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One would assume that a company looking to boost the utilization of its warehouse space would have any number of expert sources to which it could turn for guidance. One would be wrong.
"In our quest for constantly improving the supply chain and lowering our cost, it is often easy to lose sight of the obvious," says Henrik Danford-Klein, vice president of network strategies with United Stationers Inc. His company quickly learned that there was no well-trod path to making better use of one's limited real estate.
With sales of nearly $5bn in 2011, United Stationers is one of the largest wholesale distributors of business products in North America. Based in Deerfield, Ill., it stocks around 100,000 items from more than 1,000 manufacturers. The company comprises a number of separately branded business units, including United Stationers Supply Company (office products), LagasseSweet (janitorial, paper and food service products), Azerty (computer hardware and accessories), ORS Nasco (industrial products) and MBS Dev (software).
Working with an army of more than 25,000 resellers, United Stationers is almost exclusively a business-to-business operation. It has 64 distribution centers in more than 40 markets, providing second-day delivery throughout the contiguous U.S. and to major cities in Mexico, with a 97-percent on-time delivery record.
Obviously, customer service is a major concern, but so is cost. Danford-Klein says the business has been going through some big changes, especially on the office products side. There are "substantial shifts" taking place in channels, categories and customer locations, necessitating a rethinking of stocking strategies.
For United Stationers, the ability to react to those changes in a cost-effective manner "is absolutely crucial in enabling us to meet our long-term financial goals," he says. Costs related to space utilization include rent, taxes, utilities and maintenance. With more than 12 million square feet of distribution space, United Stationers racks up more than $100m in occupancy expense across all its business units.
The Main Goal
The company set out to achieve a basic, seemingly simple task: improve space utilization within its network of warehouses. Unfortunately, it couldn't draw on the experience of others. Danford-Klein wasn't able to identify any companies that were systematically managing capacity, or engaged in continuous improvement in that area. Some might have tackled the task on a facility-by-facility basis, when immediate needs arose, but no one seemed to be taking a network-wide perspective over the long term. "I'm still baffled by that fact," he confesses.
Danford-Klein suspects that the issue of storage utilization might be overlooked because it's not something that is measured constantly, as is the case with labor and transportation. Complicating matters for United Stationers internally was a lack of direct accountability for improving utilization, along with no criteria for determining actual capacity levels. When asked to calculate usage, five people in a single facility might come up with five different figures.
Industry experts were no help. Danford-Klein recalls consulting a list of some 200 key performance indicators published by a warehouse industry association - "and not a single one on space utilization."
Step one was determining exactly what needed to be done. United Stationers needed to measure three basic things:
- building storage ratio, or the portion of the building that is allocated to storage;
- storage configuration ratio, the ratio between the bin cube and storage area cube, to determine how much actual bin space has been created relative to the space that's available for storage, and
- bin cube inventory ratio, the ratio of inventory cube to bin cube, in order to measure how full designated bins or locations are.
The first two ratios are usually the ones targeted for improvement when a company sets out to expand its distribution-center capacity. They can only be changed by reconfiguring a building or storage setup.
The third ratio, says Danford-Klein, is a lot more complex. "It is a function of the total inventory cube at a given time, but it is also a function of the configuration of the storage and the bins, the processes used to do put-away, and the daily processes inside the D.C.
"Of the three main ratios we set out to measure," he says, "it turns out this ratio is by far the most beneficial and revealing to understand."
A Difficult Task
Even with these three metrics specified, the job of gathering data turned out to be a lot more difficult than anticipated. United Stationers need to come up with clear definitions of such terms as "bin cube" and "storage area." In the end, the company weathered "a tedious and difficult process that ended up taking well over six months to complete."
Despite having gained the ability to measure and compare utilization within its various facilities, United Stationers still lacked a means of establishing absolute capacity. That number, says Danford-Klein, depends on such factors as inventory cycles, requirements for clear space around storage, the limited array of bin sizes, and the need for open bins.
Nevertheless, because the operating models within each business unit are similar, United Stationers was able to come up with a "best-in-class" ratio for determining maximum utilization. The figure could then be adjusted for the characteristics of each facility.
The overall goal was to figure out how much more product could be stored at each location facility without lowering productivity. And while the company couldn't come up with precise capacity and utilization levels for the network of DCs, its calculations were close enough to be of value. Gone was the need to rely on the "gut feelings" of warehouse managers - who were frequently wrong.
In the end, says Danford-Klein, United Stationers discovered that "our total capacity is much greater than we thought." Within months, the company had launched a number of consolidation projects that involved the collapse of five facilities into the existing infrastructure, and a 5-percent reduction in the total DC footprint. At some locations, Danford-Klein says, it was able to double storage utilization.
The result has been a "significant" amount of short-term savings. Over the long term, United Stationers expects to add 25 percent more inventory to accommodate business growth, without increasing DC space. In addition, a better understanding of capacity and utilization should improve the company's response to supply-chain disruptions. "In total," says Danford-Klein, "this initiative will save the company tens of millions of dollars annualized."
Having achieved a dramatic increase in space utilization, United Stationers is taking a breath before pursuing additional improvements. Danford-Klein says it will be learning from the performance of best-in-class facilities, while seeking better to understand the tradeoff between space utilization and productivity.
"We expect we will be able to significantly improve our space utilization," he says, "even in the facilities that we currently consider best in class."
Keywords: supply chain, supply chain management, inventory management, inventory control, D.C. space utilization, logistics management, warehouse management, inventory management systems, warehouse management systems
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