Heading into the wilderness, even the most experienced trekkers carry what they consider their "10 essentials." Though the lists vary slightly from expert to expert—sunscreen, gorp and pocket knives make it onto some lists but not others—one item common to every list is a map. Venturing into unknown territory without one is considered just plain foolhardy.
That's an apt analogy for the process of making the journey from green field or empty shell to a fully operating DC. The road can be a harrowing one, full of uncertainty, and the cost of failure or even delay can be substantial. While those who plan and equip DCs for a living differ some on the details, they all agree that careful preparation beforehand, with a clear understanding of how a new or refurbished DC should perform, is crucial.
Purchasing equipment without a clearly developed map can lead to disaster. Kenneth Ackerman, a Columbus, Ohio-based warehousing consultant and long-time observer of the business, recalls one company that burned brightly but briefly during the dot-com era, its demise hastened by unbridled spending on material handling equipment. "They went down with a huge splash with highly automated DCs," he recollects. "They went to one conveyor company and said, 'Sell us everything you think we need.'" The result was a costly white elephant.
In the particular case he described—he did not name the company because of ongoing issues regarding its dissolution—what made matters worse was that much of the equipment the company purchased was special ordered, which limited its resale value. "A lot of it was scrapped,"Ackerman says. "It was of no value to anyone.When you make a mistake in this business, you've made a whopper."
Nor was the case unique, Ackerman says. "Because of the dot-com bust, the landscape is littered with empty high-tech automated warehouses." To avoid erecting a similar monument to industrial folly, he encourages clients to use systems integrators or other specialists for projects that extend much beyond the simplest racking and storage. "If it's sufficiently complicated," he says, "you'll need a tour guide."
Details, details, details
With or without a tour guide, preparation for the project begins with developing a consensus on the destination— something else on which the experts largely concur. For companies with a longer corporate history than short-lived dotcom flameouts, a look at past order and sales volumes should provide some insight into where they should be going.
Jeff James, a systems consultant with Forte, a Mason, Ohio-based consulting and project management firm that specializes in distribution operations, outlines the process. "We take order detail for six to 12 months, analyze the data and determine volume. If you have 10 cases on a pallet and sell 12 a week, that's very different than if you sell a thousand cases.We're dissecting data with true order history and a forecast of how the business will grow."
The analysis is by necessity very detailed. M. Geoffrey Sisko, vice president of Gross & Associates, a Woodbridge, N.J.-based consultant that specializes in material handling logistics, says the close look at operations, while a given, is also important in developing requests for proposals.
"You have to get all your ducks in a row," he says. "How many trucks will there be, what kind of freight, how will you put away and how will you replenish? Will you do batch or order picking? How many pallets are you going to store? You look at both peak and average volumes. It's basically the whole process."
Sisko says Gross & Associates usually has customers look out about five years for planning purposes. "We get nervous beyond that, and you can't do much less. It's usually two years before you're fully ramped up."
Ed Reel, vice president of Peach State Integrated Technologies in Atlanta, warns buyers to avoid the classic miscue of focusing on the facility's particular service requirements before deciding what role the DC will play in the company's distribution network. "It's not what's inside the walls that's driving the design," he says. "It's what's outside the walls—products, customers, brands. There has to be a link."
That advice is echoed by Patrick Sedlak, vice president of Sedlak Management Consultants in Richfield, Ohio. "You have to take a look at it from a business perspective. It's not a technical or equipment solution, but a business solution. We support the idea that you go through what you want the building to do, converting sales growth and sales numbers into distribution numbers. We create a template for day one, but we look three to five years out as well."
Reel also notes that when determining what you want the building to do, it's important to differentiate between warehousing and DC functions. "A warehouse stores inventory. A DC fulfills orders," he says. "The more you can minimize the warehouse, the better."
One thing leads to another
Warehouse or DC, the facility will most assuredly need equipment. Though many managers assume that choosing equipment means months of poring through catalogs, they'd do better to start by reviewing their operating data. Sedlak lists some of the factors to consider: "You have to define units, SKUs and throughput requirements. You use those as a measuring stick for comparing alternative concepts —whether it's narrow aisles, AS/RS or conventional aisles. Then you test alternatives to see what offers the biggest payback.
"You have to do the heavy analysis up front, breaking up each part of the process, then rolling it out and stitching all the functional areas together. All of a sudden, the layout and system requirements come into focus. At that point, there's value to bringing the vendor community in. I believe too many people go to the vendor community to do the frontend work and design before they've fully considered what needs to be done."
The next step, Sisko says, is to come up with the design. "You do anything you can to be absolutely clear on what you need to have. The vendors have to understand what you want to happen. You have to do that in terms of personnel, the human/machine interface and IT." James adds: "You focus on how the customer wants to run the DC. The more detail we have up front, the better off we're going to be."
Performance specifications for mobile, storage and processing equipment are also important. Sisko cites one customer who attempted to cut costs by contracting for racks and lift trucks with one provider, opting for low-end equipment, only to learn too late that the lift trucks could not reach the tops of the racks. "You have to communicate very clearly things like the aisle size, weights and heights," he warns.
Ackerman says that careful vendor analysis should extend into every part of the DC. He cites lighting as an example. "I was on a project where the client rejected the recommended lighting in favor of the cheapest type. I pointed out that with the more expensive lighting—the type that remains dim until it senses that someone has entered the area—the life cycle cost was the payback. I don't know what the exact payback was in Columbus [Ohio,where the facility is located], but if you haven't done the math, you haven't done it right."
It goes without saying that decisions on matters like flooring type and roof design should take into consideration any plans for future expansion. Bob Babel, vice president of engineering for Forte, points out that if future expansion could include hanging conveyor, for example, that may require reinforcing a ceiling during the initial construction.
