6 Ways to Postpone Distribution Center Expansion

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Whether your distribution center is out of space now or you’re planning for the future, this whitepaper can help you identify ways to postpone or eliminate an expansion, move, or use of overflow storage. You will learn how design a distribution center that optimizes the use of space.

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6 Ways to Postpone Distribution Center Expansion

  1. 1. 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116 (O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/Six Ways to Postpone – or Eliminate- Distribution Center Expansion A Guide to Maximizing Current Distribution Real-EstatePublication Date: August, 2011Author: Ian Hobkirk
  2. 2. Table of ContentsTo Build or Not to Build… ............................................................................................................................................................ 3Six Strategies to Postpone Expansion ...................................................................................................................................... 4 1. Re-Slot the Distribution Center.............................................................................................................................................. 4 2. Optimize Storage Depth ........................................................................................................................................................ 4 Push-Back Rack ......................................................................................................................................................................5 Pallet-Flow Rack ......................................................................................................................................................................5 Double-Deep Rack ..................................................................................................................................................................5 Drive-In Rack ...........................................................................................................................................................................5 3. Reduce Aisle Widths ...............................................................................................................................................................5 4. Use Overhead Dock Space ................................................................................................................................................... 6 5. Use Automated Storage and Retrieval Systems.................................................................................................................. 6 6. Raise the Roof ........................................................................................................................................................................ 6In Conclusion ................................................................................................................................................................................. 6Start Planning for Better Space Utilization Today.........................................................................................................................7 Additional Resources...................................................................................................................................................................7 How Commonwealth Can Help...................................................................................................................................................7About the Author ........................................................................................................................................................................... 8Commonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 2 of 8
  3. 3. Six Ways to Postpone – or Eliminate- Distribution Center ExpansionTo Build or Not to Build…Companies that are out of space in their distribution centers face a host offinancially undesirable choices. They can expand the current facility and livethrough the cost and chaos of a construction project. They can move to a largerwarehouse – a highly disruptive activity with potential for major cost overruns.They can lease “overflow” space and shuttle product back and forth between thetwo facilities.One common factor that all of these alternatives possess is that they almost alwaysdrive up the company’s ongoing operational expenses either due to a largerinvestment in real-estate or labor.There is an alternative to driving up operating expenses: creative space utilizationtechniques can, at times, delay or eliminate the need to expand, move, or setupsatellite facilities. Commonwealth Supply Chain Advisors has worked with manycompanies to find ways to better utilize current distribution space and delay costlyexpansions. The six concepts below have been used by companies in a variety ofindustries 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 RoofCommonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 3 of 8
  4. 4. Six Strategies to Postpone Expansion1. Re-Slot the Distribution CenterIn the context of logistics, slotting can be defined as ensuring that each stock-keeping unit (SKU) is in its proper locationto maximize space and labor efficiency. The concept of slotting is simple: A quantity of product the size of a bowling ballplaced in a bin location big enough to fit an entire pallet takes up a lot of space unnecessarily. If this practice is repeatedacross 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 regularincremental 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 sincethe “fast-moving” SKUs in the warehouse change from month-to-month or even week-to-week. These companies oftenrequire 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 asspreadsheets.If the prospect of re-slotting the entire distribution center seems a daunting one, companies should keep in mind that aslotting project with the goal of reclaiming un-used space can often be executed more easily than one that is driven byother factors such as improving pick efficiency. A space-driven slotting initiative seeks to store every product in the idealstorage 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 inthe smallest possible bin to accommodate a unit load of the product, and to move that product to an even smaller binwhen product is depleted to the point where there is excess empty space in the bin. This form of slotting can often beaccomplished with a spreadsheet.The results of a slotting study may often reveal the need for differentstorage mediums in the distribution center. Full-height pallet Three Rules for Space-Based Slottingpositions can often be cut down to half-height positions. Companiesthat are in a position to dictate the height of incoming pallets may A. Keep it simple – focus on space gainsfind that a few inches higher or lower on average pallet height can and use a spreadsheet if possiblemake a big difference in terms of the number of pallets stored. In B. Invest in a variety of storage mediumsaddition to Single-Deep pallet rack, it may be advisable to store C. Guard against honeycombing throughproduct in carton Flow Rack, shelving, or even forms of deep lane diligent bin consolidationstorage as discussed in section two. 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 DepthOne 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 considerstoring this product in a medium other than Single-Deep pallet rack. Single-Deep rack sacrifices too much space to aislesto store large quantities of the same SKU in this medium. Instead, companies should consider allocating a certainCommonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 4 of 8
