The world of supply chain and distribution is evolving at a rapid pace. Since the on-set of Amazon’s Prime shipping, companies have followed suit by rethinking their distribution strategies. Speed, flexibility and customization are the name of the game.
And then came 2020. The world was hit with a pandemic, and once again we are seeing businesses forced to change processes.
In order to compete, both now and in the future, companies are re-evaluating their operations and considering distribution center (DC) expansions, retrofits, and the development of new DCs to better support customers, especially those shopping online. Developing a robust plan for the DC of the future is critical for mitigating risk and ensuring success. While it can take time to see a return on investment from necessary changes, the long-term benefits outweigh the possibility of complications from another supply chain interruption.
So, what factors should an operations manager consider for their DC? What requirements and alternatives should be considered?
Collect and Analyze Data
One of the first steps in developing a distribution center plan is to collect and analyze data. Data ensures objectivity and that the plan is based on a solid foundation. Data should be collected from several sources including historical transactions, operational audits, growth forecasts, and strategic plans. By collecting data from the vantage point of the past (historical transactions), the present (operational audits), and the future (strategic plans, growth forecasts and risk mitigation), you can develop a holistic view of your DC requirements.
Historical data helps describe the behaviors of your business; e.g., “what” an order looks like in terms of size and frequency. Inbound and outbound transactional data provides critical throughput information that helps depict the scale, complexity and seasonality of your distribution operations. Historical inventory data can provide insight into stocking levels and storage needs.
Operational audits are another important source of data that should be leveraged in the planning process. By walking through your current DCs, both pre and post COVID-19, you can identify issues and potential root causes of inefficiencies. Interviews with operators and key personnel can also provide valuable insight into problems and how they can be solved moving forward.
Forecast data needs to be collected from key stakeholders so that the throughput, space and customer requirements of the DC can be incorporated into the future state design parameters. Key forecast drivers on the DC are volume growth, the number of SKUs projected, and expected inventory turns. Typical planning horizons range from three to 10 years. Strategies and initiatives should also be considered so that other factors such as changes in distribution channels, order profiles, product mix and service requirements can be incorporated into the plan.
Establish Future State Requirements
Planning involves projecting the needs of the business over time. Once all the data has been collected, analyzed and validated, it can be transformed into a comprehensive set of future state requirements. This is the heart of the planning process - establishing the throughput and space needs for the business over the design horizon.
Do you change your DC to reflect possibilities of future crises like COVID-19? Or, should you be evaluating how to improve processes based on the inevitable change in consumer expectations? It’s important to consider recent data carefully. Customers are now more comfortable with ecommerce, direct shipping, and buy online, pick-up in-store operations. As people avoid in-person buying or brick-and-mortar stores remain closed, buying patterns are changing and will surely change more in the coming months.
Facility requirements should define both the average and peak volumes to be processed in every functional area of the DC (receiving, storage, picking, value added services, packing, shipping). The quantification of requirements for each functional area in the DC is critical for evaluating the trade-offs in space, equipment, systems and labor of various alternatives.
Certain industries may find that lean inventory practices are less than beneficial during ‘crisis’ situations. Manufactures of children’s play sets, or arts and craft projects, were unable to keep inventory in stock as the world stayed home and looked for new hobbies. Mangers in facilities like these may need to increase storage or change slotting layouts.
On the other hand, industries like restaurant supply or automotive parts saw a huge decrease in orders, and now have too much inventory – this could mean similar changes, but in the ‘opposite’ direction. Inventory, and how much you have of it, acts as an insurance policy for less-than-normal supply chain situations.
Evaluate Alternatives
The first step in evaluating alternatives is to establish a baseline. Typically, the baseline is an extension of current state operations. It may be heavily dependent on labor and requires the minimal amount of capital investment to meet the requirements. The capital investment and annual costs of labor, space, equipment, systems, etc. over the planning period must be developed for the baseline as well as each alternative.
