Best Practices in Today's Distribution Center

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The right people, processes, technology and tools help achieve the right results.

"In today's environment, "speed through the distribution center is critical," notes Don Derewecki, executive vice president of Gross & Associates, a materials handling logistics company based in Woodbridge, N.J. "We've moved out of the age of warehousing into the age of throughput centers."

Whether they're called throughput centers, distribution centers, or warehouses, effective operations use best practices within the four walls of the facility—and beyond.

"We think of best practices as doing all the right things with the right tools and getting the right results," explains Denny McKnight, partner, Tompkins Associates Inc., a supply chain integration firm headquartered in Raleigh, N.C.

Every warehouse and distribution center should have a best practices program, McKnight says. Such a program enables companies to reduce errors, labor, and cycle time while increasing accuracy and service.

"A best practice program, if done right, never ends," he says. "Opportunity to improve is always there."

What's right for one company or facility—or even one product—is not necessarily a best practice for another company, facility, or product. A number of best practices do apply to many warehouses and distribution centers, however. They include the following:

Use advanced shipping notification (ASN). With ASN, suppliers notify receivers in advance, letting them know they are shipping a specific purchase order, and giving an expected arrival time.

"While the ASN can be sent via fax, using advanced shipment notification often implies an electronic data interchange or a web-based compliance module is used as part of an overall warehouse management system," McKnight explains. And, knowing what is coming into the warehouse enables managers to preplan receiving for the day.

"When you don't have an infinite number of dock doors, you need to schedule inbound receipts to increase dock utilization," says McKnight. "You need to have a central point of communication, and be very clear to the carriers about who to call, and when."

It's important that both carriers and receivers be flexible. "Arrival times can't always be controlled," McKnight explains. "It's not uncommon for the daily schedule to start slipping."

Without scheduling inbound receipts, however, "you'll randomly receive product as it arrives, and may have some carriers sitting in your yard for hours," McKnight warns. "And you won't be able to prioritize your receipts."

Knowing in advance what product will be received and when, combined with system-directed putaway, makes it easier to treat incoming shipments appropriately.

This could mean crossdocking directly to shipping, or using the product to replenish a pick location that's below minimum. Or the system may direct you to put the product into a reserve slot, for example, consolidating a less-than-unit load putaway in a location that already contains the same product.

Of course, this assumes that you're not violating lot number integrity or first in, first out rotation requirements.

Implement a vendor compliance program. "A vendor compliance program goes hand in hand with advanced shipping notification," McKnight says. "You want notification ahead of time, and you also want to communicate with vendors exactly how their product should arrive." This may include specific labeling requirements, and standard case quantities for each individual item.
"Best practice distribution centers integrate operations with their suppliers. This way, suppliers help them achieve maximum throughput and maximum efficiency, in a minimum amount of time," Derewecki says. Working with suppliers so they provide product configured for easy handling within your facility is key.

"A vendor compliance program needs to be a collaborative effort that involves procurement as well as DC operations," says McKnight.

Companies often hire a permanent vendor compliance manager responsible for monitoring and measuring vendor performance, looking at what percentage of the vendor's purchase orders comply with requirements, and where they're complying.

"The goal is to get to 100-percent compliance, and to increase the supplier base that participates in your compliance program," McKnight explains.

While direct communication with the supplier typically occurs through merchandising or procurement, the DC identifies issues and provides feedback to the merchandising or procurement representative who communicates with the vendor.

Use automatic data collection technology. "People writing numbers on pads of paper or keying strings of numbers into a keyboard is a bad sign," McKnight says.

The benefits of automatic data collection—via bar code and radio frequency identification—are well-established, including increased productivity and accuracy and lower labor costs. But plenty of companies still haven't implemented automatic data collection.

"Some organizations with 30,000 or 40,000 item numbers and multiple facilities are still convinced they're better off without technology," McKnight says.

Preplan picking waves. "Picks should be pre-planned, so companies have the right number of properly equipped pickers," Derewecki suggests.

A facility may have separate zones for full pallet, case, and individual item picking. "Balancing those various zones with the proper equipment is a lot of science and a little bit of art," he says.

