According to author William T. Walker, CFPIM, CIRM, CSCP, capacity planning is fundamental to production and inventory planning and control, but those of us who started in the factory tend to equate capacity with labor hours or machine hours. We rarely think about cubic volume as a capacity constraint. Yet our fellow practitioners who started in logistics know full-well that constricted space is the capacity constraint. Following are three reasons why a DC might get into such a space jam.
The first major issue affecting DC space is inventory turns. Every inventory contains A, B, and C stock keeping units (SKUs) along with excess and obsolete SKUs. Unfortunately, when people stop paying attention, the cubic volume devoted to low-turn excess inventory and no-turn obsolete inventory quickly expands to fill all available space. Sometimes valuable rack space is consumed by bulky, low-value packaging materials that should be delivered as needed. Some DC managers seem to inventory everything but salable product. If inventory is not salable and does not turn, then it does not belong in the distribution center.
Ever changing customer demand is the second major issue. Demand for one product family dries up faster than demand for another product can begin. Customer preference shifts to a competitor using a different warehouse location. Retail stores often delay filling their shelves because of a factory price change. Or, the factory pre-announces a new product introduction, and customers stop buying the current product. DC management is faced with the challenge of forecasting real-time space requirements versus trends in demand.
And third is the degree of supplier collaboration. Local suppliers can make daily deliveries or can be organized into weekly milk runs. Offshore suppliers working to minimize logistics costs tend to make less frequent deliveries of larger numbers of pallets. Certain kinds of purchased commodities come with minimum buys; other kinds of fabricated commodities come in over shipments. In both cases, the overage quantity takes up more rack space, more bulk storage space, and more floor space. The supplier and the DC manager should be in continuous conversation about the timing and pallet quantities of planned deliveries and the actual consumption rates of current stocking levels.
Keeping the inventory turning, understanding customer demand in real time, and collaborating with suppliers for delivery are three keys to running an efficient distribution operation with a good WMS. A DC without constricted space can keep loaded trailers out of the employee parking lot.
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