Six Ways to Postpone or Eliminate- Distribution Center Expansion

Size: px
Start display at page:

Download "Six Ways to Postpone or Eliminate- Distribution Center Expansion"

Transcription

1 Supply Chain Advisors LLC 20 Park Plaza, Suite 400 Boston, Massachusetts Six Ways to Postpone or Eliminate- Distribution Center Expansion A Guide to Maximizing Current Distribution Real-Estate Publication Date: August, 2011 Author: Ian Hobkirk

2 Table of Contents To Build or Not to Build... 3 Six Strategies to Postpone Expansion Re-Slot the Distribution Center Optimize Storage Depth... 4 Push-Back Rack...5 Pallet-Flow Rack...5 Double-Deep Rack...5 Drive-In Rack Reduce Aisle Widths Use Overhead Dock Space Use Automated Storage and Retrieval Systems Raise the Roof... 6 In Conclusion... 6 Start Planning for Better Space Utilization Today... 7 Additional Resources... 7 How Commonwealth Can Help... 7 About the Author... 8 Page 2 of 8

3 Supply Chain Advisors LLC Six Ways to Postpone or Eliminate- Distribution Center Expansion To Build or Not to Build Companies that are out of space in their distribution centers face a host of financially undesirable choices. They can expand the current facility and live through the cost and chaos of a construction project. They can move to a larger warehouse a highly disruptive activity with potential for major cost overruns. They can lease overflow space and shuttle product back and forth between the two facilities. One common factor that all of these alternatives possess is that they almost always drive up the company s ongoing operational expenses either due to a larger investment in real-estate or labor. There is an alternative to driving up operating expenses: creative space utilization techniques can, at times, delay or eliminate the need to expand, move, or setup satellite facilities. Commonwealth Supply Chain Advisors has worked with many companies to find ways to better utilize current distribution space and delay costly expansions. The six concepts below have been used by companies in a variety of industries with success: Six Strategies to Postpone Expansion: 1. Re-Slot the Distribution Center 2. Optimize Storage Depth 3. Reduce Aisle Widths 4. Use Overhead Dock Space 5. Use Automated Storage & Retrieval Systems 6. Raise the Roof Page 3 of 8

4 Six Strategies to Postpone Expansion 1. Re-Slot the Distribution Center In the context of logistics, slotting can be defined as ensuring that each stock-keeping unit (SKU) is in its proper location to maximize space and labor efficiency. The concept of slotting is simple: A quantity of product the size of a bowling ball placed in a bin location big enough to fit an entire pallet takes up a lot of space unnecessarily. If this practice is repeated across hundreds or thousands of SKUs, the inefficiency propagates and becomes a major problem. A proper slotting initiative generally involves a one-time, large scale re-set of inventory locations, followed by regular incremental re-slots as product demand changes due to seasonality, new product introductions, and obsolescence. Industries with high demand volatility such as apparel or consumer electronics have a harder time slotting product since the fast-moving SKUs in the warehouse change from month-to-month or even week-to-week. These companies often require sophisticated slotting software programs to manage all of the complex variables at play. Other businesses, however, may have a much more stable demand pattern and can perform slotting with more rudimentary tools such as spreadsheets. If the prospect of re-slotting the entire distribution center seems a daunting one, companies should keep in mind that a slotting project with the goal of reclaiming un-used space can often be executed more easily than one that is driven by other factors such as improving pick efficiency. A space-driven slotting initiative seeks to store every product in the ideal storage medium, and does not necessarily need to place each product in the perfect location relative to the shipping dock (though this should certainly be considered). Space-driven slotting looks at cube and demand. It seeks to place a SKU in the smallest possible bin to accommodate a unit load of the product, and to move that product to an even smaller bin when product is depleted to the point where there is excess empty space in the bin. This form of slotting can often be accomplished with a spreadsheet. The results of a slotting study may often reveal the need for different storage mediums in the distribution center. Full-height pallet positions can often be cut down to half-height positions. Companies that are in a position to dictate the height of incoming pallets may find that a few inches higher or lower on average pallet height can make a big difference in terms of the number of pallets stored. In addition to Single-Deep pallet rack, it may be advisable to store product in carton Flow Rack, shelving, or even forms of deep lane storage as discussed in section two. Three Rules for Space-Based Slotting A. Keep it simple focus on space gains and use a spreadsheet if possible B. Invest in a variety of storage mediums C. Guard against honeycombing through diligent bin consolidation After re-assigning product to its optimal storage medium, much diligence is required to ensure that honeycombing does not slowly reclaim the gains made. Honeycombing occurs when product is slowly picked from a bin location, causing it to become under-utilized over time. A process must be put in place to consolidate product that has been honeycombed into smaller bins to continue to maximize cube utilization at all times. 2. Optimize Storage Depth One of the largest areas of opportunity for many companies lies in optimizing storage depth in the distribution center. Warehouses that have a significant number of SKUs where two-to-three pallets are regularly kept on hand should consider storing this product in a medium other than Single-Deep pallet rack. Single-Deep rack sacrifices too much space to aisles to store large quantities of the same SKU in this medium. Instead, companies should consider allocating a certain Page 4 of 8

