Retrofit for Real ROI

Whether staying in your current building or moving into another, there are things you can do to maximize the return on your improvement investment.

The Three Rs are now rooted in all aspects of distribution. Reduce, Reuse, and Recycle activities are even affecting the design of the facilities we use to store and distribute our goods. It’s all about the efficient use of resources, and if your facility is in a rut where that’s concerned, allow me to introduce another R: Retrofit.

Retrofitting is actually a good fit with those other R words, and all of them should be in the vocabulary of supply chain practitioners looking to improve their bottom line. There are two key aspects to retrofitting:

• Improving a current facility/operation

• Using an existing vacant facility.

Improving a Current Facility/Operation

The first step should be to review how the current facility is being used. Perform a diagnostic audit of the operation to evaluate the value add of each function. The process of value stream mapping should ensure that there are no unnecessary steps throughout the supply chain, not just within the facility, but from the source to the end customer.

The process starts with evaluating the incoming packaging to see if it can be reduced in size. As a point of reference, note how the consumer packaged goods (CPG) industry has reduced packaging requirements and transportation by going to more concentrated liquids. Consider having knock outs added to the incoming cartons and standardize the size where possible for ease of picking and storage.

Consider how having machine readable information will expedite the receiving process. New or updated vendor compliance requirements should be the result of this review. In the case of one company, this review resulted in the reduction of processing time from three days to less than four hours and the associated staging space being reduced by 20,000 square feet.

Since you are paying for all three dimensions of your facility, make sure they are well utilized. Start by evaluating the storage media. Investigate if there are more effective options that will improve cube utilization. This evaluation should compare the footprint, labor and capital required for several alternatives.

The final selection should be determined by the amount of inventory per SKU, the building’s available clear height and product movement. To properly do the evaluation, time must be allocated to develop a good database of operational statistics including sales in units and cube, SKUs and their cubic movement and inventory. A detailed data set will serve not only as a good foundation for this initial analysis but, if properly constructed and maintained, be a good tool for controlling and planning ongoing operations.

Other equipment retrofits to consider are mezzanines, storage above dock doors and stacking frames in staging areas.

While addressing the utilization of the facility is significant, include an evaluation of your operating costs as well. Make sure to evaluate the potential savings from incorporating green technologies into your retrofitting plan.

Items to consider include:

• Replacing metal halide and sodium HID lights with fluorescent fixtures which incorporate motion detection. (The energy savings and EPAct tax credits often provide paybacks of less than a year.);

• Update restrooms with water saving fixtures and waterless urinals;

• Incorporate skylights with solar tracking technology;

• Update incandescent exit signs with LED or Tritium ones (they are on 24 hours a day);

• Update computers and appliances with Energy Star rated units;

• Upgrade landscaping with local plants and grasses that need less maintenance and water.

Once the current facility can no longer support the needs of the business, the decision to buy/lease or build must be addressed.

Using an Existing Vacant Facility

While the current economy has certainly presented its challenges, it has also presented significant opportunities for companies looking to acquire a more appropriate facility. Purchase prices and leases on existing facilities are often 25-50% of what a new facility would cost. As a result, any decision on a new facility should include a review of existing inventory in the area being considered.

However, before simply moving down the street to a different facility, consider taking the time to do a network rationalization to determine if there might be a better location that could improve service time, reduce transportation cost (and carbon footprint) and reduce operating costs.

Once the search area is determined, begin your search for candidate facilities. Partnering with a local commercial real estate firm or economic development office will significantly improve the search but you need to be the driving force in the process. With the operational data developed as part of the initial review in hand, determine what your space needs will be 5-10 years down the road. Develop a set of evaluation criteria to use during the process.

Items to consider include:

• Ease of access to the site for associates and transportation companies;

• Existing zoning restrictions;

• Clear height;

• Number of docks;

• Office space;

• Expansion capabilities;

• Utility services;

• Fire protection system type and capacity;

• Local building codes;

• Roof type and age;

• Availability of as-built drawings; and

• Parking for cars and trailer staging. (This can be an especially significant issue for seasonal businesses. If sufficient spaces are not available for peak, investigate nearby offsite space and shuttle to the facility.)

Add any other items that are important to your specific business and then begin the search. Develop a short list of less than 12 facilities and visit the sites. Take plenty of pictures or video because after several visits you will never remember which site is which. Fill out the evaluation criteria, while on site, and rank that site against the previous sites to be able to systematically reduce the list. Don’t have more than three facilities in play at a time.

Once the list is down to the final two or three, revisit your criteria and meet with the local officials to discuss the permitting process and any potential incentives that are available. Develop layouts of each facility to help determine which best meets your long term needs. With the proper level of due diligence and negotiating skill, the right building will be selected.

While negotiations are being finalized, get approval to begin preparing for the actual facility retrofitting process. Develop a list of tasks to be completed and an associated schedule. Be sure to include the following in your schedule and budget:

Cleaning and painting

If the facility has been vacant for any length of time, consider blowing off the dust and cobwebs and painting the ceilings and walls with a white dry fall paint. The facility will be much more welcoming to associates and will be a brighter place to work. It may even require less lighting. Scrub the floors to remove the residue from the blow off and painting and make it easier for the installers to layout their equipment.

Fire sprinkler testing and potential upgrades

Based on the commodity being stored and the storage configuration, work with the local fire marshal to determine the protection classification. This will define any required upgrades to the existing system. A flow test should be done as part of the due diligence.

Lighting and electrical upgrades

Determine the expected load for the new system and compare to existing main and subpanel capacities. Perform any ceiling work prior to the installation of the equipment to save time and money. If a multi level mezzanine is planned with a future additional level, consider hanging the lighting from the ceiling on cable and raising it when the future level is installed.

IT infrastructure

Like the lighting, perform the ceiling work prior to the installing the equipment.

Consider safety requirements such as exit paths and distances

Work with a licensed architect to determine the safety plan and requirements including aisle paths and any additional exit doors and ramps.

HVAC upgrades to meet your operational need

Based on the area of the country, the areas associates will be working and the number of associates determines if any additional ventilation or air conditioning is required.

It is usually helpful to obtain a list of the companies that built the facility or have worked on it in the past. They know the facility and this knowledge should save both time and money.

Why It’s Worth It

All the planning and preparation will pay off once you’re in a facility that is on time, on budget and on schedule. Regardless of whether you’re upgrading your existing facility to gain an additional year or two or relocating and retrofitting an existing one, the steps outlined here should result in the bottom line being retrofitted in a positive way as well.


Lou Cerny is vice president of Sedlak, a Cleveland-based consulting firm specializing in facility design and system integration. He can be reached at [email protected].

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