WAREHOUSING STRATEGIES: LOCATION OPERATIONS AUTOMATION

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1 WAREHOUSING STRATEGIES: LOCATION OPERATIONS AUTOMATION David K. Teeple Director of Client Services Dennis Heppner Manager

2 It s all about location, location, location -1-1

3 SUPPLY CHAIN EXTERNAL INFLUENCERS Greater Customer Demands Competition Positioning and Evolution Transportation Cost and Availability Tax and Duty Changes (Especially International) Greater Focus and Opportunity in Emerging Markets Political Upheaval Labor Laws and Agreements Weather Disruptions Raw Material Availability and Cost Fluctuations -2-2

4 SUPPLY CHAIN INTERNAL INFLUENCERS SKU Proliferation Shortened Product Lifecycles Evolving Business Channels (Growth of Ecommerce, Desire for Omni-channel) Procurement Changes (On/Off Shoring, Order Qty.) Fulfillment Strategy or Inventory Deployment Initiatives Change in Other Business Strategy Mergers and Acquisitions Spinoffs Aging Infrastructure -3-3

5 NETWORK CONSIDERATIONS Network Structure Location and Number of Facilities Additional Capacity Needs Consolidation Merger and Acquisitions Distribution Capacity Product Demand Segmentation Channel Strategy Product Flow Fulfillment Strategy Cost to Serve Ports of Entry Cross Docking Customer Allocation Transportation Route and Asset Optimization Mode Analysis Backhauls Frequency Production Footprint Mix Scheduling Location Insource / Outsource Capacity Service & Performance Metrics Redundancy Service Levels Synergies Inventory Inventory Levels Inventory Deployment Strategy -4-4

6 NETWORK ANALYSIS METHODOLOGY Data Collection Analysis Optimization Recommendations Business Discovery Markets Customers Competitors Scenario Identification Base Case Modeling Scenario Assessment Focused Strategy 4 Refined Recommendations & Transition Planning Network Discovery Facilities Product Flow Transportation Inventory Scenario Modeling Alignment: Business Technology Operations Vendors Customers -5-5

7 AN INTEGRATED APPROACH IS CRITICAL Network Structure Facility Design Examples of Targets of Optimization: Transportation Optimization Service Level Cost to Serve Consolidation / Expansion Inventory Deployment Leverage current assets, with considerations for potential design changes at each facility More mature supply chains tend to benefit from this approach, rather than a greenfield design strategy For high capital networks in mature markets in-depth facility reviews are crucial to optimize the network Must be based on actual budgets, timelines, risks, expectations, roadblocks, etc. -6-6

