July 25, 2011
strategic insight | Systems Integration

Start at the end

Start at the end

Planning a material handling system is not about what equipment to install—not at first. It's about starting with a clear understanding of what the system should do when it's up and running.

By Peter Bradley

When planning a major material handling system, it can seem a long road between inception and completion, from the blank page to an effective operation.

That journey begins with a good map—or, more precisely, with a detailed system design for the warehouse operation. Crafting a detailed plan can be a complex and often daunting process. Experienced systems integrators say the journey begins with a clear understanding of the destination.

"The first thing we like to do is get a handle around the real objectives or goals of the project," says John T. Giangrande, a senior account executive for Fortna, a major systems integrator and supply chain consulting firm. "If you're building a new DC or expanding an existing DC, what's the driver? Is it about business growth, or are you consolidating distribution centers?" Labor productivity or transportation costs could be other factors affecting a design. "That leads to a more in-depth conversation to reach an understanding of the impact on operations," he says.

Giangrande is the author of a white paper for Fortna titled "Profitable Distribution System Design" that outlines the steps involved in revamping a warehouse operation. The first step is "Begin with the end in mind."

As Giangrande explains, that means asking questions like what is the business case—is it to reduce redundant inventory, consolidate processes, or improve customer service response? "That's really critical," he says, "because it helps develop the framework over what to do. That's where we start."

Setting objectives also requires some level of foresight into how business flowing through a DC is likely to evolve. "What are the numbers of orders, the number of lines per order, and how is that likely to change over time?" asks Giangrande.

It's important to engage not just distribution, logistics, and transportation in the discussion, but all the parts of the business that will rely on the system's success. Jimmy Benefield, director of strategy and operations for enVista, another supply chain consulting specialist, says, "One of first things we do is sit down at a roundtable with different stakeholders within the company—operations, but also sales and finance. We talk about where they are heading. Are they looking for acquisitions or will there be a change in the types of product in the next three to five years? We want to make sure we are not missing things."

That's particularly important if operations are likely to change substantially. To make the point, Giangrande cites the experience of two clients. One, a sports cap distributor, is expanding its product line from one sport to several. "What that means is that while the legacy business is growing, the majority of growth will be from a surge of orders for the new lines," he says. In contrast, another customer projects a steady 3 percent annual growth rate, but wants to consolidate two DCs into a single existing facility. Both companies needed complex material handling systems, but the designs were based on very different business drivers.

Do look back
While a detailed goal based on both tactical and strategic plans should be at the heart of the planning process, knowing where you are going and how to get there starts with understanding where you've been. Designing an appropriate system requires a complete understanding of current operations, and that demands careful analysis of detailed data, preferably for a full year of operations.

"We're big proponents of focusing on a data-driven design," Giangrande says. It is not just hard numbers—SKUs, order profiles and such—but a feet-on-the-floor look at current processes, which sometimes can yield surprises.

Giangrande says the data gathering should include interviews with operations personnel—supervisors and line personnel—who often have a different view of current processes than managers. "Managers may be out of touch with what is actually happening on the floor," he warns. That process, while perhaps time consuming, assures that the system plan is based on reality rather than perception.

That does not necessarily mean that current processes provide the best model for a new system, say both Giangrande and Benefield. After all, the very fact that a new or upgraded system is in the works implies that current operations cannot meet current or expected business requirements. Further, improvements in material handling equipment, controls, and software may offer the potential for gains well beyond what installed systems could provide. "We used to collect data to try to understand order profiles, and we still do that," Benefield says. "But we take a hard look at the processes from a lean standpoint. We look at the potential for eliminating touches."

Giangrande recommends looking at order profiles over at least a 12-month period, which will show seasonal or other cyclical trends or unusual spikes. He warns against relying too heavily on averages in designing a system. In his white paper, he writes, "If your business is seasonal and/or experiences cyclical trends, planning to averages will most likely yield a design that works very well except at the time you need it to perform the most."

