Customers are demanding goods that are manufactured and distributed throughout the globe, and they want to receive these goods in an accurate and efficient delivery model at a competitive price in perfect condition. As such, global retailers and manufacturers must cover many more geographies with a more complex supply chain than ever. With rising transportation and energy costs, cost-saving strategies are needed to combat new challenges and help increase competitive advantage. In looking at innovative ways to cut costs in the distribution center, one of the key links in the global consumer goods or retail supply chain, one only has to look as far as the manufacturing floor for examples.

Manufacturing has historically represented the largest percentage of cost within the supply chain. This has led to a focus on cost-cutting strategies and efficiency gains to help increase margins and improve operational effectiveness and productivity, ultimately eliminating waste from the production process.

This focus has evolved the industry into the streamlined process it is today. However, these tactics have not infiltrated the rest of the supply chain, including distribution centers, which still experience a large amount of inefficiency. By adapting strategies from the manufacturing arena, supply chain players can achieve huge competitive gains to more effectively manage product flow, reduce costs and improve flexibility within and across their distribution centers.

Planning to Optimize DC Operations

For large distribution centers, the planning process offers some of the best opportunities to leverage best practices from the manufacturing industry. The manufacturing industry has evolved robust processes around capacity requirements planning with the ability to forecast capacity needs along different time horizons (long-, mid- and near-term). For distribution centers in the manufacturing/retail supply chain, forecasting resources can allow managers to more effectively utilize capacity. The right-sizing of equipment and the labor force through capacity planning algorithms offer the ability to determine labor needs based on the demand profile, driving world-class order fill rates while minimizing costs. Aggregate planning at the distribution center level can ensure that there is adequate total capacity to support demand, while detailed planning by the department can ensure there is adequate capacity within each function to maximize the overall flow across the distribution center, reduce order cycle time, and reduce cost.

Distribution center managers should also look to integrate the sales and finance departments into the planning process to proactively identify and manage demand spikes and dips, and  support product development and promotions, thereby reducing costs and improving order cycle times. This will give distribution managers a bird's-eye view into the entire enterprise, eliminating the under-utilization of resources or excessive overtime, which can negatively impact cost and order cycle time. Similar to the sales and operations planning (S&OP) process in the manufacturing world, it is highly recommended that logistics leaders manage distribution center capacity and capabilities to increase their participation in an integrated planning forum with merchandisers in the retail supply chain as well.

Additionally, leveraging "just-in-time" (JIT) management systems can help to remove waste from different operational elements such as raw materials, WIP and finished goods. By matching supply with demand at exactly the right time through network design, integrated inventory planning, and effective supplier collaboration, it is possible to eliminate wastefulness in costly segments such as energy, transportation and inventory. Freight-handling techniques like cross-docking and flow-through have evolved along the lines of the JIT concept in the distribution world to reduce the number of "touches" on a particular pallet or case. Capabilities to reduce touches and manage freight flow in real time will gain increased importance for logistics managers designing next-generation distribution network.

The theory of constraints, or TOC, has been used in manufacturing to plan around bottlenecks. Increasingly, distribution center managers are looking to apply this strategy to the bottlenecks of their facilities. For example, a bottleneck might be the order-filling operations in which an increasing amount of automation is used to increase productivity. In this situation, distribution center managers can use TOC to identify and put in place processes to manage the workloads at the stations, alleviating the bottleneck. Processes can include visual controls to signal excessive WIP at a workstation/department, audible alert mechanisms to signify physical imbalances such as photo-eyes, and systemic alerts to identify process volume above a defined threshold and email a targeted audience to address the issue quickly.