5 percentage of their distribution center space twenty percent for instance to deep-lane storage mediums such as those listed below: Push-Back Rack Push-Back rack can be used to store pallets just two positions deep, or up to five positions without sacrificing additional space to aisles. Pallets are loaded into the same side of the system from which they are picked. The company s existing lifttrucks can be used to access the rack, and each vertical level of storage can be used to store a different SKU. Drawbacks to Push-Back rack include its cost as well as the fact that first-in/first-out (FIFO) storage is not accommodated. Pallet-Flow Rack Pallet-Flow rack, on the other hand, does allow FIFO storage. Pallets are fed into the back of the system and retrieved from the front, so more aisle space is required than Push-Back rack. Storage depths can be much greater than with Push- Back rack (10-deep in some cases), and there is still no special lift truck requirement. Pallet-Flow rack is generally regarded as one of the most expensive ways to store pallets, however. Double-Deep Rack Double-Deep rack is much less expensive than Push-Back or Pallet-Flow rack, but special Deep-Reach lift trucks are required to access it. Deep-Reach lift trucks can cost 10 20% more than normal reach style lift trucks. Although pallets can only be stored two positions deep, Double-Deep rack is highly flexible. If designed with this idea in mind, Double- Deep rack can often be reconfigured as Single-Deep rack if requirements change in the future. Drive-In Rack Though relatively inexpensive, Drive-In rack is much more limiting than the other three storage mediums discussed here. Drive-In rack is often configured in depths of four-to-five pallets, but ALL of the vertical levels in a Drive-In system must contain the same SKU. Companies with frequent occurrences of ten or more pallets of the same product should consider this form of storage. 3. Reduce Aisle Widths Narrow-Aisle lift trucks have been in use since the 1950 s, but are still not used in some distribution centers that would benefit from their space-saving features. Conventional sit-down style lift trucks require aisle widths of 11-to-14 feet. Reach style lift trucks only require foot aisle widths and cost only slightly more than sit-down units. Reach trucks cannot drive in and out of trailers, however, so if true dock-to-stock operation is required, then companies should consider a compromise vehicle: the stand-up counterbalanced truck which requires 10 aisles. All of these lift truck types cost within about 15% of each other. Very-Narrow-Aisle (VNA) lift trucks are in a category of their own. These trucks can cost three-to-four times as much as a conventional lift truck, but they can operate in 5.5 aisles and offer tremendous space savings. Of the two major categories of VNA trucks, turret trucks are generally regarded as the fastest, and they can also double as a case-picking vehicle for multi-level picking as the operator rides up with the load. Swing mast trucks, by contrast, keep the driver on the ground but are often better suited for maneuvering in tight areas. Since there is only a few inches of clearance between the lift truck and the pallet rack, VNA vehicles usually require special guidance systems to prevent collisions. Another form of narrow-aisle storage that is slowly gaining in popularity is Mobile Storage Rack. Each section of rack is mounted on a track system in the floor, and when not in use the rack system actually collapses its footprint so that there is no aisle space at all between rack sections. When a bin location needs to be accessed, the rack sections roll open and create an aisle for a lift truck driver to travel down. As one might imagine, these systems do not move quickly, and should only be used to store slower moving product. Despite their Rube Goldberg appearance, these systems actually offer very high storage density at a relatively low cost for slow-moving SKUs. Page 5 of 8

