pov - distribution design at the speed of need

7/31/2019 POV - Distribution Design at the Speed of Need

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Distribution Design

at the Speed of Need

A Point of View

By Tom Tiede


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Distribution Design at the Speed of Need

A Point of View 1 By Tom Tiede

Distribution networks and facilities that fail to change can plan to fail. Distribution

leaders must accept change, embrace it, and adapt it to the benefit of the business at

the speed of need.

Does your distribution facility support todays business needs? Or, is better suited to fulfill the

needs of past expectations? Chances are good there are significant gaps between what yourfacility is designed to do well versus what your facility needs to do in order to meet ever-evolving

expectations.

Of course, this shouldnt be a surprise. We dont live in a stagnant world. Everything around us

changes over time. Change can be difficult, but usually change is for the better.

Lets make a dent in the universe. (Steve Jobs)

For example, has a cell phone improved your life, or do you miss the good old days of looking for a

pay phone to make an important call home? Has the internet made your life more convenient, or

would you rather spend time at the library doing your research or at the mall shopping for thathard to find item? And, when it comes to watching a big game, a large, high definition flat screen

TV is appealing, but do you miss the intimacy of a standard definition television tube?

Certainly, change can also work against us. Costs in our personal lives and in our businesses

continue to rise. And, instant access to and communication of information, while seemingly

beneficial, has the opposite effect after an ill-advised email, tweet, or Facebook posting.

The point is that change happens. And, no one or no business is immune to the impact of change.

We must accept change, embrace it, and adapt it to our own benefit.

This applies to distribution network and facility design. Distribution networks and facilities that failto change can plan to fail. Distribution success requires change at the speed of need.

The key to success is for you to make a habit throughout your life of doing the things you

fear. (Vincent Van Gogh)

Distribution Trends and Technologies Driving the Need for Speed

Broad changes in technology, global economic conditions, and societal expectations have had (and

will continue to have) a direct impact on distribution. The following are a few of the more

prominent trends and technologies over the past several years that implore us to accept change

and adapt it into our distribution designs.

Rising Oil and Gas Prices - A good portion of the distribution facility networks in existence today

were designed when gas prices were below $2 per gallon. This meant the trade-off equation

between freight and warehousing tilted heavily toward freight, leading many distribution-intensive

businesses to minimize the number of facilities by building large central or regional distribution

centers. As oil and gas prices have risen over the past several years, the equation has tilted back

toward warehousing, meaning total logistics costs are often reduced by minimizing transportation

costs and building smaller facilities closer to the customer base.


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Rising Service Expectations If you study most maturing distribution intensive industries

(maintenance supplies, automobile parts, mass-merchandise, etc.), you will find that distribution

becomes more tailored and complex over time. This is because price and product are replaced by

speed and specialization as a differentiator. In the earlier stages of maturation, central and

regional facilities are designed for larger orders, longer lead times, and less frequent shipments.

They are also designed to minimize handling and maximize throughput. However, this objectivecan conflict with the need for smaller, more frequent shipments and tailored distribution services.

Highly efficient flow-through facilities minimize handling costs and inventory in the facility.

Unfortunately, it can also result in too much inventory or too little of the right inventory at the

right time at the store or customer facility. So, the trend is to hold inventory at facilities nearer the

customer or store base until need. In retail, smaller localized facilities remove clutter from the

backroom and storefront, improve the shopper experience, and significantly reduce the need for

discounting. For businesses that compete on speed, similar localized facilities create competitive

advantage by providing same day or next day delivery to a critical mass of customers.

Growth of Multi-Channel Distribution Designing a facility for single channel distribution can be abit nave. Although facilities with a single channel focus are certainly more efficient to operate,

business needs may dictate the need (by plan or unexpectedly) to support another distribution

channel. For example, the advent of ecommerce has challenged more than a few distribution

executives to revamp their full case picking facilities to distribute same day shipments of broken

case picks. And, as multi-channel merchants seek to leverage distribution space and

organizational overhead, its becoming increasingly common to intermingle wholesale, retail, and

ecommerce operations under the same roof, but not without challenges.

Increasing Need for Flexibility The increasing need for speed and flexibility balanced against the

ongoing need for efficiency has a direct impact on distribution facility design. Business needs can

change rapidly, so the design process must be just as rapid and the design solution must allow for

future changes in business requirements. This means rationalizing and right-sizing the level of

automation and the use of space in the facility.