Once the cash flows have been developed for all alternatives, the solutions can be compared financially to determine which option offers the best return on investment. The justification of higher levels of capital investment should focus on evaluating the incremental cost differences of the alternatives as compared to the baseline. Typical approaches for analyzing the merit of a recommended investment include simple payback, internal rate of return and net present value.
In addition to the financial evaluation, qualitative factors such as risk, capacity, labor availability, training, implementation schedule, scalability, and flexibility of each alternative should be considered. Sensitivity analysis around key drivers can also be performed to help refine the recommendation. Once a preferred option is identified, you’re ready to get the project approved and execute the plan.
Conclusion
Planning for the DC of the future can be a daunting task. But with careful, thorough analysis, a disciplined methodology, and the involvement of key stakeholders, a well-thought-out plan that meets the needs of the business with minimum risk and maximum value can be developed to meet ‘normal’ procedure requirements as well as less frequent ‘crisis’ situations. Even with the rapid changes occurring in today’s global environment, our supply chain consulting team is keeping up with changes in our industry and doing their best to continue to bring the latest in automation and technology to our clients.
It’s almost Halloween, and if your town is anything like mine, your neighbors’ yards are already littered with ghosts, witches and tombstones.
Clearly some of us enjoy giving other people a scare. Just as clearly, some of us enjoy getting a scare.
I’m not one of them. I hate haunted houses. I avoid scary movies like the plague. And I once jumped on top of several eight-year-old members of the Girl Scout troop that I was leading in order to escape a haunted hayride’s zombie.
However, that doesn’t mean I’m not capable of (wo)manning up and facing my fears, especially it’s for a good cause, which is why ALAN’s executive director, Kathy Fulton and I recently put our heads together to create this short list of some of the scariest perceptions that people have about disasters and disaster relief.
Scary Perception Number One: “A Disaster Will Never Happen To Me.”
When people live in certain areas (i.e. far away from a hurricane-prone coast or earthquake fault lines) it’s easy for them to assume that they’re protected from many types of catastrophes – and to become dangerously casual about making disaster preparations or heeding safety warnings.
Frankly, this attitude scares the heck out of us, because if the last few years have taught us anything, it’s that disasters can take a wide variety of forms and strike at almost any time. And the people who fail to plan – or to take shelter/evacuate as requested – are much more likely to find themselves in harm’s way.
Scary Perception Number Two: “It’s Okay. The Government’s Got It Covered.”
There are so many things wrong with this second perception that it’s not even funny. For one thing, not every disaster survivor qualifies for FEMA government assistance. For another, some survivors aren’t eligible for as much government assistance as others. Plus it can take some time for FEMA to process all of the requests for assistance that it receives and to conduct all of the necessary inspections that need to be made before it can provide funds. And even then, these funds are limited.
It’s a similar story for disaster survivors who are fortunate enough to have homeowners’ or renters’ insurance.
That’s why the humanitarian response organizations that provide food, hydration, shelter and other supplies immediately after a disaster hits (and the non-profit organizations that help survivors fill in the short-term and long-term gaps that government assistance and insurance reimbursement don’t cover) are so essential. It’s also why the people who support them are an answer to prayer.
Scary Perception Three: “We’re Too Far Away To Be Of Help.”
One of the laments that we often hear from potential transportation, warehousing and material handling equipment donors is, “We’d have loved to help you with relief efforts for X community’s disaster. But we didn’t have any locations in the area.”
The sad thing is, we probably could have used their help – and so could many of the humanitarian organizations that we support.
When push comes to shove, these organizations can’t afford to split hairs about where their donated relief supplies come from, especially if those supplies extend or enable their relief efforts. They might even NEED those donations to come from another part of the country because many of their closer potential product donors may have already been tapped out.
In light of this, never underestimate the value of a long-distance contributed logistics offer. Relief supplies are often located much farther away from a disaster site than you might imagine. And the help that you’re offering might be just the ticket.
Scary Perception Four: “It’s Been A Few Months (Or Years). So Survivors Of That Particular Disaster Don’t Need Our Help Anymore.”
