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Count the ways distribution centers add value 2nd--supply chain digital september 2012


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N RESPONSE TO THE “NEW Normal”, the business
landscape has changed fundamentally; tomorrow’s
distribution environment will be different, but no less
rich in possibilities for those who are looking for ways
to add value. With new trends and an “e-volution” in
moving and storing materials comes the inevitable need
to reconceive how we operate our distribution centers
to stay competitive. Outdated philosophies not based
on the “New Normal” may prevent us from recognizing
and integrating some of the new ways the distribution
facility or DC can add real value to our operations.

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Count the ways distribution centers add value 2nd--supply chain digital september 2012

  1. 1. Warehousing & Storage Count the Ways Distribution Centers (DCs) Add Value (Part 2) Supply Chain Digital’s SECOND of FIVE part feature shares with businesses how distribution centers are important to the supply chain By Thomas L. Tanel CTL, C.P.M., CCA, CISCM President and CEO, CATTAN Services Group, Inc.Business Unit, Oracle Visit us online at September 2012
  2. 2. Warehousing & Storage Count the Ways Distribution Centres Add Value page 4 R apid changes confronted by the global economy in the last years have had a notable impact on the procedures adopted for global distribution; perhaps more rapidly now than at any time since the close of the last century. With those changes comes a shift in the way we handle their challenges and recognise their value to operations. Companies are searching for efficient distribution methods that enable broad product assortment, a lower level of inventories, shorter customer order fulfilment and lower transportation costs in order to achieve a more efficient procurement process plus an improved level of customer service. The introduction of corporate portals, online trading exchanges and internet-driven commerce brings opportunity and challenge. It is not just a matter of “click, pick, pack, and ship.” The Distribution Centre (DC) must be more nimble and flexible than in the past as inventory restocking arrives earlier and remains longer. As a result, DCs are balancing inventory costs against tight domestic transportation capacity, rising freight rates and volatile energy prices. An adverse financial impact has occurred due to huge inventory versus transportation tradeoffs in time and cost that are taking place in many companies as supply chain strategies are being challenged. The concept of distribution has evolved past the traditional DC toward an Distribution centres must balance demands Visit us online at September 2012
  3. 3. Warehousing & Storage Count the Ways Distribution Centres Add Value emphasis on generating a configurable stock keeping unit (SKU), product customisation and e-commerce, plus the creation of a corresponding need for operations with higher throughput demands and shorter order cycle response times. A pull don’t push ordering and planning philosophy mean DCS have shifted emphasis from an inventorybased logistics to a replenishment-based logistics orientation. From an e-distribution standpoint, the DC must now be adaptable enough to handle a confluence Distribution is becoming a more complex notion Visit us online at page 6 of multiple SKUs in the same carton or package. This trend has resulted in a greater amount of less-thancase picking and “pick, pack, and slap” operations. At the same time, from an e-fulfilment order management standpoint, the DC must now be able to handle online orders that involve a wider range of line items or SKUs within a given customer order. As these new e-fulfilment operations face much higher throughput demands than the traditional DC scenarios, there is increased use of sortation systems as well as the need for highly mechanized or automated material handling and storage equipment options. Distribution operations have become more complex, and as order cycle times have become shorter, what was previously four types of operations have evolved into twelve. Each one has the potential to add new value to your operation. Finding the right balance of storage space and product movement may require thinking through the various types of operational concepts. September 2012
