• Cognizant 20-20 InsightsHow to Leverage Manufacturing BestPractices to Create CompetitiveAdvantage in Distribution Cente...
This white paper explores key aspects of how                       cost and improves order cycle times. Previous-players a...
tleneck might be the order-filling operations             empowering all front-line employees to identify   where an incre...
to fully automate camera production at its                                     •	 Flexibility:     Manufacturers have inve...
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How to Leverage Manufacturing Best Practices to Create Competitive Advantage in Distribution Centers


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Supply chain players can more effectively manage product flow, reduce costs and improve flexibility in their distribution centers by borrowing process improvement tools and techniques from the manufacturing world.

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How to Leverage Manufacturing Best Practices to Create Competitive Advantage in Distribution Centers

  1. 1. • Cognizant 20-20 InsightsHow to Leverage Manufacturing BestPractices to Create CompetitiveAdvantage in Distribution CentersBy borrowing process improvement tools and techniques from themanufacturing world, supply chain players can more effectively manageproduct flow, significantly reduce costs and improve flexibility in theirdistribution centers. Executive Summary For large DCs, spread across millions of square feet, both planning and execution excellence Manufacturing has evolved by embracing highly provide opportunities to leverage manufacturing refined processes for planning and execution. This industry best practices. Focal points include: has helped many manufacturers rapidly improve their operational effectiveness and productivity • Planning: Forecasting resources, including while removing waste from each and every step labor and equipment, to more effectively utilize of their production processes. capacity, drive world-class order fill rates and minimize costs by “rightsizing” the labor force Overall, manufacturers have benefited from being to meet demand. DC managers have also begun the focal point of value creation (materials, labor, to leverage planning aspects of JIT (just-in- etc. required to produce a product), as their role time) and TOC (theory of constraints) from the in the process represents the largest percentage manufacturer’s production planning handbook of cost within the supply chain. This status has to better manage freight flow and handling helped manufacturers propel the development across facilities. and standardization of process improvement tools and techniques, such as Value Stream • Execution: Tools and techniques to manage Mapping, 5S, Andons, collaborative forecasting the production shop floor, including process and planning, Kaizen, just-in-time inventory, and management approaches (such as Lean) to approaches adopted across the entire Toyota reduce or eliminate waste and Andon systems Production System. Increasingly, these tools and for exception management to improve order fill techniques are being embraced by supply chain accuracy and throughput. Automation and an players to reduce inventory within their distri- emphasis on execution flexibility are two other bution centers (DCs) and to more effectively areas where distribution center operations are manage product flow, with an eye toward signifi- adopting best practices from the manufactur- cantly reducing costs and improving flexibility. ing world. cognizant 20-20 insights | november 2012
  2. 2. This white paper explores key aspects of how cost and improves order cycle times. Previous-players across the supply chain can leverage best ly, DCs conducted their planning in a vacuum,practices pioneered and perfected by manufac- which often resulted in under-utilized resourcesturers. or excessive overtime, negatively impacting cost and order cycle time. We expect this trendProduction Planning Rigor in the to continue, going forward.Distribution Center • Just-in-time: JIT is a management systemManagement of the distribution center and its defined to remove waste from different opera-resources, in terms of labor, equipment and space, tional elements, such as inventory (raw mate-already borrows heavily from manufacturers’ rials, WIP and finished goods). At a high level,production planning and control best practices JIT means having exactly what is needed in(see Figure 1). This trend will accelerate in the exactly the right quantity at exactly the rightnear future and will include some of the following: time. While we will discuss some of the execu- tion principles of JIT in the next section, from• Capacity planning and utilization: Sophisti- a planning perspective JIT imposes the chal- cated labor management solutions are increas- lenge of accepting and distributing freight with ingly leveraging capacity planning algorithms