  5. 5. percentage of their distribution center space – twenty percent for instance – to deep-lane storage mediums such as thoselisted below:Push-Back RackPush-Back rack can be used to store pallets just two positions deep, or up to five positions without sacrificing additionalspace to aisles. Pallets are loaded into the same side of the system from which they are picked. The company’s existing lift-trucks can be used to access the rack, and each vertical level of storage can be used to store a different SKU. Drawbacks toPush-Back rack include its cost as well as the fact that first-in/first-out (FIFO) storage is not accommodated.Pallet-Flow RackPallet-Flow rack, on the other hand, does allow FIFO storage. Pallets are fed into the back of the system and retrievedfrom 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 generallyregarded as one of the most expensive ways to store pallets, however.Double-Deep RackDouble-Deep rack is much less expensive than Push-Back or Pallet-Flow rack, but special “Deep-Reach” lift trucks arerequired to access it. “Deep-Reach” lift trucks can cost 10 – 20% more than normal reach style lift trucks. Although palletscan 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 RackThough 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 mustcontain the same SKU. Companies with frequent occurrences of ten or more pallets of the same product should considerthis form of storage.3. Reduce Aisle WidthsNarrow-Aisle lift trucks have been in use since the 1950’s, but are still not used in some distribution centers that wouldbenefit from their space-saving features. Conventional sit-down style lift trucks require aisle widths of 11-to-14 feet. Reachstyle lift trucks only require 8.5 – 9.5 foot aisle widths and cost only slightly more than sit-down units. Reach truckscannot drive in and out of trailers, however, so if true dock-to-stock operation is required, then companies should considera compromise vehicle: the stand-up counterbalanced truck which requires 10’ aisles. All of these lift truck types cost withinabout 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 aconventional lift truck, but they can operate in 5.5’ aisles and offer tremendous space savings. Of the two major categoriesof VNA trucks, “turret trucks” are generally regarded as the fastest, and they can also double as a case-picking vehicle formulti-level picking as the operator rides up with the load. Swing mast trucks, by contrast, keep the driver on the groundbut are often better suited for maneuvering in tight areas. Since there is only a few inches of clearance between the lifttruck 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 ismounted on a track system in the floor, and when not in use the rack system actually collapses its footprint so that there isno aisle space at all between rack sections. When a bin location needs to be accessed, the rack sections roll open and createan aisle for a lift truck driver to travel down. As one might imagine, these systems do not move quickly, and should only beused to store slower moving product. Despite their “Rube Goldberg” appearance, these systems actually offer very highstorage density at a relatively low cost for slow-moving SKUs.Commonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 5 of 8
  6. 6. 4. Use Overhead Dock SpaceCould a skilled pilot park a blimp in the warehouse space above your company’s dock area? Even in highly optimizeddistribution centers, this space is often completely un-utilized. Since this is a high-traffic area, using overhead space hererequires 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 truckcollisions, and be sure to allow an easy means of transporting goods up and down from the mezzanine.5. Use Automated Storage and Retrieval SystemsWhere many of the first four suggestions in this document can be used to postpone an eventual facility expansion, usingautomated storage and retrieval systems (AS/RS) is often a way to prevent the expansion entirely. AS/RS systems come inmany 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 aroundDue to these factors, AS/RS systems are among the most space efficient solutions available and offer the added benefit oflabor cost reductions. However, these systems are expensive and typically not easy to change or reconfigure as businessneeds 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 inraising the roof heights of distribution centers. This can allow additional levels of pallet storage, and the operation canoften take place with minimal disruption to the business. There are engineering limitations and building codes which mayrestrict this option, or make it unavailable entirely to some companies. Obviously, only companies that own theirdistribution center will want to consider this, but, if all other options have been exhausted, raising the roof of thedistribution center can in some cases prove the least expensive option.In ConclusionCompanies faced with expansion decisions should evaluate a variety of options before making a decision about how toproceed. One fundamental strategy any such company should consider - which is not addressed in this report – is aninventory reduction strategy. Some companies have experienced success by employing tactics such as improved ordermanagement, postponement, and in-transit visibility programs to safely reduce inventory levels and delay a costly build-out.Commonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 6 of 8
  7. 7. Inventory reduction in conjunction with the six concepts discussed in the document can often work together to open upless costly solutions for companies that need to expand operations but minimize operating cost increases. Start Planning for Better Space Utilization TodayAdditional ResourcesPresentation: Improving Warehouse Productivity without Tier 1 TechnologyBlog Article: Designing a Flexible Distribution Center When Growth is UncertainHow Commonwealth Can HelpCommonwealth Supply Chain Advisors is an independent consulting firm that helps companies measure their supplychain performance and provides guidance for how to improve it. We are not affiliated in any way with supply chainsoftware providers, equipment manufacturers, or transportation companies.Commonwealth takes an unbiased approach to supply chain improvement, and helps companies determine whether thepath to improvement lies through optimized processes, supply chain technology, logistics outsourcing, or somecombination of the three.Some of the distribution-related services that Commonwealth offersinclude: • Space Utilization Analysis • Distribution Process Optimization • Slotting Analysis • Material Handling System Design • Warehouse Management Software Selection & ImplementationPlease feel free to contact Commonwealth if any of the above services would be of value to your company at this time!Commonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 7 of 8
  8. 8. About the AuthorIan Hobkirk is the founder and Managing Director of Commonwealth Supply ChainAdvisors. Over his 18-year career, he has helped hundreds of companies reduce theirdistribution labor costs, improve space utilization, and meet their customer serviceobjectives. He has formed supply chain consulting organizations for two differentsystems integration firms, and managed the supply chain execution practice at TheAberdeenGroup, a leading technology analyst firm. His career has provided him with abroad perspective on how to solve supply chain problems without automaticallyresorting to expensive technology. Mr. Hobkirk has authored dozens of white papers onsupply chain topics, and his opinions have been featured in publications such as DCVelocity, Modern Materials Handling, and The Journal of Commerce.His company, Commonwealth Supply Chain Advisors is a completely independent consulting firm that does not selltechnology solutions.Commonwealth Supply Chain Advisors • 20 Park Plaza, Suite 400 | Boston, Massachusetts 02116(O) 617.948.2153 | (F) 617.507.6112 | http://www.commonwealth-sca.com/ Page 8 of 8

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