If individuals and communities recovered from disasters as quickly as their particular disasters stopped making headlines, life would be much easier for everyone. However as any disaster survivor can tell you, that’s rarely the case.
Disaster recovery is a super-long process that’s usually measured in months or years rather than days or weeks. And many of its costliest and most work-intensive stages like clean-up and rebuilding don’t start until long after the news and camera crews have left.
So don’t ever think that there’s no way you can help a community just because the disaster that affected it happened quite a while ago. Chances are, that’s when your compassion and assistance will be needed the most.
Scary Perception Five: “Helping With Disaster Relief Won’t Pay The Bills. As A Result, There’s Nothing To Be Gained From Our Business Making A Financial Or In-Kind Donation.”
While it may not initially seem like you have anything financial to gain from helping a community in need, nothing could be further from the truth, especially if that community is home to some of your employees, customers, suppliers or business operations.
The people who live in these communities can (and do) remember who showed up for them when times were tough – and so do many other members of the purchasing public. In fact, according to recent article in the MIT/Sloane Management Review, multiple studies have shown that corporate donations ultimately attract customers. And according to another recent article in the Harvard Business Review, consumers tend to favor companies that donate a larger share of their profits.
Is this why so many of our country’s most successful organizations are also some of the most philanthropic? Possibly. However, if that’s the case, it’s okay by us, because when generous businesses do what they can to help a community get back on its feet more quickly, everybody wins.
Fear Not
There’s far more I could add to this story. But time and Halloween-candy buying obligations don’t allow me to discuss them all. Besides, I want to end this story on a caring rather than a scaring note.
So I’ll leave you with this: Even though disasters seem to happen with frightening regularity, I’ve actually become a far braver person since joining the ALAN family several years ago. It’s taught me that when horrible things like hurricanes, tornadoes and pandemics happen, a lot of wonderful people show up to help – and reminded me that when things are at their most harrowing, there are always extraordinary people like you ready to come to the rescue.
Just don’t ask me to go on a spooky hayride anytime soon.
"Spot solutions are needed to help a company get through a sudden shock, but the only way to ensure agility and resilience going forward is by addressing systemic issues in a way that is intentional and focused on the long term and brings together clear priorities, well-designed repeatable processes, robust governance, and a skilled team." - Harvard Business Review
An article published by McKinsey & Co. in August observed, “over the past year, many companies have made structural changes to their supply networks by implementing dual or multiple sourcing strategies for critical materials and moving from global to regional networks.”
This structural change pivots on the difference between low cost and best cost. The shift extends through Tier 1 Suppliers through lower tiers. The intent of a low-cost supply chain strategy is to present a low price to customers. A best-cost strategy adds factors beyond cost to the equation, like risk, lead time, and responsiveness.
The McKinsey article continues, “Ninety-seven percent of respondents [to the survey] say they have applied some combination of inventory increases, dual sourcing, and regionalization to boost resilience.”
We offshored, losing sight of the associated risk, for decades. Time to learn what near-shore, re-shore, regionalization, and localization mean.
As global supply chains become increasingly complicated, there are now more digital connections and business collaborations in the global shipping industry than ever before. Holding freight data in opaque, disconnected silos and relying on outdated methods of communication is not just inefficient - it’s unsustainable.
The global supply chain is no longer a linear process. Whereas before it was simply about moving freight from point A to B, now there is now a multitude of options for transporting that freight, each with its own unique set of capabilities and constraints.
So, what do shippers really want from their logistics service providers? Two things: accurate information at their fingertips and the ability to conduct business and transact - without having to pick up a phone or wait for email replies. Digital customer-facing freight execution platforms are the answer, collecting the most relevant and up-to-date data from carriers on one side, and providing shippers with a simplified and accelerated process on the other.
Digital freight execution platforms also provide shippers with a unified view of their shipping options, giving them the data they need at a glance to make an informed decision for any particular shipment.
