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It's a game of minutes

Don't rely on your stepchild for efficiency

by Howard Coleman

The distribution industry has historically treated their DCs and warehouses like the poor stepchild. It’s called putting it on the back burner; it’s that stuff done back there by the
Picker-Packer-Rack-Stackers; it’s sometimes done under severe constraints, whether it’s space, obsolete storage methods, outdated receiving and picking methods,
the absence of or under utilization of technology.

Historically, a DC or warehouse facility has been a large box used to store inventory for periods of time. These facilities need to be thought of more as distribution activity hubs, adding value to the processing and flow of product to external and internal customers. The value-added activities are labor intensive and speak to the need to focus attention on productivity and operational efficiency. I suspect you have thought about being able to expand the number of shipments you can make. Maybe you need more picking areas, more pick slots and a better way to store backup inventory. The purpose of your DC/warehouse may have changed and its design may need to change also.

Part of the problem for many smaller to medium-sized DC/warehouse operations is that much of the available information focuses on the larger, more automated, facilities despite the fact that 90% to 95% of warehouses today fall outside of the typical “Top 100” classification. As a result, many suggestions and recommendations (though not all) don’t apply or only partially apply.

Some wholesale-distributors long ago recognized that bringing “back there” into the mainstream would be a wise investment. Improvements can be measured financially and produce verifiable and tangible results in terms of reducing order transaction costs and improving supply chain relationships. For some, customer mandates drove their decision (if the company’s relationship with such customers was critical, the decision became a strategic and tactical no-brainer). To them, it was a matter of competitive advantage, cost savings or future cost avoidance, inventory control and the ability to finally measure what quantitatively goes on “back there.”

When it comes to the issues of cost savings vs. cost avoidance (can we handle the projected increase in sales with the same warehouse workforce?), there’s an important distinction. As a result of the recent recession, cost cutting has already occurred at most wholesale-distributors. Since the worst of the recession is probably over, wholesale-distributors are now trying to fill orders with the current workforce or prudently planning hiring based on slow-growth scenarios. They’re understandably gun shy about adding to the workforce to prepare for growth.

Maybe it’s time to think differently about their warehouse, particularly within the industrial supply sector. Why? Because that’s where I have spent the better part of my consulting career and continue to find that many wholesale-distributors have not budged an inch or have been slow to adopt new ways of thinking about how they have organized their distribution facilities.

Better warehouse performance and throughput improvements typically require a revamping of the warehouse facility. The goods news is, it can be done in stages.

Some Observations
First, let me give you examples of what concerns me (based on some real-life observations):

• I don’t often see any conveyor systems being used, whether gravity-fed or powered conveyor. Is this because we would prefer to see a picker walk all the way to a staging area from the last pick? As much as 70% of a picker’s time is spent walking.
• Why, after all that has been written on the subject of Pareto’s Law (A-B-C, 80-20 rule), do we persist in storing product within like product groups rather than by slotting based on ordering velocity/frequency (hits), which establishes an effective pick path and shorter travel time? Yes, it does require some “stock- locator” technology.
• Why do we still see DCs or warehouses with 11-foot to 12-foot aisles? Hasn’t anyone heard of narrow aisle stockpickers? Maybe you don’t need more space after all!
• Why aren’t batch, zone and wave picking methods used more often? Yes, it does require a technology investment, but the potential for productivity improvement is tremendous.
• Picking, packing and staging stock transfers, versus customer orders, are often not recognized as different animals (most often in terms of lines per order or the need to pick carton quantities versus “eaches”). They require different warehouse storage and order processing methodologies. Many companies don’t recognize the differences in the order processes required.
• Why aren’t flow racks used more often in industrial supply warehouses? Product remains better organized and easier to find/pick. Restocking from the rear and picking from the front can be performed without interference and with minimized travel time. Flow racks continue to evolve to the point where “roller runways” can now be installed into existing pallet racks and even be moved and reinstalled into new positions, creating entirely new lane configurations.
• Only a relatively few companies have tried direct load (picking customer orders by delivery route and directly loading onto delivery trucks) in reverse order of actual delivery sequence, bypassing any staging function.
• Many companies don’t encourage feedback from warehouse employees. You may be surprised at the good ideas you get and where they come from. They are like you; they want their job to be easier! They also want to know where they stand.
• Frequently, there is a lack of any basic productivity measurement. How do you know what to improve? I’ve observed instances where productivity has declined over the years. Sure, there could be many reasons why, but it needs to be recognized, whether it’s based on orders or lines processed per hour, sales dollars per square foot of warehouse, etc. The old axiom that you can’t improve what you don’t measure is as true as it has ever been. Once you have the information, you are on your way to drafting an action plan for improvement. Of course, your employees must see the measurements and be aligned with the processes and any organizational and behavioral improvements to be able to deliver on the expectations.
• I see inefficient cube utilization where space has not been configured properly. It’s sometimes characterized by every product being allotted the same amount of storage space regardless of sales dollars or unit volume or the physical characteristics of the product. This is a major cause of multiple storage locations for the same product. Some storage locations are sized for maximum inventory levels while, in reality, the locations are only half full.
• Often I see inventory sitting in the aisles, multiple SKUs in a storage location or on the same pallet. This plays havoc with productivity, and is one of the worst operating practices that continues to take place, to this day.
• Why, even after implementing bar coding and radio frequency (RF) technologies, do some insist on replicating the old ways of doing things? In other words, not getting the full ROI on the technology investment.

