates, warehouse inventory managers should work with their procurement and sales departments to get these products out the door as soon as the holiday is over. Moving products doesn’t need to mean traditional sales: one often-overlooked option is donation centers such as food banks for consumables.

Constantly review shelf space assignment (Golden Zone)
Marketing specialists and brand managers have been fighting for the best spots on supermarket shelves for years. They know that eye level is the best place to be in an aisle and that lower shelves are great for catching a kid’s attention. Next time you go to the grocery store, check how many times the products you buy are on the bottom or top shelves and you’ll be able to tell if you’re buying the same products as the majority of shoppers.

The best-run warehouses constantly re-evaluate product positioning because they know it will save them valuable time later on. For distribution center managers that have worked with Engineered Labor Standards, you know that every time an employee has to bend down or reach high, more time is needed to complete the order. Products that don’t require the employees to exert additional effort are located in what is commonly referred to as the “Golden Zone”.

It is important that warehouses conduct quarterly velocity analyses to optimize a product’s positioning in the warehouse. Many modern warehouses use dynamic slotting software, which compares the current picking slot to the optimal one, calculated using future and forecasted orders. Once the current picking slot reaches a certain level, a second location will be replenished and the old location will be picked to zero and then freed up for other items. The new location will meet the product’s future demand while optimizing the number of replenishments required during the analyzed period.

Align employees’ schedules to peak periods
Grocery stores often know when they will be busiest and staff accordingly. They rely on Standard Operating Procedures to calculate how long each task will take and how to properly schedule their personnel. Based on historical traffic patterns and sales volume, stores schedule and deploy their employees where they’re most needed. This applies to weekly schedules and also for holidays and special events (e.g., the Super Bowl).

Most warehouses discover what the workload will be for a given shift only after they release orders to the floor. Not everyone has the advantage of getting orders ahead of time, or the ability to schedule their workforce based on confirmed orders. Still, every warehouse should be able to use historical analysis and forecasted demand to schedule smarter. Once again, procurement and sales teams can offer strategic insight to better understand upcoming promotions and seasonal supply. With this information, warehouse managers will be equipped to put the right staff in the right place at the right time. Combine this with area-specific productivity reports, and you can quickly reroute your employees to the most critical areas to eliminate warehouse-wide bottlenecks.

Knowing that scheduling warehouse employees may not offer as much flexibility as scheduling retail employees, take the steps necessary to disperse the workload throughout the week. Discuss scheduling with your buyers so all of their shipments don’t arrive on the same day. Instead, try spreading deliveries across several windows so the docks and receiving staff are consistently busy, but not overwhelmed. If your cutoff times are the same for all clients, consider strategies or incentives that might alleviate pressure on your workforce by directing customers and clients to different delivery windows.

The convergence of retail and distribution
Today’s retailers are incorporating many principles found in distribution centers in their operations as they look to increase direct-to-consumer fulfillment. And yet, many distribution centers are not taking advantage of the opportunity to adopt certain complementary best practices from retailers. The most successful distribution centers are those poised to adapt to changing market conditions and customer preferences. How might your distribution center benefit from a little “retail therapy?”

Jeff Primeau is a senior manager in the Supply Chain practice of management and technology consulting firm West Monroe Partners.

Posted from: Richie Brown, 6/5/14 at 11:30 AM CDT
Excellent article. I remember when working in retail management that we would always have promotion on a weekly basis, but we were never able to get the stock from our DC that we needed. Sure, we could go through our "Ask Replenishment" but it would then take three weeks to get the product, if the increase in stock was approved at all. This all stemmed from the inability for our stores inventory targets to be properly set. I cannot tell out how many times we would have an item POG'd in five locations, but we would never get more than three in our stock. Don't even start on getting our Strike Zone supplied
Good, Insightful Article
Posted from: Charles Dietz, 6/4/14 at 11:13 AM CDT
A well written article. It clearly shows the disconnect between the grocery buying/marketing organization (and their systems) with the primary execution operation (warehouses and their WMS applications). A missing piece is a good tactical WMS planning and staffing application driven by the buying/marketing applications.

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