8 SAMPLE ANALYSIS Baseline Outbound Store Volumes 3 DC Scenario map 3DC Network Cost Summary 3 DC Network with Existing PoolPoints 3 DC Network with Existing PoolPoints Inbound Transportation Costs Baseline - Scaled FY18 MED Vol Outbound Transportation Costs Baseline - Scaled FY18 MED Vol To Vend to DC (Collect) DC to PP EWP $ 14,267,366 $ 8,181,671 EWP $ 25,963,517 $ 19,579,268 SB $ 4,794,724 $ 4,221,773 SB $ 45,732,483 $ 44,426,244 Louisville $ 1,929,438 Louisville $ 9,899,833 Total (Collect) $ 19,062,091 $ 14,332,882 Total DC to PP $ 71,696,001 $ 73,905,344 To Delta (Baseline Vs. Scenario) $ - $ (4,729,209) Delta (Baseline Vs. Scenario) $ - $ 2,209,344 Vend to DC (PrePaid) PP to Store EWP $ 12,304,324 $ 7,055,958 Total PP to Store $ 64,795,226 $ 64,795,226 SB $ 14,431,146 $ 12,706,679 Delta (Baseline Vs. Scenario) $ - $ 0 Louisville $ 3,074,209 Total (PrePaid) $ 26,735,471 $ 22,836,845 Delta (Baseline Vs. Scenario) $ - $ (3,898,626) Tot Inbound Tot Outbound Total (PrePaid & Collect) $ 45,797,562 $ 37,169,727 Total Outbound $ 136,491,226 $ 138,700,570 Delta (Baseline Vs. Scenario) $ - $ (8,627,835) Delta (Baseline Vs. Scenario) $ - $ 2,209,344 3DC Network Facility Sizing FY18 Network Scenarios Total SF Req EC WC DC3 1 FY18 - EWP-SB + Satellites (Baseline) 3,383,841 1,726,449 1,657,391 N/A FY18 - EWP-SB + + Satellites 3,383,864 1,263,755 1,628, , a FY18-100% New East and West DCs 3,383,841 1,726,449 1,657,391 N/A 4 0 3b FY18 - EWP-SB + New EC & WC 3,383,841 1,726,449 1,657,391 N/A 4 0 # of DCs # of Sats DC#3 to Pool Pts. Lane map Total Network Cost Estimates CAPEX & OPEX FY18 Network Scenarios CAPEX CAPEX +/- Over Base 1 FY18 - EWP-SB + Satellites (Baseline) $ 120,815,208 Base 2 FY18 - EWP-SB + + Satellites $ 129,218,862 $ 8,403,654 3a FY18-100% New East and West DCs $ 156,383,216 $ 35,568,008 3b FY18 - EWP-SB + New EC & WC $ 151,512,302 $ 30,697,094 Potential Savings Transportation OPEX Total Total Network From From Gains in Network +/- (IB+OB+VAR+ Building - FY18 Network Scenarios Transportation Efficiency Over Base FIX+Lease) IB OB VAR FIXED Lease 1 FY18 - EWP-SB + Satellites (Baseline) Base Base $ 234,707,415 $ 46,945,398 $ 136,491,226 $ 9,856,151 $ 29,234,460 $ 12,180,179 2 FY18 - EWP-SB + + Satellites $ (2,370,458) $ (6,091,106) $ 228,616,309 $ 39,730,976 $ 136,285,095 $ 10,523,206 $ 30,576,176 $ 11,500,856 3a FY18-100% New East and West DCs $ (1,954,531) $ 9,885,417 $ 244,592,832 $ 46,945,398 $ 136,491,226 $ 9,540,249 $ 36,235,778 $ 15,380,181 3b FY18 - EWP-SB + New EC & WC $ (1,954,531) $ 6,968,752 $ 241,676,167 $ 46,945,398 $ 136,491,226 $ 8,543,584 $ 36,235,778 $ 13,460,

9 A HOLISTIC GO-FORWARD STRATEGY Strategy Tactical Transportation Optimization Core Carrier Program Last Mile Delivery Private Fleet Optimization Dedicated Contract Carriage Freight Payment Program Transportation Management System Implement Optimized Distribution Network Warehouse Optimization Warehouse Process Standardization Labor Force Effectiveness Material Handling Solutions Facility Automation Warehouse Management System Inventory Optimization Inventory Deployment Strategy Inventory Forecasting & Demand Planning Obsolete, Damaged & Slow Moving Inventory Management Safety Stock Right-Sizing SKU Rationalization & Consolidation Forecasting/Planning/Replenishment System -8-8

10 KEY TAKEAWAYS Supply Chains are Faced with Mounting Internal and External Pressures Key Steps to Design your Future Supply Chain: Determine Your Future Supply Chain Needs Develop Alternatives How to Best Accomplish Model the Scenarios Finalize the Business Case for the Solution New Technologies Make it Easier than Ever to: Visualize Evaluate Scenarios Conduct Sensitivity Tests Simulate Future Network Tools are Only as Powerful as the Inputs and Those Driving the Analysis -9-9

11 and then you need to make it work

12 WAREHOUSE DESIGN & OPERATIONS The key to good warehouse design is the integration of these factors to create a single, well-functioning system Operations Optimization Maximize effectiveness of 1) production process 2) human capital Process Focus Good design is processoriented and builds from the inside out Smooth Flow Ensure smooth flow of work, material and information through the system Design Impact Consider how layout and design will impact how the work is done

13 EXTERNAL INFLUENCES Industry Technology Local & Association Codes Facility Design Insurance Standards Sales Channels Governmental Regulations

14 INTERNAL INFLUENCES Economic Project Feasibility MHE/IS Requirements Business Goals & Objectives Facility Design Supply Chain Strategy Business Functional Departments Products & Services