  4. 4. Warehousing & Storage IS YOUR COMPANY NEWSWORTHY? As distribution operations have become more complex, and as order cycle times have become shorter, the four types of operations have become 12. Each one has the potential to add new value to your operation SUPPLY CHAIN DIGITAL IS ALWAYS LOOKING FOR COMPANIES TO PROFILE IN ORDER TO SPREAD THEIR DIGITAL FOOTPRINT. OUR DIGITAL FOOTPRINT PACKAGE INCLUDES: A FEATURED ARTICLE IN OUR MAGAZINE 3 5 12 4 AN INTERACTIVE BROCHURE FOR YOUR OWN PROMOTIONAL USE page 8 A PROFILE ON OUR WEBSITE AN INTERACTIVE WIDGET FOR YOUR OWN WEBSITE TO SHOWCASE YOUR COMPANY’S SUCCESS Thomas L. Tanel, President and CEO, Cattan Services Group Ltd PRESS RELEASE DISTRIBUTION THROUGH THE WDM GROUP NETWORK ANNOUNCING YOUR COMPANY’S SUCCESS 6 1. Service Parts DC – the use of a distribution centres to hold spares or repair parts for the support of capital equipment with a large inventory investment for a wide array of external customer needs. SOCIAL MEDIA TO BRING EVERYTHING TOGETHER chaind | Dec 2011 THE BIG ‘ ’ …OUTSO THE TOP URCING WHY 10 REASON CHOOSE BUSINESSES S TO ‘OUT OPERAT SOURCE’ IONS ww w.s upply cha TH E F U SU OF ORAC .sup www plyc digit Nov m | 201 2 PP SPEC ROBO IAL TIC REPO LY TU CH R USHE ENT 0: HELP ’S VEM TOP1LY ES ERICA MO E S CRAN AM AN SUPP CR AIN ALLNORTH VE NAGER CHOGS IN OVATI G MA INN SIN NT BL CHA ME URE Y PUR OC E ION WH D EPR ECT D TH NEE NN ANCHAIN R CO CADAPLY PLIE SUP SUP A SYN L VIS ANCIA : FIN ORT TOP PURC HASI NG SOFT WA RE RE AIN WAR RT: LE EHOU KIVA OF ON TH DIS TRIBUE FUTU SE TE SYST EM TIO RE CHNO S’ N LOGY TH CHAIN E TO P TREN 5 SU DS PPLY FOR 2012 2011 THE NE CRA E GAM READY TO BEGIN? | Fe b TOP10: AIR FREIG HT COMPANIE S SPECIAL REPORT: COCA-CO LA’S PLA NTBOTT LE hain indigi tal .com THE GLOB ON REFR AL COLD CHAI IGERATED N ALLIA WAREHOUS NCE DHL’S ING LATIN LOGISTICS AMERICA OPERATION 2. Product Transformation – the use of a warehouse as a central gathering point for product transformation to a shelf-ready state in a manufacturing/retail environment, or altering inventory to meet customer specifications. L REP CIA SPE 3. Order Assembly – the use of a distribution centre to fulfil CONTACT US HERE Visit us online at September 2012
  5. 5. Warehousing & Storage Count the Ways Distribution Centres Add Value unpredictable order patterns, to accommodate a broad SKU mix and ship same-day orders, as well as to use cross docks whenever possible. cross-docking that involves switching transportation modes, usually with unloading and reconfiguration in between. 4. Product Mixing – the use of a distribution centres to combine items in the entire product line for a single manufacturer from productoriented manufacturing facilities in different geographic locations. 7. Merge-in-Transit – the ability to pick up separate loads from two or more different warehouses, transports the loads to a location near their final destination, and then perform a “merge” operation by combining components into one order while the goods are in transit. 5. Cross docking – requires a truck to pull up to a warehouse dock and transfer stock directly from the back of one truck into the back of another for deployment to different distribution centres or retail stores. 6. Transloading – a form of Visit us online at page 10 Warehousing technology has improved immensely 8. Pre-positioned stock – the positioning of stock to meet a perceived or anticipated need in a ‘bonded’ warehouse for ensuring a timely response to customer order fulfilment needs. September 2012
  6. 6. Warehousing & Storage Count the Ways Distribution Centres Add Value page 12 9. Postponement – the use of a warehouse as a final step deferment or postponement until a customer places an order for a quantity. 10. Flow-through – the use of the warehouse, in order to support a manufacturing or distribution operation, as an inventory staging process which relies exclusively on forward picking locations and fills them with only enough inventory for the immediate future. According to Yellow Freight Corporation, a major US trucking firm, there are four main activities generally included under the broad heading of flow-through. They are: • Supplier consolidation – consolidates purchase orders from multiple suppliers going to a single distribution centre. • Pool distribution – a truckload of product from a distribution centre is sorted into individual orders for delivery. • Import deconsolidation – similar to consolidation, with import deconsolidation the product flow originates at the port and goes to a distribution centre. • Flow through order fulfilment – product arrives from vendors in bulk at a flow through centre where it is then allocated to orders. Visit us online at The output expectation of warehouses has increased 11. Order Consolidation – the use of the distribution centre to gather product which is to be shipped to a final destination. 12. Hub and Spoke Distribution – the reverse of Order Consolidation. Adaptation to change There are two important dimensions of distribution September 2012
