Manufacturers’ warehouse requirements for finished goods are far different from warehousing requirements of retailers and wholesalers found downstream in the supply chain. Characteristically manufacturers stock fewer items and more of them. The result: large inventories per item create the need for high-density storage systems. There is an implicit danger in investing in a storage system that simply provides the greatest number of pallet positions per square foot. The danger being that the gross pallet positions available are not necessarily the net positions that can readily be used. Therefore without careful consideration, the workable capacity provided by a given storage system may be dangerously over-estimated.
Consider a bulk storage lane on the floor. Suppose it accommodates 4 pallets deep and, by stacking two pallets high, yields a capacity of 8 pallets in total. Keep in mind however, that before replenishing that lane it must be filled and subsequently picked clean prior to put away of new product or another lot of the same product. So although the lane begins full only when it’s empty can it be filled again. This means at any point in time, on average this lane is only ever half full.
What looks like a capacity of 8 pallets is, in effect, a capacity of 4 pallets. In an entire warehouse if every bulk storage lane followed this trend, 50% of the gross capacity of the building would remain unused. Unless, to make increased use of the gross capacity, operators mix items or lots in a single lane and re-handle pallets to maintain utilization rates closer to the gross capacity. The drawbacks of such an approach are that it puts inventory control at risk and greatly impacts operator productivity.
The general principle outlined above describing the danger high density storage poses also applies to drive-in and drive-through racking - however it does not mean that these storage systems are always poor choices for your warehousing needs.
Returning to the example of bulk storage lanes, consider the utilization of gross capacity when an item occupies two lanes. One lane has a 50% capacity but the other, which serves purely as a storage lane until the former is picked clean, has 100% capacity used. This brings the net utilization up to 75%. If an item can occupy three lanes, that utilization jumps to 83%.
What this second bulk storage example illustrates is that maximizing the gross capacity of a warehouse depends on matching a storage system to the inventory profile of the items stored in that system. Without a careful consideration of the inventory profiles held in the warehouse and a realistic appraisal of the net utilization achievable, the wrong storage system will be employed.
Another example of matching a storage system to the inventory profile of product stored in that system comes in the form of “end of run” pallets. Production runs never yield full pallets of finished goods: there is always a balance of product that makes for a small or partial pallet. Fitting these partial pallets into a uniform storage system conceived for full pallets will always result in lost storage capacity. Consider storage openings of 56″ which are optimal for pallet heights of 52″. Let’s say however, that an end of run pallet is only 28″ high - this leaves 24″ of unused capacity or a 56% net capacity utilization applicable to each end of run pallet stored.
The number of end of run pallets in a warehouse, while small in total, can lead to significant losses in available storage capacity unless the storage system design incorporates considerations for these pallets. Options available include smaller pallet openings within the larger system or, perhaps, a separate section of the warehouse dedicated to smaller pallet storage.
In conclusion, operations managers can make significant gains by keeping a few things in mind when looking at the best way to store finished goods.
- 1) Gross capacity of a storage system is not the same as the net capacity.
- 2) Net capacity is a function of the inventory profile of products stored in the system.
- 3) “End of run” pallets complicate the effort to yield the highest net storage capacity of a given system.
- 4) When a storage system is mis-matched to the inventory requirements, capacity drops and/or warehouse productivity suffers.
Careful, thorough storage system design decisions upfront will avoid years of headaches and burdensome costs in the future.
August 25th, 2009
Whether striving to finance business expansions or day-to-day operations, these have been difficult times. For this reason, many companies are increasingly acknowledging the strategic need to unlock large amounts of cash tied up in inventories, sales and purchases.
The working capital of a company, that is, the difference between its current assets and short-term liabilities is an indicator of two things: first, the financial health of the company and its ability to meet its immediate obligations; and second, the company’s operational efficiency.
The importance of optimizing and managing working capital resides in the fact that companies need cash to finance growth and ongoing operations alike - as it’s just not possible to pay suppliers and employees with inventory.
A common shortcoming many companies encounter when implementing cash-driven initiatives is: failing to understand the relationship between supply chain activities and financial performance. For example, the way orders are selected in the warehouse can affect Days-Sales-Outstanding (DSO) in addition vendor delivery performance can be leveraged when negotiating payment terms.
