Innovative Warehouse Strategies: Four Walls, Three Takes
In most warehouses, change is a constant—especially when you consider seasonal demand forecasts, supply exceptions, and inventory flows. Distribution centers (DCs) are critical sense-and-respond nodes within the supply chain. Warehouse management is about mediating variability so supply flows to demand as economically and efficiently as possible.
In today's consumer economy, however, the warehousing function faces its own external changes. The e-commerce revolution has upended brick-and-mortar convention as companies explore better ways to pull product to consumers—not just retailers—faster. Retail and wholesale channels are converging.
Technology has played a significant role, allowing companies of all sizes greater flexibility in how they manage unique "time-to-consumer" requirements. But companies and third-party logistics (3PL) providers are also reconsidering distribution strategy, infrastructure design, and warehouse processes as they lay new foundations for future fulfillment.
Inbound Logistics asked a consultant, integrator, and wholesaler for their perspectives on how they and their business partners/customers are approaching warehouse and distribution strategy inside the four walls and out.
The Consultant: Removing Constraints of Convention
Sometimes it is difficult to see the warehouse for what it really is—a collection of pallet positions where inventory is put away and picked at varying frequencies. The key to distribution efficiency is making better use of warehouse real estate, according to Terry Harris, managing partner, Chicago Consulting.
Companies often put away inventory without considering how that position impacts future processes. Without directed putaway, decisions are left up to the operator, or the use of a traditional zone structure.
Warehouse real estate demands a more common-sense approach to visualizing inventory turns within the facility—a term that Harris refers to as expected time to pick (ETP).
In most warehouse operations, picking is more time-consuming than putaway. That's where labor generally resides. Warehouses need to optimize slotting to ensure pallet positions and storage profiles match the flow of goods within a specific facility.
Harris' premise is that traditional zone picking and putaway conventions do little to increase speed or efficiency within a facility. They force companies into using a protocol for prioritizing inventory that doesn't go far enough.
"Zones create groups of positions," Harris says. "The theory is that every position in that zone has the same real estate value, but that's rarely the case. By contrast, you can differentiate down to the pallet position within that zone. It's the logical extension.
"Why not use pallet positions specifically, instead of forcing inventory into a zone with other positions that are fundamentally different?" he asks.
With this thought, zones are a gross representation of warehouse reality—an artificial construction that generalizes needs rather than drilling down to specific time requirements. It's not a matter of visibility to SKU, but visibility to pick.
Every facility has storage areas that are more accessible than others. Harris uses the analogy of a Rubik's Cube, where warehouse positions can be viewed with left-right, front-back, and high-low dimensions. The front face is completely accessible; the other sides less so.
"Assume that aisles run front to back, and that pickers start at the middle of the front face at ground level," explains Harris. "Then it's easy to specify the accessibility of every storage position. Ground-level positions on the front face near the start have the highest accessibility. High positions in the back at the left and right extremes are the least accessible."
Put away In the Right Place
For most companies, a few SKUs make up the majority of picks. Reason dictates that fast movers should be most accessible, while slow-moving items should reside in the back of the warehouse where they're out of the way.
Implementing an ETP approach requires in-depth planning.
"First, assign an accessibility index or number to every position by identifying how long it takes to get to it," explains Harris. "Then, sort and create a sequence of these positions by time.
"Second, put away received shipments in the right place," he continues. "When you receive a shipment, calculate the expected time to pick, which is nothing more than calculating on-hand inventory divided by the forecast—data that is readily available from any warehouse management system. Then, map that time to a specific position dictated by fast picks and slow picks."
The forecast addresses any variability in demand. And ETP provides a broad understanding of time-to-demand that can apply to different distribution scenarios. For example, if the ETP is either negative or zero, that means the facility has orders coming in and no inventory on hand, which favors putting inbound shipments into a crossdock position. The same applies for back-order purging or routine housekeeping where position accessibility migrates according to demand forecasts.