Plus, as we continue to navigate uncertain waters, shippers are increasingly seeking solutions to increase resilience. After all, if there’s anything the last few years have taught us, it’s to expect the unexpected. The organizations that were able to pivot fastest came out on top. The availability of accurate data and solutions to action that data are key building blocks to resiliency in the face of new and unexpected challenges. Supply chain optimization, especially today, hinges on accessible, up-to-the-minute data, shared and acted on to keep freight moving as successfully as possible.
Digital Freight Execution Puts Power in Shippers’ Hands
Increasingly, freight forwarders and logistics providers are giving their shipper customers access to online freight execution platforms for just this purpose.
Largely unheard of just a few short years ago, online freight execution tools for shippers have quickly emerged to become a must-have for established forwarders to compete with startup digital forwarders. Logistics providers can no longer afford to go without offering this critical customer tool which enables shippers to access crucial freight data online, including timely visibility of their freight on the move. Their shipper customers have come to expect it, and it’s what’s needed to compete in today’s market.
Traditional methods of communication between shippers and freight forwarders can be slow and inefficient. Email and phone tag are not conducive to fast decision-making, and sales representatives may not always have the most accurate information about fleets, equipment, and routes. Digital freight execution platforms enable shippers and carriers to communicate in real-time, facilitating fast decision-making while eliminating the potential for miscommunication.
As digital conveniences proliferate our day-to-day lives (think of ordering food online, tracking your latest purchase, viewing your favorite shows on-demand, and so much more), it only makes sense that we should expect similar experiences in our work lives. That means that the traditional way of working in the freight industry, fraught with manual processes, phone calls, and emails, simply doesn’t cut it in today’s digital-first world.
What’s more, with timely freight data, shippers are better equipped to quickly address exceptions by changing transportation plans. Supply chain disconnections are costly. Responding to exceptions is critical to a smooth-running supply chain where shipments arrive at their final destination as planned.
“An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage,” Jack Welch
One of the outstanding things about a digital freight platform is the ability to integrate various functional modules to enable shipment data to be used and shared. These may include tracking and visibility, warehouse inventory, ocean shipments, freight rates, and even finance information, enabling a shipper to pay invoices online. Customer-facing online portals are an important and effective way to facilitate a shippers’ access to key shipment information, improving visibility and productivity on all fronts.
Partnering for Sustainable Success
Partner programs are another important aspect of connected digital freight platforms. This openness to integrate with a broad range of shipping industry businesses, such as technology or service providers, offers shippers the ability to access their partners through their forwarders’ customer-facing freight execution portal. This enables the shipper to have a comprehensive and complete flow of key freight data based on their unique needs and partners.
For example, if a shipper is using a real-time transportation visibility (RTTV) system provider, they can work with their forwarder to integrate the RTTV solution with the forwarder’s digital platform. This is only possible when the forwarder has a partner program enabling integrations.
All parties involved with a shipment can boost productivity and enhance value for the customer when they’re digitally integrated with freight transaction operational areas and partner providers. Technology companies who try to wall off access to the data they manage for their customers and their functionality have it backwards: they might create an appearance of their own business interests being protected in the short term, but long term, they’re either going to hurt their customers, or, more likely, their own product development roadmap.
Recent supply chain challenges have pushed BCO shippers and their logistics partners to take a much closer look at cargo flows. Accessible, convenient, and transparent freight data is now the expectation and necessary to control costs and keep cargo in view for optimal supply chain management.
Digital freight execution is the wave of the future, and it's already making a big impact in the shipping industry. Streamlining data flows by building out connectivity helps to bring greater logistics harmony that allows shippers to optimize their overall freight ecosystem.
America’s posture in world trade, and the underlying supply chains, are more than robust. According to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, the United States balance of trade in goods and services deficit dropped to $70.6 billion in July. Exports hit the highest level in real dollars since tracking began over 70 years ago. During the recovery from Covid,, with reshoring and shifting market demands, are holding imports flat..
This success is happening despite the global disruption caused by Ukraine. Expect our labor shortages to continue. Expect wage pressure to continue. Expect inflationary pressures across the supply chain to continue.