The following are a few examples of factors sometimes considered “soft” issues that can, in fact, provide a quantifiable return when improved:
Perfect Order Rate
The collection of invoices with erroneous deliveries (i.e. undetected mispicks, scratches) will cause not only deductions and charge-backs but also delays due to customers’ payment cycles.
Safety Stock Levels
There are several factors affecting inventory, however, when launching an inventory optimization initiative, the first step is to determine what the level of safety stock should be, and although inventory levels will fluctuate due to legitimate business reasons, there should be a set target. For example, the total inventory of a product shouldn’t be greater than its safety stock if the product is received and shipped every day in full truck loads.
Fast moving material handling systems
Introducing cross-docking, reverse line picking and flow-through programs for those items and vendors that meet the volume, quality, service level and cost requirements will impact inventory reduction capability.
Order fulfillment cycle time
Once the company has a firm order from a customer, the time it takes to fulfill that order is incorporated into the cash conversion cycle. Given this, the ability to respond to demand faster and while maintaining or lowering cost should drive transportation and warehouse initiatives.
Vendor Collaboration
Working with Vendors can make a big difference. For example, moving inventory off the balance sheet through the pursuit of Vendor Managed Inventory initiatives can reduce a company’s investment in inventory.
There are many other factors rooted in supply chain activities that impact working capital performance and should be incorporated into the supply chain performance metrics. These include:
- Vendor lead times
- Supply chain visibility
- Real-time proof of deliveries
- Forecasting accuracy
- Vendor performance linked to payment terms
- Minimum order quantity
The extent to which each of these factors influence the financial results vary from company-to-company, however, in order to implement an effective working capital optimization initiative the following steps should not be overlooked:
Analyse end-to-end supply chain processes - to identify opportunities based on depth of research and data analysis from vendors to customers.
Define performance metrics - to measure not only results but also leading indicators (e.g. input variables that impact results).
Set goals - at tactical and operational levels to ensure execution effectiveness.
Align cross-functional accountability - create cross-functional teams to drive improvement initiatives across the supply chain.
By increasing overall awareness and the attention given to the relationship between the supply chain and financial performance, companies can strive to link their activities in this area to their Working Capital Optimization initiatives. The above most specifically suggests how to do so in regard to warehouse operations and material handling systems, and stresses the importance of the related Supply Chain metrics used to support this effort.
August 11th, 2009
How many rack bays are needed to satisfy the cubic inventory storage requirements, on average and at a peak? What height of building is required to efficiently store the required inventory?The necessary storage volume is often expressed in terms of cube (square footage). The ability of a distribution center to efficiently store cube is defined as net working capacity (NWC). Once pick-slot requirements have been determined and converted into rack bays, the cubic inventory on hand will determine the required height of the bays, and thus the entire building size. The NWC is then calculated at varying building heights to ensure that inventory will fit overhead of the pick slots. In some designs, where inventory levels are very high, special dense storage sections may be added to the DC layout in order to minimize stacking height requirements.
It is always vital to hold inventory for a given item as close as possible to its designated pick location(s). This minimizes the amount of put-away and replenishment labor required to stock the pick slot.
The travel aisle spacing between rack bays is dictated by the mobile equipment meant to operate within a given aisle. Generally, fork lift equipment outrigger dimensions will vary with the required lift height at which product is placed in overhead reserve locations. The allowance for operators to pass easily in an aisle will determine the final aisle width. Passing is a requirement for efficiency as it prevents an operator being impeded by another from performing their function. A typical, conventional facility with a clear height range from 28′ to 35′ will have a minimum 10′6″ aisle width for single-deep pallet racking.
July 21st, 2009
During the ‘90’s, society’s most common buzz word was RECYCLE. With our children coming home asking for assistance with their recycling homework and projects, it became engrained in our social ethos that the earth’s resources are limited and things must be done to preserve them.The latest buzzword is “green.” Within the last decade - not only has this buzzword become commonplace it’s now expected that governments, corporations, and consumers take action. Going green no longer only involves recycling, it’s an ideology and LEED is a process by which companies are striving to get there. Leadership in Energy and Environmental Design (LEED) is an internationally recognized building certification system designed to encourage and implement “green” building practices that lower negative environmental impacts, conserve energy, and improve quality of life. The more ambitious the goal achieved in each of these areas - the higher the LEED accreditation earned, with LEED certification as the basic level followed by Silver, Gold, or Platinum.
