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Confidently Committing to a DC Design When Demand is Unpredictable

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Page 1: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Confidently Committing to a DC Design

When Demand is Unpredictable

Page 2: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Introduction

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“The future ain’t what it used to be.”

-Yogi Berra

Page 3: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Introduction

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Factors Contributing to Supply Chain Uncertainty: • SKU proliferation • Increased levels of e-commerce • Changing retail compliance mandates • Changing regulatory compliance requirements

(food traceability, country-of-origin tracking, etc.)

• Increasing number of non-conveyable SKUs • Potential mergers/acquisitions • Customers placing smaller, more frequent orders • Or…large retailers that add regional DCs and

require larger orders

SKU Growth

E- Com

Retail Compliance

M & A

Regulatory Compliance

Page 4: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Introduction

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Action is Needed! The temporary measures companies have taken since the Great Recession of 2008 are straining to keep pace with recovery:

• Making due with over-crowded DCs • Leasing off-site space • Bandaging up aging material handling

systems • Making due with obsolete software

systems

Page 5: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Introduction

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Agenda 1. Number Crunching: How to develop an

analytical tool to design a DC with infinitely variable demand forecasts

2. Flexible Material Handling: Which distribution technologies are the most – and least – adaptable to changing conditions

3. Software Decisions: How to determine if this is the time to upgrade your WMS, or to sit things out for a while

Page 6: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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1. Number Crunching: How to develop an analytical tool to design a DC with infinitely variable demand forecasts

Page 7: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Even if it not possible to know what the forecast is, knowing the range of potential forecasts is vital in order to develop a DC design that is flexible to accommodate all (or most) of them.

Page 8: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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The goal: develop a dashboard to allow users to play “what if”, experiments with

different designs, and quickly see the implications of possible growth trends.

Page 9: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Variable 1 Variable 2 Variable 3 Variable 4 Output 1 Output 2 Output 3 Output 4

Expected SKU

Proliferation

(5 years)

Expected

Volume

Growth (5

years)

Inventory Policy,

Method A: Projected

change in weeks of

supply on-hand

Weeks of Supply,

Forward Pick

No. of bins

required:

No. of SKUs

slotted in

this bin type:

No. of units

stored in this

bin type

Single-

Location

SKUs

Health & Beauty 14.0% 21.0% -9.0% 2.0 Static Shelf, 12 x 12 x 14 12,376 10,456 900,163

Cosmetics 1.0% 14.0% 0.0% 2.0 Carton Flow, 102 x 12 x 10 17,823 12,861 2,854,327

General Merchandise 7.0% 5.0% -20.0% 2.0 Pallet Flow, 96 x 40 x 60 312 292 169,992

Seasonal 1.0% 5.0% -20.0% 4.0 Subtotal, Forward Pick Area: 30,511 23,609 3,924,482

Other 5.0% 14.0% -20.0% 2.0 Decked Rack, 42 x 24 x 24 7,086 7,086 958,674

Total 8.6% 14.0% Pallet Rack, 48 x 40 x 30 845 845 335,101

Pallet Rack, 48 x 40 x 60 2,538 1,766 1,736,664

Pallet Rack, 48 x 40 x 80 72 33 1,985

Subtotal, Overstock Area: 10,540 9,729 3,032,424

Grand Total: 41,051 6,956,906 16,558

Overstock

Area

Design Outputs

Storage Design Tool v3.0

Product Categories Bin Type:

Growth Variables

Forward

Pick Area

• True “dashboard” functionality • Sales forecasts can be uploaded • Variables can be manipulated • Outputs include storage medium

quantities and number of pick-faces

An ongoing design tool to be used each time the business needs change

Real-time calculation of storage medium requirements

as the forecast is changed

Page 10: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Compile the Source Data: Data requirements generally include: • Item Master • Location Master • Historical sales orders • Inventory snapshots • Historical purchase orders

Page 11: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Good Data Gathering Practices are Vital to Success: • Identify future scenarios • Identify the “Results” metrics • Identify variables which will Impact growth • Determine the data • Determine the baseline data range • Create a formal data request • Create replicable reports • Export the data • Validate the data…

Page 12: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Validate the Data: • Confirm fields: • Check formatting: • Check consistency • Check pack sizes • Summarize data and review ranges • Perform some basic “sanity checks” V1.0 • Manage outliers • Sanity checks V2.0 – step outside of the data…

