September 15, 2009
Column | basic training

Are you ready for the rebound?

Facility expansion plans may not be top of mind for DC managers right now. Here's why they should be.

By Art van Bodegraven and Kenneth B. Ackerman

It may seem out of touch to talk about growth and expansion when cable news assures us daily that the economy will likely remain in the doldrums for some time to come. Truth is, some—maybe many—companies and industries are doing just fine, thank you, in this difficult period. So they've got to face up to planning for growth—even big, fast growth.

Then, there's the prospect of what CSCMP's Rick Blasgen calls the "post-recession rally," where the economy comes roaring back, unleashing months' worth of pent-up demand. One way or another, distribution operations are going to have to gear up to meet that demand, without missing a beat in their daily customer service operations.

Soaring demand may make the CFO's pulse quicken, but for DC managers, it can be a nightmare. We've all seen what happens when facilities are pushed beyond the limits of their capacity—the inventory piled up in the aisles, the equipment breakdowns, the long lines at the loading dock. But these problems are avoidable; all it takes is vision, forward planning, and the courage to invest in extra space.

You can go through whatever facility sizing and design process you choose if you're working in a no- or low-growth world. But the stakes are higher if you're looking at double- or even triple-digit growth. Worse yet, the pace and extent of growth may not lend itself to conventional planning. So how are you to plan facilities in such an environment? What follows is some advice.

Starting at the beginning
Establishing a design capacity for the new building is a critical first step, and two elements are "musts" in the process. One is to put as many stakes in the ground as possible for overall growth, even though the future is unknowable. The other is to size the peaks—not weekly peaks, but daily, maybe even hourly, peaks.

You've got to establish assumptions that everyone can buy into for growth rates that look at a reasonable time horizon. Five years is probably not enough. A two-year build would leave only a three-year useful life, so a seven-year horizon ought to be the minimum.

Establishing peak capacity is also critical. Sensible planning requires factoring in the impact of additional solutions—e.g., added shifts, overtime, or 3PL support—to estimate a practical peak planning capacity.

This is not an academic exercise. Real life will intrude, usually at the worst possible time. So in the course of executing an orderly growth plan, you've got to be prepared to do more than build the facility of the future. There are a number of tactics that can help limit the damage from the eruptions that characterize a fast-growth enterprise. Handling the unexpected becomes enormously easier when the probability of significant growth and expansion is factored into the facility plan.

One possibility is to acquire land early, possibly more than you'll need even if ultimate use is decades down the road. Land is rarely less expensive in the future than it is in the present. In the United States, the tax consequences of the acquisition can be reduced significantly by converting the land to agricultural use until it is needed.

A basic facility in a fast-growth enterprise should include empty space reserved for the installation of advanced technology, which permits the parallel installation of the technology while maintaining "normal" operations. While designing for excess space may seem counterintuitive, the payback can be enormous. Also, the space investment permits you to postpone major technology or material handling investment until it is needed, rather than forcing premature investment in a costly, down-the-road requirement.

Send in the clones
Within the facility, our bias favors the addition of clone pick/pack/ship modules around a central warehousing/storage module. An effective design could easily accommodate a four-module facility. To be effective, traffic flows and total land requirements for just such an expansion must be considered from day one. Outbound dock doors are located on the long sides of each shipping module, with inbound receiving doors on both ends of the warehouse/storage module. It almost goes without saying that knowing which walls to remove is critical to design success.

The design process should reveal an optimum-sized fulfillment module. When the market demand is some multiple of that "natural" facility size, the answer is not to create a bigger, more complicated physical solution. Instead, create enough clones, or mirror images, of the module to meet demand; then, stage their construction and installation to parallel the pace of marketplace growth.

This "cloning" process has several advantages, including the prudent management of capital investment. It also results in a distribution center in which shutdown in one module does not cripple the entire facility. That is a huge advantage in a world of demanding customers.

The managed growth aspect is powerful. Each new shipping module adds outbound dock doors and is accompanied either by filling in existing warehouse storage capacity or by adding more to reach the ultimate design state. Admittedly, careful design of internal activities in the warehouse is required to establish replenishment flows to each of the pick/pack/ship modules.

This has been a lightning tour through an alternative approach to planning and handling growth. Not all of the recommendations are easy sells. When construction costs approach $100 a square foot, the CFO is likely to look askance at an "extra" 50,000 square feet, unless you can show the alternative cost of tear-down and rebuild.

The keys are vision, courage, attention to detail, and knowing where the walls are coming down. This proactive approach is difficult and costly, but it works. The alternative is reactive and incredibly expensive—and it doesn't work.

About the Authors

Art van Bodegraven
Columnist
Art van Bodegraven was, among other roles, chief design officer for the DES Leadership Academy. He passed away on June 18, 2017. He will be greatly missed.

More articles by Art van Bodegraven
Kenneth B. Ackerman
Columnist
Kenneth B. Ackerman, president of The Ackerman Company, can be reached at (614) 488-3165.

More articles by Kenneth B. Ackerman

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