Benefield also advocates looking at a full year's order data, but says there are exceptions. "Sometimes, [the client] may say we've been growing drastically. Then we might use six months."

Crunch the numbers
All this can add up to a lot of information, as informed decisions require looking at each of perhaps thousands of SKUs. A typical SKU analysis breaks down inventory into segments from fast movers to slow movers (Fortna ranks them A through D, plus an E category for idle inventory). "You can look at the number of SKUs, the number of units, and even how much cube they are taking up," Giangrande says.

The analysis also includes what he calls cross profiling—an examination that relates, say, fast-moving SKU categories with order profiles. Giangrande explains that such an analysis might look at what percentage of orders could be picked complete from A-category SKUs or A and B SKUs.

Major integrators as well as software companies have developed tools to help deal with the volume. Benefield says enVista offers a tool that can automatically generate as many as 7,500 charts and tables comparing the data in a wide variety of ways. "We look for spikes during the year or in lines per order, single line orders—we can break it out in a variety of ways. We have tables that show how orders break down, the percentage of As, ABs, and ABCs. That's one of the most valuable charts we generate."

The detailed look at SKUs and orders can suggest cost savings in the design through what Fortna calls a warehouse within a warehouse—clustering the fastest-moving goods in one segment of the warehouse, which could limit the amount of automated equipment needed. "When you go to do the design, you can better utilize your capital investment," Giangrande says.

He describes a project for a customer in the lawn and garden industry that could complete 71 percent of its orders from its A and B SKUs. The design consolidated those goods into a 10,000-square-foot area in the DC, making use of zone routing and a combination of static and flow storage. The company, he says, can now complete 70 percent of its orders in that area faster than it could with the previous layout, resulting in increased throughput and improved labor productivity. "It was not a radical change in how goods were stored, but a change in how the goods were grouped together, then adding appropriate material handling to that and ensuring we did not engineer in any bottlenecks," he says.

Benefield adds that in existing facilities undergoing a retrofit, it often turns out that DCs can benefit from implementing tactical changes in processes. He cites one customer whose data analysis showed that half the firm's orders were single-line, single-unit orders. By switching from discrete order picking to batch picking those orders in a single wave, the operation reduced travel time for order selectors dramatically, improving labor productivity. "When you are looking at the data, you can find opportunities," he says.

Draw the map
With a full understanding of the requirements, it's time to move on to the design. Giangrande says the design should incorporate four major areas: people, processes, systems, and assets. He treats DC space as a separate issue, particularly for retrofits in existing buildings. "Space is the Achilles heel of a design," he says. "You can have the best systems and good media, but if you need 200,000 square feet and you only have 150,000, things are going to suffer. Or if you have 300,000 square feet, that's going to be detrimental."

During the design process, Benefield says, it is crucial for the design engineers and the DC management to stay in touch. "Communication is key," he says. "You cannot work in a vacuum."

Ideally, he says, the designers will develop alternatives for DC managers to consider. They can guide customers through an economic analysis of each alternative, comparing crucial factors such as up-front investment costs, space utilization, labor costs, throughput, and expected return on investment. The analysis should also include an evaluation of such qualitative factors as flexibility, expandability, safety, security, integration, and ease of implementation, he says.

Ultimately, the design has to incorporate all of the pieces of the operation—receiving, storage, picking, areas for value-added services, shipping, etc. The decisions on storage media alone can be complicated, involving such considerations as cube utilization, level of automation, forward pick versus reserve requirements, and more. Those decisions will be dictated in large part by the order profiles and processes. "If you sell a million units, your storage media are going to look very different if you sell them one at a time than if you sell them 100,000 at a time," Giangrande says.

The completed plan serves as the road map for the implementation—the selection of appropriate technology, material handling equipment, etc. Developing such a map requires time and effort, to be sure. But it's the single best way to keep the journey from veering off course.

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

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