Adapting Execution Principles from the Manufacturing Floor

Industrial engineering principles, such as lean manufacturing and Six Sigma, have been revolutionary to manufacturing processes. Distribution center managers should look to these principles to enhance the productivity of their distribution centers. The principles from a lean manufacturing approach give power to associates to identify issues, raise alerts and correct them as soon as possible. For example, an industry trend has been established in building alerting mechanisms directly into the execution systems to alert supervisors of situations that would impact production and shipment to customers allowing them to make real-time adjustments. The best analogy in the manufacturing world is Toyota, whereby, in order to prevent defective products from reaching the consumer, any associate can stop production at any time if there is an issue. Another example is utilizing value-stream mapping to identify all steps in a process, classify each step as value-add versus non value-add, and look to streamline or eliminate non-value-added tasks to improve process efficiency, resulting in both reduced order cycle time and reduced cost.

Mistake-proofing, also known as poka-yoke, emphasizes designing processes to minimize the chances of a defect that can result in a significant amount of rework or lost productivity. In distribution centers, processes can be designed to catch issues as soon as they occur. Some examples include "” defining thresholds for received order quantities to prevent over-ordering, giving visual aids to workers to encourage adherence to SOPs, bar-code scanning with pictures potentially integrated in RF/CPU display at pick/pack to ensure the correct item is picked or packed "” which eliminate some of these risks, installing in-line scales to compare actual versus theoretical package weight so exceptions get validated prior to shipping to the customer. In a world where customers have a lot of choice, order fulfillment accuracy is a key differentiator and error-proofing becomes critical.

The 5S system, which includes sort, shine, set-to-order, standardize, and sustain, is worth considering. Sort is eliminating unnecessary materials, supplies, and so on, to ensure what is needed at a workstation is present. Shine is cleaning the work area to remove debris, clean equipment, and so on to improve safety and improve the life of the equipment. Set-to-order is defining a place for everything and ensuring everything is in its place to minimize walk time and ensure workers have materials necessary to do their job. Standardize is to set up workstations so the layout is standardized across all workstations with the goal that any employee can go to any workstation and immediately begin working and be productive. This eliminates the "learning curve" entailed when all workstations are configured differently. Sustain, the most important and the most difficult piece, involves putting processes, scorecards and accountability mechanisms in place to ensure that they become a way of life and are embedded in the DNA of the facility. The impact of doing this right is improved productivity; reduced order cycle times; increased safety, quality, and associate morale in their work environment; and reduced cost.

Manufacturing facilities have progressively automated their processes over the past several decades. Automation in manufacturing facilities is reaching levels, where "human-less" factories have become a reality. For large distribution centers, too, leveraging process automation gives higher productivity and better quality in tasks such as picking. With an increased focus on customer service and demographic forces increasing the cost of labor, most distribution centers can find value in utilizing automation as an alternative. Examples include utilizing conveyors to move totes, cartons and so on from point to point in the distribution center, utilizing automated storage and retrieval systems to improve storage density and reduce travel time, and implementing automated guidance vehicles (AGVs) to retrieve and deliver products utilizing robotic vehicles. Ford implemented the assembly line concept in the early 1900s, with vehicles moving from one workstation to another for automobile manufacturing to reduce the waste in associate travel time. Today, we see large distribution centers, implementing goods-to-person systems that pick and deliver product to employees to place into totes or cartons as against employees walking long distances to retrieve items.

Finally, distribution centers should take a cue from a flexible manufacturing approach. Flexible manufacturing systems allow the system to produce a wide array of goods or use different machines to produce the same equipment, providing greater efficiency, reducing lead times, and often improving quality. Distribution centers that are able to process a wider array of goods enjoy the ability to manage SKU proliferation and reduce operating costs. The move to "fulfill from anywhere" has led many to look towards flexible strategies to reshape operations to support both customer and store fulfillment in an "omni-channel" environment.

As the global marketplace continues to place a strain on all parts of the supply chain, leveraging these strategies is key to streamlining operations and, in turn, boosting productivity, reducing costs and improving the bottom line. Distribution centers, in particular, have the ability to leverage manufacturing strategies effectively to reap the cost, accuracy and cycle-time benefits on the way to helping the organization gain a distinct advantage over competitors.

Source: Cognizant Business Consulting


Keywords: retail supply chain, supply chain management, warehouse management, WMS, supply chain management IT, supply chain planning, supplier relationships, inventory management, inventory control