How much does doing things “green” cost? Upfront costs so far have been shown to be only 2% more for a LEED certified building than a conventional one. System paybacks are expected within a very short time frame - depending on the level of LEED certification sought that is, and how committed the project is to the bigger, longer-term picture. Using new “green” technology and reuse of existing materials, not to mention the growing number of tax incentives can bring overall costs down when implementing “green” strategies, which very often simply employ good common sense.
Going LEED, however, can have a hefty price tag. Most of the additional LEED costing comes during the design stage of the project. As well many new technologies are more expensive, and extensive research may be needed when considering multiple building scenarios or options. Figures can rise to as high as 30% of the project during this phase.
LEED construction is not necessarily a quick and easy construction method and at times it can be difficult to justify certain additional costs. The key to a successful LEED implementation is to remember the defined goal and to stick with it, which may very often not be cost-related. For example, a project for a new commercial building to be built over an existing educational facility had the goal (among others) to minimize the impact on the environment. An astounding 95% of the demolished building and site work was recuperated and reused in some way and did not end up in landfill. Another project saw the implementation of systems with 20 and 30 year paybacks, because their goal was to be “ecologically responsible…. and to leave a legacy for future generations,” they refused to sacrifice long-lasting solutions for short-term savings.
Building “green” is fast becoming the popular way to build new corporate headquarters, retail outlets, government, and educational facilities, and even warehouses. By mid-2007, in the United States over 100 million LEED certified square feet were constructed with approximately 8000 projects pending… doubling over the previous year. At the beginning of 2009, those numbers rose to 20,000 projects registered or certified, and 284 million square feet certified.
July 7th, 2009
Pallet racking systems have traditionally been made from either structural steel or roll formed components. Structural steel is thicker and far more abuse resistant, which is an important aspect in a very busy, high traffic department like dry grocery for example. Structural steel is typically more expensive than the roll formed racking components created from sheet metal bent into different sections to produce upright frames, beams and safety bars.
Key to any racking layout is preparing for properly sized aisles in the planning stages to minimize the risk of damage occurring during regular operation. Regardless, the possibility for damage remains. For example, lift truck damage to the storage racks typically occurs at the front post of the rack upright as careless or hurried operators swing into a slot to deposit or remove a pallet, accidentally connecting with the front or side of the upright post.
We attempt to minimize such damage by specifying angled deflector shoes be welded at the base of those posts, but “accidents” can still occur. Another location where abuse frequently takes place is at the lower beam levels, and typically, directly behind the operator. As he backs out of the slot with the pallet ahead as his main focus, damages occasionally occur to the lower beams across the aisle.
Some rack companies have recently suggested a “Hybrid” scenario that combines the strength and durability of structural steel and the economics of roll formed equipment as a cost efficient option.
With the lift truck as the main culprit causing damages, we suggest only the beam levels higher than 100″ above the floor be roll formed. The very narrow aisle (VNA) environment, where the mobile equipment is either turret trucks or man up order pickers, is another prime candidate for roll formed components as these machines are guided down the center of the aisle and do not come in contact with the racking.
The one true constant in the business world is change, and a company’s rack layout today may not reflect its requirements for the future. Flexibility and compatibility must rate as important criteria in the long term planning process of any project. If you start out with a mix of components there is a greater potential you’ll have problems with compatibility and thereby limit your flexibility for future changes down the road.
Typically, the greater the mix the greater the number of components to be manufactured, shipped and installed. Depending on the extent of the mix of between structural and roll formed, there could be double the number of components on site for any given project. Overall, this logically implies that the resources required to keep track of all of these items may outweigh the initial cost savings expected for the project.
A prudent approach to the “hybrid” option is to keep the mixture confined to areas such as Conventional and VNA, as an example, to keep project costs to an acceptable level in relation to the potential benefits to be derived.
June 23rd, 2009
Many companies approach freight bids on a lane-by-lane or ad hoc basis; however, many of our clients are seeing 5-10% savings in their transportation spend after undertaking comprehensive freight bids on their entire transportation activities. The process is intense, but generates payback in less than 2 months on the cost of running the comprehensive freight bid project.