little to no inventory in the warehouse. This has to determine labor needs in various areas of implications on supply chain network design, the DC based on the demand profile. The in- supplier collaboration, scheduling inbound coming freight on advance shipment notifica- freight and overall supply chain risk. The goal tion (ASNs) determines the inbound resource is to ensure that the right freight keeps moving need, both for labor and space in the DC for in the network with little to no storage at a storage. Demand placed on the DC determines single node. In a world where being responsive the outbound labor needs for order filler/load- to demand will be critical for retailers, master- er hours. These are also linked to transporta- ing this just-in-time capability will be key to tion requirements to help determine capacity success. for outbound trailers.• Sales and operation planning: Many have be- • Leveraging the theory of constraints: TOC has been utilized to plan around bottlenecks in gun integrating their planning process with manufacturing plants. DC managers have start- sales and finance to identify and react to de- ed to identify and plan around the bottlenecks mand fluctuations proactively, which reduces in their respective buildings. For some, the bot-If the Practice Fits, Borrow It Manufacturing Distribution Just in Time Theory of Capacity Planning Constraints Algorithm in LMS Capacity Planning Theory of Just in Time Planning Constraints in Inventory Integrated Sales & Order Filling Management Ops Planning Domain Best Practices Andon Six Sigma Andon Alerting Mechanism in DC Poka-yoke Automation Poka-yoke Automation in DC Execution Toyota Production Defect (Robotics, System Prevention AGV, ASRS) Lean Manufacturing Lean Tools (Value-stream Mapping, (Value-stream Mapping, Kaizen, 5S) Kaizen, 5S)Figure 1 cognizant 20-20 insights 2
  3. 3. tleneck might be the order-filling operations empowering all front-line employees to identify where an increasing amount of automation is and escalate issues instead of viewing opera- utilized to increase productivity. For some cus- tional challenges as belonging exclusively to tomer fulfillment operations, the bottleneck DC management. This extends responsibility to might lie in the order packing and consolida- employees in receiving, hauling, replenishment, tion area. In such situations, DC management order filling and shipping. teams are identifying and putting in place pro- cesses to alleviate these bottlenecks by man- • Poka-yoke: This term — introduced in Lean manufacturing to denote “mistake-proofing” aging the workloads at these work stations. — emphasizes designing processes in a man- ner that reduces the chance of the processExecution Principles from the producing a defect. The intent is to keep theManufacturing World defect from moving downstream and causingIndustrial engineering principles and various pro- huge amounts of rework or lost productivity.ductivity improvement methodologies such as In DCs, we see several instances of processesTPS (Toyota Production System), Lean manufac- designed to catch issues as soon as theyturing and Six Sigma have evolved over the past occur, including defining thresholds forseveral decades in the manufacturing domain. order quantities to prevent inventory dis-Increasingly, some of these principles have been crepancies; providing visual aids to workersapplied to DC management, as well. The following to encourage adherence toare key principles adopted by supply chain SOPs; implementing RFID to DCs are increasingexecution leaders for designing processes to ensure the correct merchan- their adoption of 5Senhance the overall productivity of their distribu- dise is processed through the DC, from receipt to customer principles, or “sort,tion centers. (See Figure 1 for additional insights.)• Power to the people (Andon): Some of the shipment; and installing shine, set-to-order, main principles advocated for effective shop scales and exception handling standardize and floor control center around associates and the processes to verify shipment team on the ground. Lean and JIT principles integrity prior to goods sustain.” provide workers and teams with the authority leaving the warehouse. Since to supervise themselves and stop production customers have enormous choice of which when an issue is found. This authority and the retailers they purchase from, order fulfill- ability to highlight issues as early as possible ment accuracy can be a key differentiator. We prevent defects from emerging later in the believe DCs will continue to focus on “poka- production process and causing rework. yoke” in the future. Similarly, in a distribution center, each and • Process improvement: Leveraging Lean tools every associate must be encouraged to iden- such as value-stream mapping, Kaizen and 5S, tify issues and, enabled with mechanisms, raise many DCs are conducting rigorous and fre- alerts to supervisors to