As companies look to further streamline their distribution center operations in 2011, many will begin to shift their focus toward rebalancing operations from a historically extreme focus on tight inventory and cost controls during the recession back toward more equilibrium with important customer satisfaction metrics. With the dust beginning to settle and some signs that the recession may slowly be easing, companies who successfully weathered the storm of the economic downturn are looking to bounce back in the coming year.
For the companies that were able to weather the storm, the work is not done. So, what will the bounce back look like?
Rebalancing in 2011
The trend toward a "rebalancing" of key operations metrics is expected to become more prevalent across many industrial manufacturing and retail supply chains. Evidence of this is reflected in a recent projection for 2011 production growth in a leading indicator sector, technology manufacturing. According to the Manufacturers Alliance Quarterly Economic Forecast, high-tech manufacturing production, which accounts for approximately 10% of all manufacturing, is anticipated to improve at a much higher rate in 2011, with an impressive 13.6% growth in 2010 followed by 12.3% growth in 2011 and by a 14.7% gain in 2012.
These leading economic indicators give some support to the idea that broader business sectors of manufacturing, B-to-B trade and consumer spending, may follow suit and begin to see a stabilizing recovery in 2011. As many businesses start to exit "survival mode" and see more consistent and accurate demand forecasting, they will be more confident to pursue higher levels of customer service. But having the inventory and labor available to capture more revenue and market share after the shock of the recession will take more than confidence in demand planning. Being poised to grab their competitive share as the economy improves, many companies will have to re-double their focus on creating the truly agile distribution center.
Let's take a closer look at exactly why some companies found themselves in major trouble, and why those who came out on top will accelerate their success.
When the economy began to turn south, almost all companies -- large and small -- were thrown into some form of planning chaos. The primary impact was adjusting to the radical drop in general demand. The loss of visibility through the supply chain impacted most all of the participants. And while the downturn affected some more than others, a majority of companies lost the forecasting capabilities they were accustomed to. Nothing looked similar to past practices. Consequently inventory positions were reduced as fast as possible and orders dried up. The ripple effect hit every aspect of the operation including knowing when products would be ordered to ship and having the right mix of labor to fill orders and maintain an effective operation.
Unfortunately, the companies that fared the worst were those that had not taken advantage of past success by making continued investments in solutions to make them more agile, flexible and capable on the floor of the distribution center. They simply didn't have systems in place to help them adjust to the impact of the downturn or manage their way out of the situation. Stuck with poor planning tools, less than flexible mobile computing equipment and a workforce that was not fully cross-trained in multiple disciplines, these companies had a lot working against them.
Those companies that fared the best had previously invested in the kinds of business process improvements and technology solutions necessary to negotiate the perils of the recession. From improved WMS planning and labor management tools, to having flexible tools on the floor with multi-modal equipment that can do everything from voice picking, to near/far range scanning in put-away and inventory applications, to signature capture at the receiving doc, many companies were able to react quickly, manage their labor costs, and retain their best associates. Especially in areas where labor became the critical cost and capability for creating efficiency and performance, those companies that had seen the future and made the investments would find themselves on top of the competition and ready to thrive.
And, while they may not have had the optimal inventory availability as before, they were still able to tell their customers what they could expect and when with timeliness and accuracy -- therefore positively managing their customer service in a proactive way. These are the companies who will have the tools and leadership to take full advantage of the upturn in the economy and win more revenues and market share.
It is fair to say that the jury is still out as to whether the entire manufacturing and retail supply chain will see a return to the pre-recession days or whether we will crawl back toward something that may be called the 'new normal.' But for those who chose to make the investments that saw them through the difficult days, there are a few things these leaders can do to take advantage of their position now and to protect against future downturns.
First, always be looking to find new solutions to old or nagging issues (large or small). The term 'death by a thousand cuts' can define many small problems, each one bleeding an operation of precious resource. By themselves they don't reach the level of severity that would cause the problem to jump off the metrics report and demand a solution. But taken together, particularly if they are linked and impacting a major financial KPI, they must be addressed.
Second, remember that the people on the floor are at once a very expensive part of virtually every operation and are at the same time a key to unlocking optimal efficiency and productivity. Look to upgrade aging equipment to the latest form factors and system interfaces, especially for companies that are pushing the historical upper limit of their KPI's. Even a small improvement in user ergonomics, in the motion tolerance of an imager for fast paced scanning operations, or an improvement in accuracy and safety from a voice to WMS interface can create an advantage.
For most best-in-class operations, there is typically no silver bullet. Maybe it's planning ahead for new application upgrades, or examining existing data for streamlining best practices? Maybe it's calculating the ROI of replacing current equipment with a new purchasing or services model?
Regardless, taking the view that the distribution center is a highly interdependent system where all the workflows must serve the other, even with the slightest improvement in one process, can have a strong ripple effect. And the added satisfaction for the associates on the floor from management's investment in their personal success often yields unexpected and real bottom line benefits. It is these combined benefits that will deliver the competitive edge required to regain the optimal operational balance and tilt the table back toward superior customer satisfaction metrics keep and win new business. But the most important thing for leaders to do today is not to imagine what things will be like at some point in the future, but to ask and decide "what can we do now?" and get on with it.
Tim Eusterman is a senior director of industry marketing at Intermec Technologies, specializing in the warehousing and manufacturing. Intermec develops and integrates products, services and technologies that identify, track and manage supply chain assets and information.
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