15 DESIGN CRITERIA : THE FOUNDATION OF ANY DESIGN Base year plus 5 years of projections Data collection develop questionnaires observe current processes management interviews Current information system Current labor budgets Goals & objectives of new facility

16 DESIGN CRITERIA Business Projections & Forecasts revenues annual units, cartons & pallets handled peak SKUs & inventory levels peak to average ratio utilization factors Strategic Business Growth Plan acquisition new product lines brand marketing additional distribution channels

17 DESIGN CRITERIA

18 DESIGN FACTORS Ease of future expansion or change Importance of smooth process flow flow through U shaped L shaped Interdependencies Space utilization traffic lanes vertical space People safety fatigue quality of life

19 CONCEPTUAL DESIGN Identify appropriate material handling concepts Automation Develop equipment costs per concept Develop square footage required per concept Develop building costs per concept Concept Side-by-Side Comparison Reserve Storage #1 #2 #3 #4 REQUIREMENTS 38'-0" Conventional 65'-0" Highbay 65'-0" Highbay 65'-0" Highbay Order Picker and Turret Truck Turret Truck Stacker Crane AS/RS Mini-Load and Unit-Load Total Inventory Units - Peak 18,473,011 18,473,011 18,473,011 18,473,011 Storage Pallets - 70% Utilization 14,147 14,147 14,147 14,147 Storage Cases - 85% Utilization 318, , , ,918 BUILDING COST Total Area Required (sq. ft.) 263, , , ,886 Bldg Construction Capital Cost $17,153,604 $17,675,096 $16,185,631 $12,197,510 Annualized Building Cost (Purchase) $857,680 $883,755 $809,282 $609,876 Utilities Cost $1,002,826 $610,594 $559,140 $421,369 Total Building Costs $1,860,506 $1,494,349 $1,368,422 $1,031,244 Rank: Bldg Cost (1 = Best) LABOR COST (Based on average volumes) Total FTEs Fully Loaded Annual Wage Costs $1,347,346 $1,347,346 $994,200 $104,415 Rank: Labor Cost (1 = Best) LABOR + UTILITIES COST Annual Labor + Annual Utilities $2,350,172 $1,957,940 $1,553,340 $525,783 Rank: Labor + Utilities Cost (1 = Best) EQUIPMENT COST Total Equipment Costs $5,099,622 $9,055,449 $10,796,631 $15,974,435 Annualized Equipment Costs $509,962 $905,545 $1,079,663 $1,597,443 Rank: Equipment Cost (1 = Best) PAYBACK ANALYSIS Total Capital Cost $22,253,225 $26,730,545 $26,982,261 $28,171,945 Total Capital Cost Rank Labor + Utilities Costs vs. Baseline Concept $0 -$392,232 -$796,832 -$1,824,389 Incremental Capital Cost vs. Baseline Concept $0 $4,477,319 $4,729,036 $5,918,719 Payback vs. Baseline Concept Base TOTAL ANNUALIZED COST Total Annualized Cost - Labor, Util, Building, MHE $3,717,814 $3,747,240 $3,442,285 $2,733,102 Total Annualized Cost Rank Estimate labor based on productivity per concept Evaluate above on an annualized basis

20 TRENDS DRIVING AUTOMATED SOLUTIONS Shortage of labor Need for speed and accuracy Ability to respond to seasonal spikes in throughput Real time control of inventory and order fulfillment status Productivity levels Space utilization Multi-channel operations

21 SOME TYPES OF AUTOMATION Conveyor Systems Goods-to Person Automated Guided Vehicles (AGVs) Sortation Systems ASRS Robotics

22 LAYOUT DEVELOPMENT Develop block layouts Test out various options Determine the cost factors and the intangibles Seek input from key stakeholders including maintenance. Equip for the short term but understand what the design year looks like

23 QUESTIONS?

24 THANK YOU! DAVID K. TEEPLE DIRECTOR OF CLIENT SERVICES DENNIS HEPPNER MANAGER MILLCREEK BLVD. SUITE 600 CLEVELAND, OH (FAX) JASEDLAK.COM