The best strategy for warehouse efficiency focuses on people, place and process
at a glance
This article looks at the strategies involved in building an efficient and economic distribution network.
A regional warehouse is a lot more than a bunch of heavy equipment quickly moving masses of product in and out its doors. A successful warehousing strategy involves the building itself, the location of the facility, good management, a good culture and work ethic, solid processes, and some equipment to do the heavy lifting.
The best systems are only as good as the people who use them. Finding a location with a solid, affordable workforce ranks high on the lists of successful warehousing operations. Keeping an existing workforce can be an important aspect of a distribution network reevaluation or reconfiguration.
Balancing the cost of inbound and outbound shipments will limit the range of choices for a location, making “place” one of the most important decisions in configuring a network of warehouses. In the end, manufacturing can be located nearly anywhere costs and resources are suitable, but distribution siting is always a regional decision.
More companies are constricting their networks, reducing the number and increasing the size of the facilities handling their product. Some companies are expanding their network or relocating to larger or updated facilities. Regular evaluations are a good idea because they lead to examinations of the assumptions used in establishing the existing network.
If external factors are affecting network configuration, they are also having a significant impact on process. Keeping a warehouse or distribution center operating at peak efficiency involves some challenges, especially in light of recent hours of service regulations that put more pressure on efficient dock operations (see related article).
Logistics Today asked experts in each of three crucial areas — people, place and process — to share their experiences in designing regional distribution centers (DCs). Here's what they had to say.
People top the list with Mark Swenson, part owner of TMSi, which specializes in distribution center and private fleet management. TMSi got started as a personnel service providing temporary and contract employees for warehouses and DCs. That was in the 1980s; today the company has evolved to actual management of operations as a third-party logistics provider (3PL).
TMSi's change occurred when a division of General Electric Co. became dissatisfied with the way a 3PL was handling its distribution operations. “They liked the raw talent we were bringing in and asked, ‘Can you actually hire a management team and take over the warehouse network?'” says Swenson.
After years of experience with placing successful warehouse workers and management, Swenson says, “We found the labor model — the way people are managed — is the differentiator in how an operation performs.” Recognizing systems are important, he says once TMSi got more sophisticated about managing and operating warehouse networks, it formed a technology division and developed its own proprietary warehouse management system (WMS).
“You can have the best systems, the best material handling equipment, the best facilities and layout, but if you don't have the right labor management model and put the right culture in place, the operation will perform at a sub-optimal level,” he believes. The formula is working: TMSi has expanded to 1,000 employees, operating nearly 20 facilities.
A test for this formula came when one customer with a 25,000+ sq. ft. DC — supporting six branded retail stores — was straining at the seams before it partnered with another company to expand both businesses. The customer handled minimal numbers of SKUs because there wasn't sufficient space to hold inventory at the retail stores. Everything had to be in stock at the warehouse for direct customer delivery. Orders were going to a DC in the Midwest, and goods moved in truckloads to the warehouse, where they flowed through or cross docked as much as possible for customer delivery.
The company faced the common problem in deciding whether to build a new facility or refurbish its existing site. A 90,000 sq. ft. facility was available in a nearby town, but the building had some handicaps. Though it was more than enough space for current needs, it had a conveyor system and roof-high, self-supporting racks built in that didn't meet the needs for the company's product.
An industrial engineer was hired to examine the site, and he began by asking, “How many of the existing assets in the building can be used in the new model operation?” The engineer found so many variables, says Swenson, that the decision came down to questions about what the new town could do to sweeten the deal. The company had leverage with the town because the facility it was considering had been vacant for some time. After some negotiation, the town offered concessions that were sufficient for the company to purchase the facility.
An important consideration, says Swenson, was the fact the new location was close enough that the company wouldn't lose the work force that was operating its warehouse and dedicated fleet.
Some markets offer options for distribution sites, notes Steve Calloway, senior vice president of customer alliances for AMB Property Corp. But in addition to building sites or existing structures (see “Floor show”), labor availability and labor costs play into any decision to keep or relocate a regional distribution center. Calloway sees more companies saying, “Our present location works, but we need to look at other facilities.”
Often the driving force for examining the network is a consolidation of other regional facilities. Unlike manufacturing, where incentives and tax abatement can weigh in heavily on the positive side, DCs are affected by the area they need to serve, says Calloway.
Not only are the locations of suppliers and customers important factors in a DC location, but so are critical intersections and highway access. Rail is also coming into play for a number of DC siting decisions.
Calloway recommends conducting a significant transportation study. Which is more time sensitive — inbound or outbound? Do you need to be nearer to customers or suppliers? Do you receive international (or domestic) product by air or ship parcels? Do you receive or ship in bulk? Where are sources? Have sourcing arrangements changed recently?
One current example is sourcing that used to originate in Mexico may recently have shifted to China. Instead of truckloads, you could be receiving containers. A DC in Dallas could be too far from the West Coast port of entry. On the other hand, Calloway points out, a new, direct air service from China to Dallas might preserve the location but change some operational characteristics.
One eastern distribution operation Calloway is working with is moving from three DCs to one. In the process, it faces a decision whether to move to a cheaper real estate market and incur longer “stem times” on its deliveries to its regional core market. The combination of factors means the facility lease could cost 25% to 30% more to remain close to customers. In that case, says Calloway, “You're looking at your transportation network and saying the times to my customer are more important than paying the extra dollars on the real estate.”
Real estate is not the only cost factor you bring into the equation, Calloway continues. From a location standpoint, you have to ask, “How does transportation change?” Also, raise the question, “How does labor change the way I look at this,” says Calloway. Foreign trade zones can be important for importers and exporters.
