what value?

We've all heard about the pressure Wal-Mart and other retailers are putting on distribution centers when it comes to RFID capabilities. However, that's not the only request savvy retailers are dumping on DC managers.

DC executives have come to dread retailers' requests to perform a myriad of value-added services, many of which take hours of extra labor to complete. Tasks like ticketing items, packaging, assembling displays, providing special labeling, and putting apparel onto hangers for customers commonly occur at the DC level nowadays. It's clearly a no-win situation for DC managers who have made great strides in minimizing labor expenses for picking operations, but must now increase labor to deal with requests for often complicated and laborious hands-on value-added services.

"We're definitely seeing a trend toward more value-added services occurring in the DC," says Patti Satterfield, business development manager for Q4 Logistics, a systems integrator based in Santa Ana, Calif. "Many retailers don't have as much backroom space these days, so as items come off the truck they are literally flowed onto the floor as quickly as possible.

"For retailers, it's a resources issue as well as a space issue. They don't want people in the backroom putting items on hangers, so they are pushing that back to the DC. Value-added services are becoming part of day-to-day pick/pack operations, and many DCs have had to create extra steps to accommodate that, like adding a value-add services function to their WMS software."

The folks at Columbia Sportswear are an exception. Columbia's distribution center in Portland, Ore., performs value-added services on almost 20 percent of the products that move through its DC, but that percentage is much lower than it was three years ago.

"When you look at it on a productivity basis for units per hour, value-added services is the least productive area in our building by far," says Dave Carlson, who heads up Columbia Sportswear's distribution activities. "There's not too much we can do about it.We can automate getting the goods there [to the value-added services area] and taking the goods away, but what happens during the value-added process is very manual … it's customized and it changes with each pick and each order."

It's not unheard of, for example, for some of Columbia Sportswear's European customers to request that product be steamed and delivered on hangers. Columbia outsources that request, which delays the shipment to the customer and increases Columbia's lead time for getting product to the customer.

Just say no
Carlson reports that Columbia is making some progress in having value-added services take place at the manufacturer's factory. That's crucial in a distribution center where nearly 70 percent of products are less-than-case quantities, meaning those SKUs must be picked and packed manually before they leave the DC.

"It's taken a number of years," says Carlson, "but factories are getting more and more used to having these value-added requests pushed back to them. We've been able to move some of it upstream. That's the whole idea of the supply chain—trying to get everything done on the first touch."

Columbia Sportswear often refuses to perform certain value-added tasks that will consume too much labor and result in far too low payback. The firm also takes a consultative approach with its customers, letting them know when a value-added service request just doesn't make economic sense—for either Columbia Sportswear or the customer.

In one case, a retail customer requested a customized shipping label containing special shipping information.

Columbia's policy is to print a standard shipping form and content label from its warehouse management system for outbound freight. Carlson pointed out to the customer that the information it asked for in its special request was already included on the two labels Columbia produces. Suffice it to say, the customer backed off from the request.

The simple truth is when you are shipping 2,500 cartons an hour and filling five to seven trailer loads per hour during peak season, there isn't a lot of time for value-added services that don't provide a real benefit.

"We have a process to approve a customer for valueadded services," says Carlson. "In the end it's a commercial decision. We tell the customer we can do anything but it's not free. The customer needs to gauge how important it is to its business. Sometimes retailers are surprised that their requests don't add any value."

So before you spend all kinds of time and energy (and money) reconfiguring pick/pack operations to accommodate value-added requests, first make sure it's worthwhile for both sides.