These observations are not intended to be all inclusive. They’re meant to highlight the race you are in. If your DC/warehouse design no longer fits, your operating costs will go up. Your costs-per-unit, rather than going down based on higher volume, will increase. Your labor costs on a per unit pick basis will go up.

Sometimes, short-term fixes are required and are adequate. But when fixes become the standard, it’s definitely time to consider re-designing your facility.

The Need to Change
Warehouse design and modification solutions need to focus on:

• Materials flow – how and in what direction product flows through a warehouse.
• Process flow – the best practices to control the flow and the fluidity of the order fulfillment system.
• Information flow – the visibility and the means to gauge order processing status and operational results, in real time.

Key forces are driving the need for change:

• Warehouse and distribution managers are being increasingly tasked to reduce costs in existing operations, without increasing staff, in anticipation of increased sales.
• When you ask warehouse managers how to improve performance, the majority say they believe investment in new technology would enable them to gain productivity. At the same time, many under estimate the value of looking at every workflow detail to help achieve savings or future cost avoidance. Reviewing workflow and infrastructure for adopting technology may be a good place to start to recognize and remove bottlenecks and constraints.
• If each warehouse worker loses just 15 minutes of productivity in an eight-hour work day, that’s approximately 60 hours a year or more than eight working days a year. Depending on headcount, you can be talking about hundreds or even thousands of hours a year! Clawing your way back to greater productivity is a game of minutes.
• Picking, packing/loading and inventory control appears to be where approximately 40% of inefficiencies occur and where cost savings could most likely be achieved.
• Typically, it’s a matter of workers taking fewer steps, making fewer touches.
• Most shocking is that improvement efforts often don’t begin until customers start yelling or because owners and senior managers begin to complain about overtime.

Resistance to Change
Yet resistance to change is still there. While distributors focus on topics such as increasing sales, pricing optimization to positively impact gross margins, and e-commerce applications, and may possess the metrics to measure effectiveness in these areas, adequate metrics often don’t exist for DCs and warehouses. As a result, improvements made get whittled away by unnecessary cost at the back-end.

Most managers speak to continuous improvement in profitability. Few possess the means to measure profitability of the warehouse. It makes me somewhat pessimistic about the future of the competitive position of some wholesale-distributors if they remain satisfied with either too little or a reliance on incremental change in their
warehouse operations. 

In the early to mid-’90s when warehouse technology really came into its own, many let it pass by. Today, competition is too intense. National competitors, regional
competitors and the ongoing consolidation of the independents, in almost all the industrial supply verticals, have only made it more imperative to embark
on a wide range of process improvement initiatives. This may be the last chance for many wholesale-distributors that have hit the wall on productivity to meet their drive for growth while positively impacting transaction costs.

Today’s warehouse management systems (WMS) are time-tested and mature, payback can be achieved within the first year or two.

Howard Coleman, principal of MCA Associates, works with wholesale distribution and manufacturing companies that seek operational excellence. Contact him at 203-732-0603, or by e-mail at hcoleman@mcaassociates.com.

This article originally appeared in the Sept./Oct. 2013 issue of Industrial Supply magazine. Copyright 2013, Direct Business Media.

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