Continually monitor the picking operation throughout each shift to make adjustments as needed, such as shifting pickers from full pallet to case picking to handle a surge.

Record every product movement as a transaction. "Any time you move product in the warehouse, the move needs to be reflected by a transaction," McKnight says. Loosely run facilities may scan product when it's received and put away, but not scan further moves within a transaction, affecting the integrity of inventory data.

Use a hands-free order selection process. "Having operators hold a piece of paper, read its contents, then go to a picking location is inefficient," McKnight says. "Even using a handheld RF gun, workers have to scan, set the gun down, then make their pick."

In facilities where the technology is appropriate, McKnight recommends hands-free order picking enabled by technology
such as wrist-mounted RF units, voice pick, and pick- or put-to-light order fulfillment systems.

Minimize touches. Several techniques help eliminate touches in the warehouse, including picking to a shipping carton rather than picking to a tote. A robust warehouse management system can enable picking directly to the carton, eliminating dedicated packing stations.

Also consider using print-and-apply labeling systems that print labels on the fly, and offer in-motion weighing and manifesting, as well as semi-automated or automated sealing/taping stations, all of which eliminate touches.

"Suppose it's a loose pick operation. The order is picked into a system-designated repack carton, and is scanned and confirmed at the pick point. Essentially the pick-pack carton is conveyed to a dunnage fill and sealing operation, then on to an automated manifested operation," Derewecki says.

Have portions of orders arrive simultaneously on the dock. Various portions of orders—full pallet, case pick, and loose pick—should arrive as closely as possible on the dock, so the order goes directly to the trailer rather than being set down.

"It's easier said than done, however," Derewecki admits. "Imbalances in order flow occur from order to order, day to day, hour to hour, and can prevent this from happening. Nonetheless, getting portions of the order to arrive simultaneously should be the objective, with a system that is flexible enough to absorb slight timing differences when necessary."

Use system-directed replenishment. If the inbound product isn't put into a pick location immediately, using system-directed replenishment is a best practice.

"System-directed replenishment is based on real-time information that looks at the pick slot's stocking condition and the quantities that will be picked in the next wave, putting you one step ahead of the order picker," Derewecki says. Information systems should drive replenishment so the location is never out of stock when pickers are picking.

Evaluate crossdocking. Crossdocking can be a best practice in certain industries, notes Marc Wulfraat, a senior partner with KOM International, a global logistics and supply chain management firm headquartered in Montreal.

Crossdocking can be used for fast- or slow-moving product, and includes crossdocking of back-ordered product, or product prepared by your supplier for your customer; reverse line picking; and other functions.

Consider dynamic slotting. Slotting a stockkeeping unit in the optimum location requires ongoing analysis. As items move through the maturity cycle, their velocity changes. Other items are seasonal in nature; slow-sellers may become fast sellers during peak months of the year. Derewecki recommends a system that generates exception reports to make ongoing slotting changes.

Manage returns. Returns management is another important best practice area. Warehouse managers need to be able to control the returned goods inventory so they know what is coming back into inventory and can be sold, what requires repair, and what needs to be disposed of.

Implement an ongoing cycle count program. A good, ongoing cycle count program enables you to eliminate taking a physical inventory count. While many firms do cycle counting, they have not yet eliminated the physical inventory. Doing so cuts time and costs substantially.

Use best practices in measurement. Be careful how you develop metrics and measure performance, advises Wulfraat.

Take an order picking accuracy example: Your selectors pick 1,000 units, and in one order, pick two of Item A instead of two of Item B. Some customers may identify that as two errors, and say you've shipped two of the wrong item, achieving 99.98-percent accuracy.

However, "it could also be four errors, or 99.96-percent accuracy, as you've overshipped two of Item A, and undershipped two of Item B," Wulfraat explains. "This, in effect, creates four errors for the customer."

Use this "gross error method" to calculate accuracy most effectively, Wulfraat suggests.

Continually evaluate requirements. "You can't design an operation and walk away for five years before you look at it again," Derewicki says. "Customer requirements keep changing and accelerating. That means you need to be looking at your customers' requirements every few months to see how they are changing," Derewecki says.