Conducting a comprehensive freight bid begins with a request for proposal issued to qualified carriers for all inbound and outbound shipping lanes. Carriers bid on the lanes of their choice, and provide their price and capacity per lane (frequency of deliveries per day or week, number of trucks, truck size, etc…). This data is compiled and each carrier is ranked by shipping lane. The carriers are then informed of their ranking and relative distance behind the top ranked bid.
In a second bidding round, all carriers have the opportunity to tighten pricing in order to increase their chance of winning lanes. The number of rounds conducted is determined by the needs of each individual client; however 2-4 is usually sufficient.
Once the rankings are finalized, a routing guide, by shipping lane, is generated. Weekly tracking reports going forward ensure that transportation managers adhere to the routing guides and that carriers are delivering the promised capacities.
June 16th, 2009
This year’s show was a great chance to catch up with all the terrific people we work with in the industry, customers and suppliers alike. Too bad it coincided with the longest stretch of sub-zero temperatures Chicago’s experienced in over a decade!
If anything stood out at the show, it would be the expanding presence of automated materials handling solutions. Cranes of all sizes were on display, automated guided vehicles were whirring around their booth tracks and palletizing arms were building pallets across the show floor.
This last, automated palletization, had a few interesting solutions for non-homogeneous box sizes. One company, Axxium (www.axxium.com), was demonstrating how its palletizer took the cube dimensions of boxes arriving down a sortation lane and planned out its pallet building sequence by consequence. While the pallet build rate did not rival what can be achieved by a human being, it was an impressive display nonetheless.
Several operators that we had a chance to talk with about automation told us the key driver in studying the suitability of this sophisticated machinery was not so much about payback periods and reduced operating expenses, but eliminating job functions which are chronically difficult to staff - even as the job market weakens. It isn’t simply the savings accrued from replacing a labor function, but savings that come from the human resource department costs in constant recruitment and training of new staff to do the work. With the potential for tighter OSHA regulations on the horizon, the impetus to look seriously at automated solutions will rise.
January 26th, 2009
iGPS is a relatively new venture that is getting increasing attention in the supply chain industry. For those who haven’t run into them yet, here’s a brief primer on what they are doing.
The company rents pallets along the lines of the CHEP program. The difference is that iGPS rents plastic pallets - imbedded with an RFID chip.
The traditional benefits of a plastic pallet are in full force: the pallets are roughly 30% lighter than typical wood pallets, providing attractive savings potential in freight and they are impervious to contamination. Moreover, the iGPS pallets meet the GMA standards as well as ISO 8611-3 requirements and are capable of supporting loads up to 2,800 lbs. They are rackable and provide comparable fire safety performance to wood pallets.
This option deserves exploration from operators across a broad range of industries, but, of course, the cost-benefits case needs to be made. Like buying plastic pallets, renting them comes with a premium over their wooden counterparts.
August 8th, 2008
Thanks to all of you who made the KOM Klinic 2008, our 25th annual conference, such a tremendous success. The key to this event, year in and year out, is the opportunity for distribution managers and executives to spend two days collaborating, idea swapping and sharing experiences. And, of course, we squeeze some fun as well.
Our speakers almost exclusively come from the ranks of KOM clients so attendents learn from folks on the ground who are getting things done. These brave souls step up to the podium and make our event unique in the industry. Following are some key take-aways from each speaker:
- Allan Kohl, President & CEO of KOM, walked the group through a case study in automation design for a foodservice distributor where automation can be a tool to enable sales growth.
- Eberhard Braun of METRO Cash & Carry International GmbH gave an overview of the complex logistics network required to support 2,000 wholesale stores across 29 countries. For many North American based retailers, globalization is an inbound phenemenon. Eberhard showed us that the outbound side has many risks and challenges along with enormous opportunities as well.
- Klinic veteran Ron Cellupica, VP at Price Chopper drew on his 35 years in the grocery business to put Computer Generated Ordering in historical perspective. The immense power of data processing today makes complex decision making possible to automate and companies pursuing those possibilities are seeing benefits rapidly accrue.
- Scott Craig, Director of Supply Chain Services for Hannaford Brothers shared insights on how to develop an operating strategy culled from lessons learned at Hannaford as well as personal lessons in life.