"ETP allows warehouse facilities to cut pick time in half," says Harris. "Picking makes up 70 percent of warehouse labor tasks, so that savings is a big deal."
While the ETP approach doesn't increase or decrease capacity, it does distribute inventory and flow more evenly. Companies can pick up productivity gains elsewhere by concentrating activity in more visible areas—eliminating idle time and fostering labor accountability—or re-configuring layout and racking infrastructure with greater understanding of SKU demand and performance.
"The theory of constraints is to get rid of them," says Harris. In this case, it's the challenge of getting past convention.
The Wholesaler: Outsourcing to Meet Daily Demand
In 2002, United National Consumer Suppliers (UNCS) began as a wholesale distribution business that focused on manufacturer overrun and overstock. One decade later, the business is on the Inc. 5000 list of fastest-growing private companies, and aims to capitalize on the e-tail revolution.
UNCS' value proposition is straightforward: it buys and sells product, says Michael Woo, vice president of logistics. "If Crayola changes its packaging from green and yellow to blue and yellow, it sends the old product to us, and we move it for them," he explains. "We focus on pallet business in and out of second-tier retailers such as Marshalls, Bed Bath & Beyond, and Tuesday Morning."
Economic conditions over the past few years have favored wholesale distributors such as UNCS that provide retailers with a means to liquidate inventory and sell discounted goods. "Many consumers who used to shop at Macy's and Neiman Marcus now buy from Marshalls, which increases demand for the type of product we sell," Woo notes.
To manage fulfillment, UNCS works with a network of regional 3PLs to coordinate warehousing. It uses freight brokers and forwarders to handle domestic and global transportation. UNCS' distribution strategy is predicated on having at least two facilities in major markets where it operates so it has flexibility to keep costs down and quickly respond to customer demand.
In 2007, UNCS began working with Aspen Logistics in Salt Lake City, Utah, and has since expanded to use the 3PL's southern California facility as well. Recently, the two companies partnered on a pilot program specifically geared toward meeting the "deal of the day" phenomenon.
Deal with It
As more people shop online, many Web sites are marketing short-term deals on select products with limited supply. When a customer asked UNCS to assist in selling product online direct to consumers, it set about developing a pilot program. The speed-to-market demands associated with e-commerce, and daily deal bargains in particular, were unique for UNCS.
"For a long time, daily deal sites were focused on services, as opposed to everyday products," says Chris Ticknor, marketing director of Aspen Logistics. "The advent of this new service line was the perfect opportunity for growth. UNCS and Aspen are well-versed in supplying excess inventories in short timeframes."
"Deal of the day" has become a commonly used and misleading moniker. Most Web sites create a five- or six-day sales period with limited quantities of a certain product. Inventory can be a mix of on-hand goods that haven't sold or items that are specifically sourced for that purpose.
"Procurement teams will locate a product and offer it on the Web site at 85 percent off retail," says Woo. "As consumers start to buy, the orders are forwarded to us. We ensure we have correct shipping information, then send the orders to our warehouse to be processed and shipped."
But this process creates some challenges. For example, once deals go live, consumers expect immediate delivery. "Expedited orders put a strain on the supply chain that didn't exist before," says Woo. "With B2B transactions, account managers can maintain relationships. But when selling direct to consumer, they have to handle thousands of customer inquiries about tracking and returns.
"Another challenge is that some daily deals are multiple SKUs of the same product," he adds. "That means combining the complexity of a pick-and-pack operation with expedited shipping."
A good example of this complexity is the PHI hair straightener that Aspen Logistics and UNCS recently moved. The product comes in three different colors, so extra care is required to ensure customers receive the right SKU. Products can arrive at the warehouse in different kinds of case packs—which is fine for a retailer such as Marshalls. But when UNCS is shipping orders out to different buyers, those case packs have to be broken out and individually packaged.
Aspen Logistics provided the level of expertise, attention, and seasonal labor necessary to identify and react to some of these demands. Moving forward, UNCS expects to rely on its third-party distribution partners to expand this part of its business, especially as e-commerce continues to grow.