Best practices like these enable companies large and small to achieve results in their distribution centers and warehouses. Here's what some leading companies are doing.

SAQ Revamps Receiving

The Socitedes Alcools du Quebec (SAQ) is a state-owned corporation responsible for all trade of alcoholic beverages within Quebec. The organization receives product from nearly 2,000 suppliers from 55 countries around the world, says Jean-Francois Theriault, SAQ's senior director of logistics and transportation.

It serves customers through three distribution networks: a network of retail stores owned and operated by SAQ, a network of grocery distributors, and a network of organizations that hold liquor licenses, including all hotels, bars, and restaurants in Quebec.

Liquor license holders are served at the bottle level. The liquor store network and distributors are both served at a case level, but they have only 20 products in common. SAQ works from two unionized DCs in the Quebec province: one in Montreal, the other in Quebec City.

The Montreal location comprises three different operations to handle the three distinct networks:

  • A two-shift, 500,000-square-foot facility serving the 230-store network. It stocks 4,000 products, 1,400 core products, and 2,600 specialty products.
  • A 150,000-square-foot DC serving grocery distributors. This single-shift operation stocks more than 250 products and serves 50 grocery wholesalers. SAQ rents some of this space to suppliers to store their production.
  • A two-shift, 100,000-square-foot facility that serves 14,000 liquor license holders.

SAQ receives 20 percent of its product on pallets via truckload carriers; 80 percent in containers shipped from overseas. The majority is received stacked directly on the floor of the container.

Because of the product's fragility, it is shipped in temperature-controlled containers from November to March, and again from mid-June to mid-August. A container may house a single product from one supplier, multiple products from a single supplier, or multiple products from multiple suppliers. With so many variables, it's no surprise there's little consistency in the way shipments are assembled.

In 2004, following a period of major change in its distribution network, SAQ shifted its focus to improving productivity in its distribution centers. Management presented productivity numbers to employees and discussed using an average to evaluate receiving performance.

With so many variables affecting receipt of inbound shipments, however, employees questioned the use of a single average to measure performance across all containers. Management suggested engineered labor standards (ELS) as an alternative.

"We used labor standards for receiving and picking in the early 1990s, but the systems weren't there to support the standards, so we removed them," Theriault explains. So SAQ took special care with its evaluation and eventual implementation of standards.

It's All About Productivity

To assist with designing and implementing the ELS program and improving inbound shipment receipt, SAQ tapped LxLi International Inc., an industrial engineering consultancy in Toronto. The project soon expanded beyond implementing standards.

"This project was about productivity, but it was also about understanding our inbound variability and the impact that has on productivity," Theriault says.

The project team's detailed examination of receiving practices helped SAQ identify gaps and areas for improvement. "We identified improvements we could make on the supplier side, as well as standards to implement within work stations and how employees worked with their own teams," Theriault says.

But that's not all. Assessing inbound operations also enabled SAQ to identify improved ways to supervise warehouse employees and manage warehouse tasks.

Among other improvements, SAQ:

  • Re-engineered portions of the receiving process.
  • Set standards for processes, based on best practices within the facility.
  • Set standards for work stations.
  • Changed employee organization on the dock.
  • Worked with suppliers on using specific insulation material and other load parameters.
  • Identified ways to eliminate congestion, including wrapping 20 percent of pallets manually to eliminate wait time at the wrapping machines.

Setting New Standards

One major change SAQ will implement alters the way it measures receiving productivity. While currently it measures in cases per hour, it is setting new productivity standards for each container, using a custom application built by LxLi.

Receiving supervisors will enter details about a particular container into the tool and receive a productivity target for that specific container. Employees will work against that productivity standard.

Also in the works is a vendor compliance program that helps minimize variability and sets standards for supplier shipments.

A new management method is an important by-product of the overall improvement initiative that has been implemented. Communication from senior management to supervisors and employees, an important part of the change management process, has increased sharply.

"Part of the process was engaging middle managers," Theriault says. SAQ recognized the future success of the project depended on gaining support from middle management, who were initially somewhat resistant.

The project team's efforts to gain that support have paid off. Supervisors have embraced the labor standards, become fully engaged in the process, and changed their management processes, which may have even more far-reaching impact than the new methods and use of engineered labor standards.