Greater Dependence on Product Data Accuracy Someone once said, In God we trust, all others

must have data. This is very true with regard to distribution. Operational dependence on the

accuracy of product information is not a new trend, but the level of importance it is receiving has

grown in stature, particularly in industries with hundreds of suppliers and thousands of unique

SKUs. Warehouse management systems have always been dependent on accurate unit of measure

data (e.g. units/case), and operational efficiency and inventory accuracy are harmed when this

data is incorrect. So, this is where product information accuracy is traditionally prioritized. But,product weight and dimensional data is too often neglected. This leads to designing physical

storage and handling systems based on assumptions and sampling averages. And, although this

may be okay when designing for commodity sized products, industries with a wide variety of

product storage and handling characteristics require more accurate dimensional data if they desire

to design and operate a space and labor efficient facility.

More Robust Analytical Tools - With regard to facility design, as impactful as any change in

technology over the past several years is the ability to quickly marry product dimensional data with


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detailed order volume history and inventory records, and in a matter of hours (and often minutes)

summarize the optimal forward and reserve inventory storage design of the facility. Fortunately,

we no longer have to rely on pouring over reams of mainframe generated green-line computer

paper with a calculator to do our analysis. But, analytically, many designs are not that far

removed from the days of the green-line database approach. Tools exist today that quickly

perform the analytical legwork in a matter of minutes. The key is good data, particularly goodproduct dimensional data.

Broader Perspective on Business Case Distribution is the vital link between your business and

your customer. For all the work you do to attract customers, distribution is where you put your

words into action. Inevitably, your business survival depends on the strength of this vital link.

Interestingly, many businesses still assess investments in their distribution capabilities based on

the costs they plan to reduce rather than the cost of doing nothing or the revenue they plan to

generate as a result of the investment. At best, this is short sighted. At worst, this myopic view of

the value of distribution puts the entire business at risk. Gone are the days when cost is the

primary measure of distribution performance. Instead, distribution is among your very few tools tosustain and grow your business. So, investments in distribution capabilities need to be viewed

with a broader perspective. For example:

What is the cost of doing nothing?

o Will we have sufficient capacity to sustain growth expectations?

o Will we maintain market share?

o Will our distribution costs remain competitive?

o Will our service performance suffer in comparison to customer expectations?

What other benefits does this investment enable?

o Will we grow a current stream of revenue?

o Will we enable a new stream of revenue?

o Will we leverage underutilized assets or resources?

What is the right thing to do for our business?

Ultimately, distribution investment decisions cannot be solely dependent on an academic estimate

of the impact on the income statement and balance sheet. Although return on investment

analysis is very important, investment decisions need to be viewed with a broader perspective

because distribution is so critically essential to business sustainability and growth.

More Reliance on Implementation Partners As the expectations and value of distribution have

grown, so too has the complexity of distribution design and the risk associated with a failedimplementation. Ambitious distribution projects easily fail for a myriad of reasons. A key to

reducing the risk of failure is to share responsibility with experienced partners who understand the

complexity and embrace the value of a true partnership approach. Sharing responsibilities and the

burden of success is key part of the equation. A traditional approach is to hire best of breed

vendors who do their part, wipe their hands, walk away, and feel no vested interest in the

outcome. This approach is acceptable when the vendor is not viewed as or given the

responsibilities of a business partner. Whereas the preferred approach is to engage with partners

that serve as your guide in navigating the more difficult climbs along your journey to ensure you


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successfully reach your destination. Further, sharing responsibilities with experienced partners

who feel a vested interest in the outcome mitigates the risk associated with implementing a

complex distribution project.

Enabling Design at the Speed of Need

Based on these compelling trends, here are a few important guidelines to follow to enable your

business to design at the speed of need.

Get Your Product Data Right Product data is the lifeblood of all distribution facilities. Bad data

leads to an unhealthy facility. Additionally, designing a facility tailored to the unique size and

handling characteristics of each SKU requires accurate weight and dimensional data. Collecting

this information can be tedious, but its well worth the effort. The key is to define exactly what

information you need to collect, start soon, and stick with it. By prioritizing data collection on the

fastest movers, you can quickly gather information on the 80% or more of the SKUs that make a

difference.

Your product suppliers can be ally in this effort. But for them to be an effective partner, they need

to clearly understand what is required of them. So, its up to your organization to define

packaging specifications that best suit your needs. Preferred carton sizes, units of measure, label

types and read rate quality, etc. are example specifications that can be defined for your suppliers.