correct them as soon quent process design reviews. Value-stream as possible. Examples include damages, stock- mapping is designed to map a process end-to- outs, inventory errors, order-filling errors, etc. end, with the goal of eliminating or streamlin- ing all non-value-added activities and remov- We are already seeing a trend in which indus- ing process waste. DCs are also increasing try leaders are building sophisticated alerting their adoption of 5S principles, or “sort, shine, mechanisms into their execution systems, such set-to-order, standardize and sustain.” This en- as WMS (warehouse management systems) tails focusing on eliminating unnecessary ma- or YMS (yard management systems). These terials, standardizing workstation design and alerts will let supervisors know of situations like organizing work areas to minimize time spent inventory issues and aging trailers that in the looking for and retrieving tools and equip- DC world directly impact production and ship- ment required to complete tasks. These pro- ment to customers. cess improvement tools will yield results, such Cutting-edge DCs are also using Andons to as reduced cost, improved flow and customer maintain flow throughout the DC. Examples experience, and will result in higher employee include installing Andons on workstations and engagement and morale. shipping doors to signal flow/congestion issues. DCs can dramatically improve KPIs (e.g., produc- • Automation: Increasing levels of process au- tomation at Canon have reached a level where tivity, quality, customer experience and cost) by the company recently declared its intention cognizant 20-20 insights 3
  4. 4. to fully automate camera production at its • Flexibility: Manufacturers have invested Japanese plant. Higher productivity and bet- significant effort and dollars to drive flexibil- ter quality were cited as the main drivers of ity through smaller batch sizes by decreas- this achievement. Similar levels of process ing setup times, modifying network design to maturity will be achieved in DCs over the next move vendors/suppliers closer to the point few years as a result of greater automation. of consumption, and utilizing postponement While automated storage and retrieval sys- and common components across product plat- tems (ASRS) have been around for some time, forms. This emphasis on “flexible manufactur- automating other tasks such as picking will in- ing” is manifesting itself in the shape of “flex- creasingly gain momentum. Two trends — an ible fulfillment” for DCs. Many are being forced increased focus on customer service within by changing customer expectations and com- the retail industry and demographic forces petitive pressures to reshape their operations that are increasing the cost of labor — are to support both customer and store fulfillment pushing most DCs to explore automation as an in an increasingly complex “omni-channel” en- alternative to manual operations. vironment. Recent process advancements have involved As a result, DCs are processing a wider array of some sort of human intervention, such as goods, which undercuts their ability to contain last-stage packing or an automated guided SKU proliferation and reduce operating costs. vehicle (AGV), where associates actually This impacts freight flow across and within pick and deliver the goods to the packing the DC, labor productivity and facility layout, area. As these technologies mature, become which must be fine-tuned to deliver on the more reliable and gain acceptance — and as omni-channel fulfillment promise. purchase/implementation costs decline — we As the move toward “fulfill from anywhere” will see a similar shift toward reduced human continues, we expect DCs to continue involvement, as is currently the case in the leveraging what they learn from the manufac- manufacturing industry. turing sector to support this paradigm shift.About the AuthorsNiraj Singh is a Director within Cognizant Business Consulting and part of the leadership team for itsSupply Chain Practice. He has managed large engagements for Fortune 100 clients, worldwide, includingthe U.S., Japan, Europe and India. Niraj has an M.B.A. from the Indian Institute of Management and abachelor’s degree in manufacturing engineering from the Indian Institute of Technology, Kharagpur.Niraj can be reached at Nirajkumar.Singh@cognizant.com.John Lowe is a Manager within Cognizant Business Consulting. He is responsible for managing logisticsand supply chain projects across multiple Fortune 100 clients. John has an M.B.A. from the Universityof Illinois at Urbana-Champaign and has experience leading DC operations for multiple Fortune 500organizations, including Amazon.com, TJX, Gap, Inc. and Rockwell Automation. John can be reached atJohn.Lowe@cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 150,400 employees as of September 30, 2012, Cognizant is a member ofthe NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.