"Daily deals have created a market that didn't exist five or six years ago," says Woo. "It's easy to set up a Web site and sell to that market. But finding, preparing, and moving the product, and working with parcel carriers to ensure shipments are delivered on time to meet consumer expectation, is an entirely different challenge."
The Integrator: Automating to Simplify
When the economy tanked in late 2008, and the malaise of credit insolvency and housing foreclosures spread into 2009 and beyond, capital improvement projects sank as well. Consumer spending contracted and companies cinched their budget strings. Many new projects were postponed rather than terminated—especially in the materials handling sector.
"There was pent-up demand in 2008 and 2009," says Ken Dickerson, chief operating officer for Wynright, an Elk Grove, Ill.-based provider of materials handling systems. "Many businesses that had projects on hold had time to evaluate their plans. Coming out of the economic downturn, they had already made decisions to upgrade existing facilities and invest in automation."
Wynright evolved at the right time. The company, which originated as Wynright Engineers and Integrators (WEI) in 1972, consolidated a collection of smaller materials handling acquisitions under the current brand in 2009. Its business is designing, manufacturing, integrating, and installing intralogistics solutions. These include conveyor and sortation systems, voice- and light-directed order fulfillment equipment, programmable logic controllers and robotics, and mezzanines and structures.
Industry demand for greater distribution efficiencies, improved inventory turns, and faster ROI have placed a premium on automated conveyor, sortation, and robotics solutions. These solutions are compelling to companies such as footwear company Skechers, which Wynright worked with to equip a new 1.8-million-square-foot DC in Rancho Belago, Calif.
The LEED-certified Gold facility is one of the largest projects Wynright has worked on. "It's a greenfield build with an extensive amount of automation," says Dickerson. "Skechers consolidated five California DCs into one location, which now handles both retail and e-commerce sales channels. It's an example of a facility where automation is involved in virtually every aspect of operation."
Projects the size and scope of the Skechers DCs are largely an exception in today's economic environment. Many companies don't have the capital or clout to command such investment, but still see e-commerce requirements growing faster than retail.
"In some cases, shippers are going back to existing DCs that are strategically located to support brick-and-mortar business and adding areas in those facilities to manage e-commerce," says Dickerson. "Usually this involves technology—such as automation, pick-to-light, or pick-to-voice software systems—that enables operational simplicity. Not every company is in a position to build greenfield facilities."
Automation serves to simplify operations and improve labor utilization. One challenge Wynright's customers often face is finding ways to empower warehouse workers. This means designing systems and warehouse architecture that enable better behavior.
"Productivity and cost reduction are the two benefits that should result from automation," says Dickerson. "You have to achieve productivity gains if you want to hit your expected ROI."
One example of how Wynright's solutions facilitate DC efficiency is the use of its patented robotic truck loaders, which can cube out multiple trucks at the same time under the supervision of one staffer. "The system loads trucks floor to ceiling without pallets," says Dickerson. "You can ship five standard truckloads with four trucks, a 20- to 30-percent more efficient use of truck space. This has a direct impact on transportation costs."
Incremental automation progressions can have a marked impact on an operation. Rather than invest in a full migration, companies can reconfigure facility space.
For example, Wynright recently retrofitted a 20-year-old facility for a customer. "Before expanding the footprint of the building, evaluate which space can be used more efficiently," Dickerson advises. "Improving the layout might include changing the placement of certain goods or workstations."
In some cases, companies might decide to go vertical and use automated storage and retrieval systems (AS/RS) to use space more efficiently, decrease energy consumption, and reduce the time to get products to various locations within a facility.
Projects such as Skechers' amplify ROI. Wynright went the distance with its mezzanine and AS/RS design, and the results were impressive. Skechers now processes approximately 17,000 pairs of shoes per hour—more than double the number handled in its old buildings—and the system is capable of handling expected growth of 25 percent.
The takeaway? Investing in materials handling solutions is one positive way to manipulate distribution space.