Boil Data Down to Meaningful Information Analytical tools exist today that allow you to develop

an optimal storage and picking method design for each SKU based on its physical handling

characteristics, its throughput volume, and its inventory level. For example, a database with a

hundreds of thousands of order history records, thousands of inventory records, and thousands of

item master records can be processed in matter of minutes and married with a set of configurable

storage media design variables to generate a recommended forward and reserve inventory storage

design for every SKU in the database. The speed and value of the capability to optimize material

handling and storage design across your product landscape is incredibly powerful whether

conducting a new design or evaluating an existing design.

Think What If As goods as the tools are, distribution design cannot be a completely left brain

analytical exercise. Otherwise, this would assume historical data is an entirely true predictor of

current and future needs, which simply isnt true. Change happens. So, distribution design

necessitates creative, right brain thinking, meaning you must design for unknown. You must ask

yourself what scenarios may happen. For example:

Will we need to expand?

Will we handle different types of products?

Will customer order types or delivery patterns change?

Will we need to provide any value added services?

In general, this obligates your team to develop a design that straddles the line between what you

know and what you dont know.


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Maximize the Use of Vertical Space Creating floor space is the primary means of designing for

flexibility. The easiest way to do this is to maximize utilization of the vertical footprint of the

building. Like a military haircut - high and tight, designing forward storage in multi-level pick

modules and reserve storage in high-bay, narrow aisle configurations frees floor space for growth

and unknown future requirements, such as the need to add a value added services (VAS) area or

to hold and stage orders prior to retail launch or wholesale customer pick-up.

Limit Your Major Investments to Flexible Technologies World class distribution design requires

significant investment in technology. Key is prioritizing your investments in technologies that

balance space and labor efficiency with the need for speed and flexibility. Further, if youve

designed for flexibility, you are better positioned to absorb change as it happens. For example,

this may lead to:

Designing conveyor, sortation, and scanners systems to handling eaches and cases;

Deploying and ramping up (or down) goods-to-person pod technology based on changes in

volumes;

Designing wave management, unit sortation, and packing for wholesale, retail and

ecommerce orders.

Plan for Expansion Growth can come organically or unexpectedly. Unexpected growth, such as

through an acquisition or a new channel launch, often requires use of an existing distribution

facility. Predicting such events is almost impossible. Nevertheless, if the possibility exists, facilities

need to be designed with expansion in mind. For example:

Avoid, if at all possible, land locked and parking constrained facilities;

Predetermine what wall may be knocked down and where storage will be added;

Locate your material handling and sortation systems with accessibility to the expandedoperation;

Design in the ability to easily add diverts off of your sortation system.

Work with Experienced Partners Who Put Your Interests First Distribution design is not a one

and done exercise. Designs must evolve over time to keep pace with change. So, its important

for you and your implementation partners to take a long term view of your business, the

distribution design, and your relationship. The most valuable partner is one who:

Is aligned with and shares your objectives;

Is familiar with your information and prior assumptions that led to your current design;

Is as open as you are to change; Has an objective viewpoint toward automation;

Maintains agnostic relationships with potential solution providers;

Utilizes robust tools to accelerate the design process;

Leverages proven methodologies to mitigate the risk of implementing a complex project,

and ultimately;

Puts your interests above their own.


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Summary

Change is an inevitable part of life and business. We can fight it at our own peril or the demise of

our organization, or we can embrace it and adapt change to the benefit of our personal lives and

our business. The smart choice is to continually adapt at the speed of need.

"Even if you are on the right track, you'll get run over if you just sit there. (Will Rogers)

Distribution design must also change at the speed of need. For example, a distribution network or

facility designed for full case picking, weekly customer shipments, and long transportation routes

has likely ran well past the expiration date of the original design. Yet, hundreds, if not thousands,

of facilities like this exist. Many of these facilities have likely adapted over time, but without the

benefit of good product data, a significant investment, or the reliance of a solid implementation

partner. Sub-optimal performance is an inevitable result.

Yet, sub-optimization does not need to be the inevitable outcome of change. No company leader

stands at a podium and tells his or her shareholders they are seeking sub-optimal financialperformance. Therefore, no company leader should willingly accept sub-optimal performance from

this vital link between the business and the customer. Customer needs and priorities changes over

time. Business needs and priorities change as well. Distribution needs must naturally change at

the same rate. Making essential investments in distribution to keep pace with change simply

requires the broader business case perspective of understanding the critical link between

distribution capabilities and overall financial performance.

Lead, follow, or get out of the way. (Thomas Paine)Keeping pace with continual change in distribution requirements is a fantastic challenge for any

distribution leader. Distribution success requires agility, diligence, conviction, and the ability tomotivate change throughout your organization. Are you up for this challenge?

pov - distribution design at the speed of need

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