Page 13: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Sanity Checks V2.0: Step Outside of the Data • Take the data summary and walk through the distribution center • Confirm actual storage positions with a physical site survey • Confirm actual throughput • Run the results by the people who are closest to the action:

managers and floor level workers

Page 14: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Deep Dive: Gathering and Maintaining Cube Data Cube data is a valuable pre-requisite to the following supply chain initiatives: • Distribution center design • Ongoing slotting initiatives • Bin replenishment calculations • Cartonization calculations (to enable picking

directly to the shipping container) • Directed put-away calculations

Page 15: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Deep Dive: Gathering and Maintaining Cube Data Companies fall into three categories with regards to this data: 1. Companies that have cube data and actively use it 2. Companies that have cube data but have not yet

used it 3. Companies that have not yet gathered cube data

Page 16: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Deep Dive: Gathering and Maintaining Cube Data Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000

SKUs. No equipment involved, but very time consuming

• Cubing devices: Good for high volume cube-capture. Equipment cost must be factored in

• Manufacturer-provided data: May be deceptive: confirm accuracy!

Image: Cubiscan 100© auto-cubing device

Page 17: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Deep Dive: Gathering and Maintaining Cube Data Tips for using cubing devices: • Considering renting a device instead of buying to

defray costs • Mount the device on a cart with a portable power

supply - bring the device to the product, don’t bring the product to the device

• Pay attention to pack sizes • Pay attention to SKUs with alternate units of measure

(spools, reels, drums, etc.) • Use a small group of well-trained workers to gather

the data • Validate data after the first day of gathering

Image: Cubiscan 100© auto-cubing device

Page 18: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Creating the Storage Design Tool Basic structure of the tool should consist of three (3) worksheets:

1. Master Data Sheet

2. Storage Bin Definitions

3. Dashboard

Page 19: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Concepts to Incorporate… • Conservative inventory policy • Target supply • Re-order points • Minimum purchase quantity • Rounding to pack sizes • Bin break points • Bin utilization factors

• Pickable pallet locations vs. non pickable

• Carton flow • Shelving

• Conveyability fields • Longest dimensions • Weights • “Top-off logic” • The 95% rule • Target weeks of supply • Overstock rules

Page 20: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Creating the Storage Design Tool 1. Define storage tiers 2. Remove SKUs which will not be kept in forward

pick 3. Round to the nearest pack size 4. Define storage mediums

A. Define individual bins B. Determine break points – max number of

bins allowed for a single SKU C. Determine utilization factor D. Set maximum dimension length E. Set maximum weight F. Set other exceptions (product family,

temp control, haz-mat, etc.)

Variable: days of supply in forward pick area

Value 1: 1 day supply

Value 2: target supply in FP area

Value 3: target supply in FP, rounded

Value 4: cube of target supply in FP, rounded

Value 5: bin cube, total

Value 6: bin cube, utilized

Page 21: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Creating the Storage Design Tool 5. Determine storage medium, forward pick area

A. Determine smallest bin which can fit Value 4

B. Ensure maximum length and weight values have not been violated

6. Top off forward pick bin A. Determine the amount of empty space

left over in the bin after target qty. has been slotted there

B. Determine the number of pack sizes of the SKU which can fit in the empty space

C. Add this to Value 3 Value 7: topped off qty in forward pick area

Page 22: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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Creating the Storage Design Tool 7. Determine total QOH targets

• Don’t be overly optimistic! 8. Determine overstock QTY

A. Subtract Value 7 from Value 12 9. Determine overstock storage medium 10. Total up number of storage mediums 11. Set forecast variables

A. Set family groupings B. % volume growth C. % SKU growth

• Define typical SKU for a given product family

D. Days of supply, forward pick area E. Days of supply adjustment factor F. Days of supply, flat value

12. Link variables to calculation tables

Value 8: Calculate current days of supply for each SKU

Value 9:capped days of supply

Value 10: calculate adjusted days of supply (% reduction)

Value 11:calculate fixed number of days of supply

Value 12: take largest of values 9,10,11

Page 23: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Number Crunching

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How it works… (live demo of tool)

Page 24: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Warehouse Automation: Flexible MHE?

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Modular bay design for pick modules - the same 96” wide bay can be converted to:

Images: Easyrack, Frazier Industrial Company, 1stoprackservices

Static Shelving Carton Flow Pallet Flow

Page 25: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Warehouse Automation: Flexible MHE?

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The functional life of the facility or material handling system can be predicted with a good degree of accuracy…

Page 26: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Warehouse Automation: Flexible MHE?

