Value Chain Report -- Could Your Distribution Center Be More Productive?

Dec. 21, 2004
A leading retailer achieved significant results by implementing process changes that leveraged the capabilities of its WMS without significant additional capital investment. Manufacturers with multiple distribution centers, take note.

Although it had installed a state-of-the-art warehouse management system (WMS), a well-known retailer was experiencing a productivity problem in its multiple distribution centers, a critical link in its supply chain. After spending significant time and money on the WMS implementation without achieving the anticipated benefits, operations management decided that an external, unbiased perspective was required and engaged a warehouse operations and logistics consulting team. The team soon discovered a number of reasons the client had not seen the productivity gains that had been used to justify the WMS expenditure. In particular, the lack of uniform practices throughout the distribution network had significantly hindered realization of potential productivity increases. Installed Versus Implemented While it is true that the retailer had a functionally robust WMS available at its distribution centers, the system had been installed with minimal process, workflow or other changes that would allow the organization to take advantage of the increased functionality of the new WMS. Opportunities to improve operations by repositioning prime pick locations for high-volume items or slotting based on proximity to prime picking location or cube utilization had not been considered. It is often the case that companies devote time, human energy and financial resources to new systems having been convinced by the software vendor that the new system, with all its features, is the primary solution for eliminating, or at least reducing, operating inefficiencies. In fact, the software is a tool that enables the process changes that create true improvement environment. Recognizing that a capable tool was in place, the joint client and consultant project team began to identify process changes that would allow the company to realize the gains originally anticipated. In this particular case, the team focused its efforts on eight regional distribution centers, each of which was 1.5 million to 2 million square feet with approximately 300 to 400 personnel. Leveraging the functionality of the WMS and identifying internal best practices among the eight distribution centers, process improvements were implemented in four major categories: receiving, material handling, order fill and shipping. The project team identified a "best practice" distribution center for each major warehousing process. For the purposes of the project, a "best practice" site was defined as the best process performer compared with the other distribution centers among the eight facilities. The team then re-engineered the process at the "best practice" site to further improve its productivity. In short, they turned a "B" operation into an "A." Finally, the re-engineered processes were implemented at all other distribution centers within the network. Receiving Improvements Receiving process improvements that were implemented included:

  • Pre-receiving using advanced shipping notices (electronic messages from suppliers to customers that let them know products or materials are en route) and pre-slotting of items to speed physical receipt.
  • Slotting based on proximity to the prime pick location and cube utilization.
  • Combining responsibility for physical unloading and checking functions to both increase individual accountability for inventory accuracy and eliminate unnecessary labor hours.
  • Special handling of UPS and FedEx deliveries through advanced shipping notices and pre-staging of pallets and labels.
Over a one-year period, these changes resulted in an average 22% increase in cases processed per hour through receiving across the eight distribution centers. Material Handling Upgrades Process improvements that were implemented in material handling, which include the personnel and mobile equipment responsible for moving received materials from receiving into reserve locations and retrieving material from these reserve locations to replenish order picking locations, included:
  • Centralizing material-handling responsibilities (versus three separate material handling groups operating independently) to better manage intrawarehouse pallet moves.
  • Warehouse location partitioning simplification within the WMS.
  • Driver profile modification to create seamless transitioning between work assignments, eliminating downtime.
  • Creation of a shift strategy to service internal warehouse customers more effectively.
These changes resulted in an average 24% increase in pallets and cases processed per hour by material handling across the eight distribution centers. Order Fill Upgrades Process improvements implemented to support order fill activities included:
  • Selective direct full pallet moves from storage to ship dock to avoid non-productive use of the conveyor system.
  • Routinely topping off prime pick locations during off-peak hours to reduce the number of time-sensitive intrawarehouse replenishments.
  • Improve storage density through contiguous storage of high-volume items.
  • Improve replenishment trigger timing to ensure product availability and eliminate double touching pallets.
  • Reposition prime pick locations of high-volume items to increase pick rates.
As a result of these process changes, cases-per-hour productivity increased by 39% over the one-year period. Shipping Improvements Process improvements implemented in shipping included:
  • Utilize a "dock door" team to improve manpower planning.
  • Eliminate gaps between cartons on conveyors by allowing cartons to accumulate before releasing to the person loading the trailer, to ensure that the loading function is man-paced, not machine-paced.
  • Overflow and/or exceptions handling to capture and timely process retail store orders.
  • Reduction of trailer switch times by pre-planning all trailer moves and yard staging of trailers.
  • Improve trailer loading procedures and trailer load planning via the WMS.
Implementation of these changes also resulted in an average 33% increase in cases per hour processed by shipping personnel. In Summary By the end of the one-year project to design and implement these process changes, the client estimated that the productivity gains achieved resulted in annual labor savings of more than $17.8 million. The significant improvements shown across all functional areas of distribution center operations for this retailer are not unusual. Our experience indicates that, in the majority of cases, there are numerous opportunities to measurably improve productivity in distribution center operations, particularly where a reasonably robust WMS is available to support or enable change. If your firm doesn't have an on-going warehouse productivity improvement plan in place, it is highly likely that there are cost reductions and productivity savings waiting to be captured. Kevin O'Brien is managing principal of MidWest Group, a management consulting firm specializing in supply chain/operations and customer relationship management process improvement and related solutions. He can be reached at [email protected].

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