Will the systems fit?
Babel and James both emphasize that decisions about which systems to use cannot be divorced from the discussion of the material handling requirements. "Otherwise, you can get caught up in an endless series of modifications if the WMS (warehouse management system) and other systems don't work together well," Babel argues.
"The first thing we do is see if the customer is predisposed to a particular platform," James says. If that's the case, he turns his scrutiny to the software provider. "We look at longterm viability [of the software provider]. If the customer wants the source code, that may not be so important. But if a company is not strong in IT and doesn't want the source code, you don't want to choose a provider that might go out of business or be sold off. Nor do you want to hire the new kid on the block to support a multi-billion dollar company."
It's also crucial to delve into the details of the WMS and its compatibility with actual operations. "If you just ask if the system supports replenishment, every WMS vendor will tell you yes," James says. "A better question to ask is, "How is your company going to do that?'" That forces the WMS vendor to either explain how it provides that support or propose an alternative.
During the initial planning phase, Forte avoids narrowing the equipment or systems selection to a particular vendor, Babel says. That comes later. "When we have a final layout," he says, "then we know what vendors we can go to for bids."
Reel, too, says that Peach State, a systems integrator, remains "vendor neutral" in the planning stages. Most material handling manufacturers, he says, understand that their products may be mixed with those of other companies. Equipment in the industry is largely compatible, he says. "That doesn't make it easy, but you know the ability to integrate is there."
Sedlak adds, "The industry is getting better as a whole. The technology is getting better. The standards of communication are getting better." He says that just a decade ago, controllers on conveyors and other equipment were much less compatible with each other than they are today.
Once the detailed objectives are ready, the RFP package can be prepared. Sisko says a solid RFP includes detailed descriptions and specs, the time frame for responses, and the form of the response to allow "apples-to-apples" comparison.
The requests for proposal themselves should be made available only to selected qualified suppliers. "You don't let somebody bid just because the sales guy shows up," cautions Babel.
Sisko agrees. "You want to qualify the vendors first and keep it to a reasonable number," he says. "That way, you're doing everyone a favor." Factors to consider in choosing vendors extend beyond the quality of their goods, he says. "Ask who is running the project. You want that person there. You want the client to be able to work with the project manager. Know what else is on their plate. You don't expect 100 percent of their attention, but there will be periods when they will have to put a lot of time in and you want to know they've got it."
Sisko suggests obtaining a minimum of three bids, even if a customer has a favorite supplier. "There may be a favorite," he acknowledges, "but sometimes a dark horse candidate comes in and blows them away."
It's important to give vendors time to provide serious responses. How much time depends on the proposal's complexity. Two weeks may be enough for racks, but if a request is for pallet or carton flow solutions, which require some engineering work by the vendor, five weeks may be reasonable.
Reel emphasizes the importance of building enough time into a project to work it through properly. "A lot of companies don't understand the path from design through implementation," he says. "Usually, schedules are so compressed that you add risk and cost to the project."
Limit but don't constrain
Though you don't want to skimp on the details when soliciting vendors' bids, it's important to allow some leeway in the process. "Don't specify the brand; instead say you want the equivalent of X," Sisko urges. "There may be something in the closet you didn't know about. All the specs should be based on performance. If you want to accumulate, don't say how. Let the vendors choose the best fit."
Sedlak makes a similar point. "There are a lot of smart people out there," he says. "Many times, companies will bid to the base but then say, 'Based on our knowledge, we think you can accomplish the same thing another way.'We're very open to that. On our last three jobs, the conveyor provider came up with better solutions."
David Stallard, a partner with Atlanta-based consultants The Progress Group, also believes in a more open solicitation process. He recently managed a building expansion and material handling project for a large apparel company using what he calls a collaborative design/build process. The invitation for bids for the building itself stated all the objectives for the project while listing what was flexible and what constraints to consider. "We narrowed a long list of vendors to a short list before giving out invitations," he says. "Their responses allowed us to look at much broader options than if we had simply submitted tightly written descriptions of what we wanted and then compared them only on price."
He says his firm and the client evaluated six different proposals, which they took to three different integrators for further discussion. "We asked them for qualifications and references. They came up with some fresh ideas that we would have missed had we taken the more traditional approach."As a result, the client was able to implement a new receiving process for 40 percent of the original budget, freeing funds to do more with the building itself.
Whatever the approach, Sisko urges buyers to remain open to making changes based on vendor questions or concerns even after the RFP has been issued. "Some call with silly questions. But if one calls and says, 'What does this mean?' and it becomes apparent that it's not clear, you may want to send an addendum to everyone."
Evaluation of the proposals should go well beyond looking at initial cost. Babel explains that the evaluation should include making sure the bidder followed the specifications; looking at value-added options proposed; and ensuring that cost-cutting proposals don't impair functionality. Other matters to consider include the cost and availability of spare parts, and the availability of after-sales service.
"There are a whole bunch of variables," Sisko says. One that often comes up is the choice between purchasing from a manufacturer or a systems integrator. "Sometimes you get a better price going direct," he says, "but if you have five guys doing different parts, you may need to hire a project manager to make sure they work together. In some cases, the manufacturers have experience in working together, but you have to make sure that there's one that can take the lead."
Sisko has one other hard and fast rule: It's imperative that vendors respond in the requested format—usually an Exel spreadsheet. "If some don't fill it in, they can't come to the party," he says. Sticking to a standardized format simplifies the process of comparing proposals.
With the proposals in hand and a clear understanding of the desired end result, buyers are ready to embark on the final selection process. Surprisingly, the spoils rarely go to the low-cost bidder. "I've learned from years of project management that you are generally going to get a bell curve," Sisko says. "The contract usually goes to someone in the middle."