Warehouse staff was also engaged in the process. "Employees helped a lot to identify the sources of receiving variations, and also gave hints on improving the workstation layout and processes," Theriault says. SAQ is currently in the midst of training, "and the project team is enthusiastic about the progess we have made," he says.

Pep Boys Gives Voice to DC

Pep Boys, a leading automotive aftermarket retail and service chain headquartered in Philadelphia, operates 595 stores and more than 6,000 service bays in 36 states and Puerto Rico. The company, which provides vehicle repair and maintenance capabilities and sells aftermarket auto parts to do-it-yourselfers, as well as auto repair professionals, strives for world-class operational execution.

"We have a very proactive distribution/transportation/logistics group, who constantly try to identify ways to be more effective and strategic," says Jim Donahue, manager of supply chain systems for Pep Boys.

Last year, these logisticians decided to test voice-directed order picking technology in the company's five distribution centers. When Pep Boys first evaluated voice technology five years ago, the company felt that the software had not yet matured sufficiently to provide a good return on investment.

This time around, however, the ROI appeared attractive, and Pep Boys decided to pilot the technology in its Atlanta distribution center, using a voice-directed distribution solution from Vocollect.

"We started off with a 10-unit pilot in three areas: tires, batteries, and hard parts," Donahue says. The company also conducted a small test in the general merchandise area. "We took benchmarks before the pilot, then every week extracted productivity numbers and compared them to the benchmarks. We realized a 12-percent increase in productivity, and our accuracy also improved."

After the initial pilot, Pep Boys deployed the full system in its Atlanta DC, expanding to 50 units. This year, the company is rolling out the voice-directed technology across its distribution centers in Georgia, Indiana, New York, and Texas. The technology will be implemented in a fifth distribution center in California when facility consolidation is completed.

"There were three weeks between each implementation," Donahue says. "Deployment was seamless from a corporate standpoint."

Two people from corporate IT and a Vocollect representative went to each distribution center, where they configured the terminals, recorded templates for all the selectors, and trained order selectors to use the new technology.

From WMS to Voice

Initially, Pep Boys deployed the technology using Vocollect's Voice Link software to manage the resources on the voice picking system.

"Since then, we've gone to a direct interface between our WMS (from EXE Technologies, which has merged with SSA Global) and the terminals themselves," Donahue notes.

Moving directly from the WMS to the voice terminals eliminates an intermediate platform and a layer of risk. "We wanted to consolidate the management of the order selectors within the WMS. We didn't want warehouse personnel to do setup in the Vocollect system and in the WMS," Donahue explains.

Distribution center personnel have embraced the new technology, and Pep Boys achieved its targeted return on investment.

"We were surprised at how easy it was to integrate voice into our operations, and at the increased accuracy we achieved as a result of the implementation," says Donahue.

Overstock.com Optimizes its DC

Overstock.com, a leading online discount retailer, specializes in selling name- brand merchandise at deep discounts. The e-commerce company sells a wide range of products, including housewares, electronics, sporting goods, toys, gifts, and apparel.

Large products such as plasma TVs ship out of a distribution center located in Indiana, operated by third-party provider Ozburn-Hessey Logistics. All other products ship from Overstock.com's 350,000-square-foot distribution center in Salt Lake City, Utah.

A flowthrough facility, the Utah DC is staffed by a blend of 300 permanent and temporary employees, peaking to 800 during the holiday season. In 2004, following a less-than-optimal performance during the 2003 holiday season, Overstock.com changed the management staff of the distribution center and implemented a new management structure.

A strong focus on core values and accountability, new technology, methods, and processes, and sound management practices in the distribution center significantly contributed to a sharp increase in Overstock.com's 2004 gross margin.

The DC increased productivity and accuracy, and cut waste and cycle time. Equally important, morale increased substantially, reports Overstock.com's vice president of logistics and Six Sigma, Anna Maria Freeman, who oversaw many of the distribution center changes.

Several key changes helped drive the distribution center improvements, Freeman says. The facility now has a tiered management structure, based on a military management model.