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Overstock area capacity can also be forecasted…

Page 27: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Example

Layout – Forward Pick DC – Level 2

Spiral conveyor

from 1st level

Level 1“Early out” line to

buffer

Level 2“Early out” line to

buffer

Spiral conveyor to 3rd level

Conveyor buffer – 8

lanes x 225’

Recirc loop

Shipping sorter

8 lanes, ~120 carton per minute capacity

Decline from 3rd level

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Page 28: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Example

Transition Plan – Forward Pick DC

2. Construct new 26,000 sq. ft. addition

1. Demise existing cross

dock facility

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Page 29: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Example

Transition Plan – Forward Pick DC

3. Build material handling system in new addition

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Page 30: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

4. Relocate product in VNA area to off-site storage

5. Disassemble VNA rack system in current facility

6. Manage more frequent replenishment to pick

module while VNA product is offsite

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Example

Transition Plan – Forward Pick DC

Page 31: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

7. Construct new material handling system in former VNA area (shortened pick

module)

8. Test and debug new system

9. Load product in new system

9. Begin operating new system in parallel with old

(temporarily)

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Example

Transition Plan – Forward Pick DC

Page 32: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

11. Decommission existing material handling system

12. Disassemble and/or modify existing material

handling system

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Example

Transition Plan – Forward Pick DC

Page 33: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

13. Construct remainder of new material handling

system

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Example Transition Plan – Forward Pick DC

Page 34: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

14. Load new system with product

15. Remove “short conveyor loops”

16. Begin using entire material handling system

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Example

Transition Plan – Forward Pick DC

Page 35: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

17. Explore building modifications to open up

receiving dock area

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Example Transition Plan – Forward Pick DC

Page 36: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

18. Potentially install VLMs, year ~7

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Example

Transition Plan – Forward Pick DC

Page 37: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Warehouse Automation: Flexible MHE?

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Very Narrow Aisle transition in the overstock DC…

Page 38: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Warehouse Automation: Flexible MHE?

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Which Technologies Are the Most Flexible Over Time? • Very flexible technologies

• Cart-based picking • Scalable • Inexpensive • Plan ahead to allow sufficient

aisle width for future conveyor • Conveyor-based picking

• Plan ahead for additional levels • Plan ahead for linear expansion • Modular bay design

• WMS/Voice • Kiva Systems…

Page 39: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

Warehouse Automation: Flexible MHE?

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Less Flexible Technologies • Pick-to-light systems • VLMs • AS/RS • Carousels

Automated Packing and Shipping - Tips • Plan ahead for automated packing • Allowing buffering capacity for sortation – phased approach • Plan ahead for additional sorter diverts

Page 40: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

WMS: Upgrade Time?

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Evolution of the Best of Breed vs. ERP debate…

• 1.0: Best-of-Breed solutions have a strong functionality advantage

• 2.0: Advent of better ERP solutions

• 3.0: RedPrairie/JDA merger…”super Best-of-Breed”

Reasons companies are implementing WMS today:

• Upgrade cycles • First-time WMS purchases

Page 41: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

WMS: Upgrade Time?

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• Is it time to upgrade? • What new functionality can I achieve? • How supportable is the current platform? • How heavily has it been customized? • How painful will the upgrade be? • Is there a larger corporate strategy for IT

simplification? • How can I delay upgrading?

• Voice implementations • WCS • Targeted functionality upgrades (cluster picking,

directed put-away, scan confirmation, etc.)

Page 42: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

In Summary…

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• We are working in uncertain economic times • Temporary solutions in distribution will not support the company’s best long-

term profitability, capacity, and customer service interests • Savvy companies who understand their data and the spectrum of potential

future sales scenarios can often find “less risky” solutions that are flexible and scalable to meet current and future needs.

• The time to act is now!

Confidently Commit

to a DC Design!

Page 43: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

About Commonwealth

• Objective consulting firm: Commonwealth does not sell storage and handling equipment, or WMS software

• Extensive experience optimizing distribution centers

• Flexible approach – services range from basic validation assessments to detailed design engagements

• Broad experience with a variety of equipment and software

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Page 44: Confidently Committing to a DC Design When Demand is … · 2012-12-19 · Three methods for gathering cube data: • Hand-measuring: Good for fewer than 1,000 SKUs. No equipment

About Commonwealth…

20 Park Plaza, Suite 400 | Boston, Massachusetts 02116

(O) 617.948.2153 | (F) 617.507-6112

www.commonwealth-sca.com

Distribution Optimization | Transportation Optimization | Supply Chain Planning

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