6 4. Use Overhead Dock Space Could a skilled pilot park a blimp in the warehouse space above your company s dock area? Even in highly optimized distribution centers, this space is often completely un-utilized. Since this is a high-traffic area, using overhead space here requires creative thinking. Some ways companies have found to take advantage of this space include: Storing empty pallets or consumable supplies over dock doors: Pallet racking can be used to bridge over dock doors and create single deep storage areas. While only a small percentage of the dock area can be reclaimed in this way, valuable space in the main pallet rack area can be freed up for storage of inventoried SKUs. Build a mezzanine: But be careful how it s used. Mezzanines are poor places to store pallets it can be hard to transport loads onto and off of the mezzanine, and lift trucks are generally impractical on a second level. Companies should focus on storing smaller parts here or performing labor intense manual operations in these areas. Good uses for mezzanines include: o Small parts storage on shelves or carousels o Packing and shipping areas for small parts (work benches, case sealers, etc.) o Value-added service centers for small parts kitting, ticketing, labeling, etc. When designing a mezzanine, be sure to position the support columns in areas where they are less likely to cause lift truck collisions, and be sure to allow an easy means of transporting goods up and down from the mezzanine. 5. Use Automated Storage and Retrieval Systems Where many of the first four suggestions in this document can be used to postpone an eventual facility expansion, using automated storage and retrieval systems (AS/RS) is often a way to prevent the expansion entirely. AS/RS systems come in many flavors, and include equipment like horizontal and vertical carousels, vertical lift modules, pallet-handling AS/RS, and Mini-Load systems. These systems have several common attributes, however: They often take full advantage of building height They usually minimize or reduce aisle space They seek to minimize labor requirements by bringing product (either cases or pallets) to the workers rather than the other way around Due to these factors, AS/RS systems are among the most space efficient solutions available and offer the added benefit of labor cost reductions. However, these systems are expensive and typically not easy to change or reconfigure as business needs evolve. AS/RS systems should be carefully designed and planned to ensure that they meet expectations. 6. Raise the Roof literally. In some areas with high population density and expensive real-estate, construction firms actually specialize in raising the roof heights of distribution centers. This can allow additional levels of pallet storage, and the operation can often take place with minimal disruption to the business. There are engineering limitations and building codes which may restrict this option, or make it unavailable entirely to some companies. Obviously, only companies that own their distribution center will want to consider this, but, if all other options have been exhausted, raising the roof of the distribution center can in some cases prove the least expensive option. In Conclusion Companies faced with expansion decisions should evaluate a variety of options before making a decision about how to proceed. One fundamental strategy any such company should consider - which is not addressed in this report is an inventory reduction strategy. Some companies have experienced success by employing tactics such as improved order management, postponement, and in-transit visibility programs to safely reduce inventory levels and delay a costly buildout. Page 6 of 8

7 Inventory reduction in conjunction with the six concepts discussed in the document can often work together to open up less costly solutions for companies that need to expand operations but minimize operating cost increases. Start Planning for Better Space Utilization Today Additional Resources Presentation: Improving Warehouse Productivity without Tier 1 Technology Blog Article: Designing a Flexible Distribution Center When Growth is Uncertain How Commonwealth Can Help Commonwealth Supply Chain Advisors is an independent consulting firm that helps companies measure their supply chain performance and provides guidance for how to improve it. We are not affiliated in any way with supply chain software providers, equipment manufacturers, or transportation companies. Commonwealth takes an unbiased approach to supply chain improvement, and helps companies determine whether the path to improvement lies through optimized processes, supply chain technology, logistics outsourcing, or some combination of the three. Some of the distribution-related services that Commonwealth offers include: Space Utilization Analysis Distribution Process Optimization Slotting Analysis Material Handling System Design Warehouse Management Software Selection & Implementation Please feel free to contact Commonwealth if any of the above services would be of value to your company at this time! Page 7 of 8

8 About the Author Ian Hobkirk is the founder and Managing Director of Commonwealth Supply Chain Advisors. Over his 18-year career, he has helped hundreds of companies reduce their distribution labor costs, improve space utilization, and meet their customer service objectives. He has formed supply chain consulting organizations for two different systems integration firms, and managed the supply chain execution practice at The AberdeenGroup, a leading technology analyst firm. His career has provided him with a broad perspective on how to solve supply chain problems without automatically resorting to expensive technology. Mr. Hobkirk has authored dozens of white papers on supply chain topics, and his opinions have been featured in publications such as DC Velocity, Modern Materials Handling, and The Journal of Commerce. His company, Commonwealth Supply Chain Advisors is a completely independent consulting firm that does not sell technology solutions. Page 8 of 8