Warehouse staff are each assigned to a lieutenant—in effect a team leader, who has 10 or fewer direct reports. Lieutenants, who are responsible for training, coaching, and mentoring their work group, report to captains.

Captains, similar to supervisors, field questions and issues that lieutenants can't handle. The first line of discipline, captains manage up to eight lieutenants. They report to colonels, or managers, who are responsible for multiple areas in the DC. A manager, for example, might be responsible for the main pick and pack area, cage pick and pack operations, and shipping operations.

Overstock.com uses its advanced warehouse management system, HighJump Software's Warehouse Advantage Suite, to measure individual performance. Using that information, lieutenants discuss productivity with members of their squad every day, recognizing good performance and providing coaching and counseling as required.

In addition, individuals are motivated to keep their performance up through games such as "beat the expert."

"We take the performance of the expert at a particular job and post it. Anyone who exceeds the expert's score gets a reward, such as a gift certificate," Freeman explains.

Giving 100 Percent

To encourage quality, the company has a 100-Percent Club. When employees reach 100 percent of a goal, company management sends home a letter recognizing their accomplishment.

Implementing Six Sigma in the distribution center was another key change. Freeman finished her Master Black Belt training just before she moved into her current position in January 2004.

"We created a critical path of the fixes we needed to get through the 2004 holiday season successfully," she recalls. "We identified Six Sigma projects, and assigned them to our best people."

Crossfunctional teams tackled two major projects, one designed to increase packing throughput, the other to reduce the number of packages diverted from the shipping process to "jackpot," a manual manifest station for resolving problems. By eliminating non-value-added steps in various processes, standardizing other processes, and implementing training and accountability, the teams improved significantly.

The effort to reduce orders diverted to jackpot, for instance, was essential. Part of the solution was reducing the number of nonconveyable boxes by cutting the number of available box sizes.

In addition, Overstock.com changed to a premanifesting solution, with the WMS talking with the company's shipping system to determine shipment method and carrier. The shipping label is now printed at the same time as the invoice, and packers apply the label to the carton, rather than using label applicators.

As a result of such changes, fewer than five percent of orders today are diverted to jackpot, down from more than half. "We thought we'd need about 48 people per shift to handle fourth-quarter volume if we didn't change our process," Freeman notes. "Last holiday season, we had four people per shift."

Separate from the Six Sigma project, Overstock.com invested in two packing machines that have transformed the packing process. The machines can pack up to 12 to 15 orders per minute, roughly 10 times the rate of the manual packing stations.

The packing machines have been so successful, the company is considering adding two additional machines this year.

Overstock.com's improvement efforts resulted from several major factors, says Freeman: "bright, capable people working at all levels of the company; the right tools, such as Six Sigma; and support from executive leadership.

"We could not have made these changes without their support," she says.

Swiss Army Cuts a Future Path

Consumer products manufacturer/distributor Swiss Army Brands Inc. sells the famed Swiss Army knife as well as other products including cutlery, watches, apparel, and travel gear. The company currently leases its office headquarters and distribution center in Shelton, Conn.

"Our headquarters location has been separate from our distribution center for years," notes Tom Hennigan, Swiss Army's chief operating officer.

Corporate management has wanted for some time to have all employees housed under one roof. It will accomplish that goal with its new facility that combines the distribution center and office headquarters.

"We want to establish roots in the community where we choose to build our own facility," says Hennigan. "And we want to build that facility on a piece of land that can accommodate the company's needs for the next 10 years."

Swiss Army's existing leases expire at the end of 2006; the company began planning for the new facility one year ago. To use the new DC for next year's peak holiday season, the company needs to occupy the building by July 2006, so it can install internal racking, automated flow systems, and other technology and equipment needed to go live by Labor Day.

To tackle the project, Swiss Army assembled a team including its vice president of operations, and the directors of order fulfillment and IT, as well as corporate operations staff. The team also included consultants from Gross & Associates.

To prepare for the new facility, Swiss Army examined each of its product lines, including apparel, its fastest-growing business. Gross & Associates analyzed a year's worth of data, looking at number of orders, shipments, pallets, size and weight, active/inactive products, and peak and slow periods.