  7. 7. Warehousing & Storage Count the Ways Distribution Centres Add Value operations: space and movement. Space involves storage requirements and protection for physical handling activities. Movement includes the transfer of material and products within the DC itself and between the DC and the transportation system. We cannot forget that the two dimensions are interrelated; nor can we overlook the trends that make that relationship more and more complex. In a world of increasing uncertainty, scenarios provide focus on things you can’t avoid. Don’t wait for page 14 things to happen; plan for contingencies through scenario planning options. Look at how distribution assets, resources, and processes can help your business through constant consideration about how you will anticipate and respond to turbulent conditions. DC operators should think about alternative scenarios and how they would respond to them before they occur. Scenario planning tests whether a current strategy makes sense, as well as points out the limitations for doing business in All parties should have Supply Visit us online at September 2012
  8. 8. Warehousing & Storage Count the Ways Distribution Centres Add Value Leading logistics solutions turbulent times. Sometimes it’s easy to forget that opportunities are usually created by difficult, turbulent conditions. DC operators get paid to manage the exceptions, not just the routine. According to Philip Kotler, one of the world’s experts on the strategic practice of marketing, “you need to be able to withstand stresses, pressures, or changes in procedure or circumstance and to cope well with variations in operating environments with minimal Visit us online at page 16 damage or alteration.” DC operating management are used to quickly reacting and rebounding in the face of risk and uncertainty – however today sensitivity to the “New Normal” must have a more heightened sense of awareness than ever before. If such resiliency is to be exercised and exploited, companies must have adequate control and visibility of both its supply and demand chain. To do that, sound distribution logistics decisions must form the foundation for the development of strategic flexibility and responsiveness at the DC level. For the next several years, DCs are likely to face the continuing challenge of doing more with less. This challenge can, and should be, embraced as an opportunity to make dramatic improvements. Based on DCs’ costs breakdown, the order picking area is the most opportune place to attack because of travel time and distance. Experience indicates that enormous opportunities for improving the productivity of our distribution logistics lay ahead if we are smart, September 2012
  9. 9. Warehousing & Storage innovative, and courageous in rethinking the status quo. Labour for all activities below represents 60-70 percent of the costs inside the four walls of the DC. Order picking strategies must consider at least six different variables: Count the Ways Distribution Centres Add Value page 18 6. rder picking communication and O validation approach/technology (RF, pick by label, voice, RFID, etc.) Receiving 10% Ask yourself, “How prepared am I to keep my distribution centre facilities Storage 15% more nimble and flexible than they’ve been in the past?” Shipping 20% Order Picking 55% The answer lies in recognizing the true 1. Unit of measure (pallet, cases, eaches, ‘Pie chart depicting value of your distribution centre operations etc.) Distribution Centre functions – and incorporating into your planning 2. torage mode to be used (floor S those elements that will keep you flexible and stacking, selective rack, pallet flow, carton flow, responsive to an inevitably changing environment. etc.) Assessing and adapting your DC early and often can 3. otential use of automation (pick-to-belt, carousels, P be one of your best assurances that you’ll survive with ASRS, etc.) the fittest. scd 4. rder release method (discrete order release, O waves, etc.) Thomas Tanel is a founder and CEO of CATTAN Services 5. icking method (discrete order pick, cluster P Group, Inc. Tom has an international reputation as a Subject Matter Expert and Seminar Leader in Logistics picking, batch picking, etc.); this is usually directly and Supply Chain Management. connected to the order release method Visit us online at September 2012