- Pat Tagnani, Senior Director of Supply Chain Services for LMS, led a moderated discussion on the topic of fuel prices. Discussion groups came up with a number of ideas - some that were completely off the table just a few years ago - on how to manage our way through this new world of high energy prices.
- Another veteran of the Klinics, Richard Kochersperger, reminded us of the trends in retail and demographics that are shaping the nature of our businesses. Top of mind: staffing the supply chain in light of changing attitudes towards work in the young workers of North America.
- Charles Fallon, partner at KOM, gave a brief review of the productivity benchmarking survey for 2008. One highlight: the most productive warehouses invest in inventory control and minimize the number of problem orders they handle. Problem orders can turn a 200 cases per hour selection rate into 40 cases per hour.
- Ken Koester, Sr. E. VP of Affiliated Foods Midwest, gave a primer on building a compelling case for supply chain investment. From the perspective of a former CFO, Ken covered the basics in building a financial analysis and putting together the financial measures that will win board approval.
- Steve Creed, E. VP of Warehousing and Transportation for Associated Grocers of New England, walked the audience through his company’s recent move from a decades-old facility to a state-of-the-art 350,000 sq.ft. facility in Concord, NH. Steve shared strategies and tactics for managing a move which was completed in a weekend and maintained a 96% service level during that period and the first days following.
- Tom Frederick, Director of Distribution Services, Weis Markets shared with the group the experience of selecting and implementing a Yard Management System. The technical considerations and operating benefits of such systems were presented - Tom also gave some cautions on potential pitfalls to avoid.
- Clem DeLiso, President of Pioneer Cold Storage, teamed up with Nick Hill of Hill Energy Services to paint a picture of the current energy market in the United States and strategies to manage energy costs through load deferring and pricing contracts. As the cost of energy rises, operators must become increasingly sophisticated about their energy purchases and use management.
When not in session, attendents enjoyed the sights of Old Montreal in a collegial atmosphere. The weather was perfect.
June 16th, 2008
What’s the right distribution model?
The dot.com bubble might have burst some eight or nine years ago, but increasingly, companies are asking KOM International about e-commerce distribution. Either they are looking at e-commerce as a complimentary channel for their products or it is their sole means of selling to a customer. Sometimes, companies want a greenfield design for an exclusively e-commerce fulfillment center or they want to re-engineer an existing operation to incorporate an e-commerce space.
Like any distribution design, e-commerce fulfillment begins with modelling the entire operation from receipt to shipping. Product will be received, putaway, replenished into pick slots, picked, packed and shipped. At each stage, the appropriate design is a function of the physical characteristics of the operation it will support, not how the order got into the queue. In fact, it is a mistake to think that two e-commerce operations are alike and would have similar distribution designs. Consider an electrical supplies company doing B2B and a grocery company doing B2C:
The electrical supplies company might have much smaller orders (e.g., 1 - 2 lines) versus the grocery company (e.g., 20 - 25 lines). The electrical supplier deals with a single temperature zone in distribution and delivery, the grocer - three or more. Inbound, the electrical supplier might have almost everything coming in LTL whereas the grocer has truckloads of some very specific items (e.g., Coke and bottled water). On the shipping dock, the grocer is loading delivery trucks which run within a service area; the electrical supplier might be doing parcel and LTL shipments across North America. Both companies are dot.coms, but they would not look alike.
Two more thoughts:
1) Avoid re-inventing the wheel. The forebearers to the dot.com fulfillment center are consumer-direct catalog operations, home shopping network distribution centers and the folks who ship you the Magic Bullet when you phone the 1-800 number at the end of an infomercial. These businesses have been handling small orders across wide sku ranges for decades and the lessons they have learned can be profitably applied to e-commerce.
2) Because your website is full of bells and whistles doesn’t mean your operation must be. Often, merely saying “e-commerce” translates into expectations of million dollar budgets for automated picking and sorting technologies and miles of conveyor. Sometimes, that’s called for - but only when the numbers support it. Wonderful technologies exist to help companies manage throughput requirements and/or labor availability issues - but simple, conventional handling systems can be the optimal solution which get overlooked due to the high-tech aura associated with the dot.com business.
May 20th, 2008
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