Then, based on a growth projection for each Swiss Army business unit, they converted that into numbers of orders and pallets as well as into cubic volume.

Once the projections were finalized and approved, the team went through a comprehensive design process, working through several iterations until the design was finalized.

Shipping and receiving operations in the new distribution center are located at the same end of the building, more effectively utilizing the space. The new DC will be equipped with power conveyors from different picking locations that will route everything, including trash, to the front of the building, to manifest and trash stations.

Built-in Flexibility

Flexibility is built into the new facility, which has 36-foot clear ceilings, 12 feet higher than in the existing DC. A three-tier picking/packing location at the center of the floor in the new building, near the manifest stations, accommodates significant flow racking, giving Swiss Army room to expand or add product lines.

In addition, Swiss Army now has an incremental 40-percent expansion plan, so the 100,000-square-foot building can be readily expanded by another 40,000 square feet when required.

The new DC incorporates many of the best practices described earlier. In addition to operational benefits, Swiss Army's new building achieves another significant benefit.

"It will help us improve communication among all departments," Hennigan says. "The company has invested time and money to make sure we maximize our efficiency by better integrating our workforce."

Employees of all levels, for instance, will enter the building through the same entrance. "We all share the same common space," Hennigan notes, including the cafeteria and fitness center. "We have established one set of standards, so even the offices in the corporate area are the same size as a supervisor's office in the DC."

Unlike the existing facility, Swiss Army's new DC will be air-conditioned. As part of the company's core values, it wants to make sure "everyone is able to work in the same level of comfort," Hennigan explains.

Crossdocking Fruitful for Wegmans

Regional supermarket chain Wegmans Food Markets Inc. is one of the largest private companies in the United States and an early adopter of new technology. The company was one of the first supermarkets to introduce bar-code scanning, for example, and its chairman co-chaired the public policy subcommittee for the grocery industry development of the Universal Product Code.

So it's no surprise Wegmans has a well-established yet flexible crossdocking process that has been in place for 20 years.

It's not a simple task. Wegmans has two produce distribution centers—one each in Rochester, N.Y., and Pottsville, Pa.—and a dry grocery DC in Rochester, with a second opening in Pennsylvania in a few months.

In addition, the company has nine department DCs in Rochester, where Wegmans is based. These department DCs include one each for meat, fresh foods, frozen foods, general merchandise, seafood, floral, grocery, and a returns/salvage center.

"Crossdocking is a longstanding practice for Wegmans," says Pamela Erb, the company's vice president of distribution. "It evolved out of the need to get fresh product to stores faster."

Wegmans uses crossdocking in a number of ways. Crossdocking product from regional suppliers, particularly in a niche or new area, for instance, is key. "Our natural foods area has always been serviced almost completely via a crossdock process," says Erb.

Approximately 75 to 80 percent of natural foods are crossdocked, with some supplemental direct store delivery. Crossdocking was a major part of the company's partnerships with unique suppliers when the initiative—which has since grown significantly—first began.

And crossdocking has also helped Wegmans grow its organic foods and international foods businesses, two of its fast-growing areas.

Nearly every department in Wegmans uses some sort of crossdocking, whether for a new item launch, in support of a promotional effort, or to enable freshness. Some crossdocking is opportunistic, such as that which supports Wegmans' backhaul program.

In addition, each department has specific requirements that drive crossdocking, such as case capacity or freshness.

"We don't want to deter our merchants from bringing in items they want to carry for our customers," Erb explains, "so we look at item variety and make decisions about the best distribution method."

Wegmans' supply chain staff works closely with the merchandising departments to identify the most effective ways to serve customers.
Crossdocking happens dynamically. "It truly does happen in real-time, and has a lot to do with offering the items that our customers desire," Erb says.

While technology is definitely an enabler of crossdocking at Wegmans, manual methods are still used where appropriate.

Close relationships with your supply chain partners must be in place for crossdocking efforts to be successful, Erb says.

"The partnership with your suppliers, merchants, and transportation suppliers/carriers is crucial to success with crossdocking. All supply chain partners must buy in to the value of the program for it to be successful," she notes.

Wegmans has established such partnerships throughout the supply chain, a best practice that reaches beyond the four walls of the DC.

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