Process connects two sides of the house in a DC. The marriage of warehousing and transportation takes place on the dock. That relationship is getting more attention as shippers, carriers and consignees grapple with hours of service regulations that necessitate improved dock efficiency.
Designing a truck-friendly building that's easier for a driver to get in and out of is a challenge, says Ken Ackerman, principal of K.B Ackerman Co. and author of Auditing Warehouse Performance. Ackerman admits proving a payback on improved dock efficiency may be nearly impossible.
More dock doors don't necessarily translate into more efficiency. It's important for the people who will be operating the distribution center to be involved at early design stages. Ackerman recalls one project where he was asked to do a reality check on an architect's plan. The architect had double loaded the building, says Ackerman, putting dock doors on opposite sides of the building. You receive on one side and haul stuff 400 feet to the other side, he explains. The architect's rationale was that the dock doors would build resale value and the next buyer would need them.
The operation was solely distribution — no manufacturing between the receiving dock and the shipping dock. Ackerman told the prospective tenant the doors would be wasteful. Yes, they would add value at resale, but you could leave cut-outs that would allow the next owner to install dock doors. “Doors that you don't need never pay back,” says Ackerman, in a vote for designing a facility that fits the process.
When you sell the building with its cut-outs, you tell the prospective buyer the footer was lowered, the cut-out is there, and you can have a dock door cut in within an hour, Ackerman points out.
“We live in a world where space is cheap and labor is expensive,” he says. “Staging and unitizing loads take space, but it's more than compensated by how it saves money.” One of those ways is in speeding trucks through your docks.
Another question you should ask, suggests Ackerman, is, “How much staging do you really have to do? Can you live load or live unload?” People will give you all the reasons why they can't take a load off the truck and put it straight into a stack without ever putting it down, but those reasons aren't valid, says Ackerman.
Staging loads for shipment can improve customer service as well as operational efficiency. Ackerman recounts one warehouse where he specified staging racks for “will call” orders. Orders can be brought from storage or product can be held upon receipt and placed in the staging rack until the customer arrives to pick up the shipment.
Another cost saver was Ackerman's recommendation of high intensity discharge (HID) lighting technology. Ackerman explains a low level of light is maintained until a worker enters the area. A motion detector senses the motion and activates the lighting.
The HID lighting is initially more expensive than conventional fluorescent lighting, but improved electrical efficiency can produce a payback in 30 months in Ackerman's home market of Columbus, Ohio. In areas of the country where electric power is more expensive, the payback can be 18 months. You have to look at life cycle costs, he continues. Before specifying HID lighting, he went to a local food warehouse that was using the tech- nology. They had the figures on life cycle costs and could demonstrate the payback.
More expensive than the initial outlay for HID lighting or cut-outs for future dock doors is bad planning. Ackerman says in one new warehouse that installed HID lighting, the architect didn't talk to the people who would be operating the warehouse, and all of the lighting was in the wrong place — it wasn't over the aisles. Fixing the lighting mistake cost $25,000.
Some warehouses use their carriers for storage, says consultant and author Cliff Lynch. The hours of service rules that went into effect in January are changing that as carriers charge shippers for the inefficiencies at their docks.
Efficient drop-and-hook operations — not the prolonged storage of goods in the carrier's trailer — can improve dock performance. The carrier can drop a trailer at a shipper's dock, freeing the driver to pick up another load. Similarly, a full trailer can be dropped at the consignee's dock and the empty (or refilled) trailer can be hauled out when the consignee has finished with it.
For most shippers and consignees, drop-and-hook operations will necessitate some yard space and some sort of yard tractor to move the trailers. But, says Lynch, an efficient drop-and-hook operation only needs more dock doors. Lynch estimates drop-and-hook would require about 30% more doors than a conventional operation. The key is to load or unload quickly and turn the trailer. The carrier saves because the driver isn't held up while the trailer is loaded or unloaded. The shipper/consignee wins because it can move the goods directly to or from storage without staging the load.
If a carrier isn't going to leave a trailer, another opportunity to improve dock operations comes from allocating more space in the dock area to stage orders. When the truck arrives, the order can be loaded quickly and the driver can be on the road getting the most out of limited operating hours. Lynch says at least one carrier is offering shippers an incentive to get its trailers in and out quickly — rewarding better dock operations.
Staging orders doesn't mean using the dock or warehouse aisles for storage. Anything that slows down the lift trucks driving through the warehouse reduces efficiency, Lynch points out. But this can be a challenge as order sizes in many industry segments have changed. Instead of shipping standard pallets, many warehouses are forced to build pallets for customers. It takes time, plus it doesn't load as well in the trailer, Lynch notes.
A lot of warehouses are stretch wrapping pallet loads by hand, he continues. When a warehouseman builds a pallet, he or she will grab a roll of stretch wrap and just run around the pallet a few times. This can actually be faster than some mechanized stretch wrappers.
Most warehouses with stretch equipment will have only a few stretch wrap machines. The warehouseman must assemble the unit load, drive it to the stretch wrapper, lower the forks and deposit the load, start the machine, then pick up the load again and take it to the dock. Operator time and potential congestion around the stretch wrappers can rob the operation of efficiency.
Other alternatives include picking into totes or assembling loads into rolling cages. It can be faster than building a unit load of mixed product on a pallet, but you have to operate in a closed-loop system that ensures the return of the load device.
Solving some of these internal problems will improve dock efficiency, reducing labor cost and avoiding some detention and demurrage charges. A more efficient dock will integrate well with an appointment system that ensures that trucks arrive and depart quickly. With carriers passing on costs to shippers who delay drivers and a tightening of capacity in the truckload segment, shippers who have the smoothest dock operations are most likely to get the best service. LT
AMB Property Corp.
General Electric Co.
K. B. Ackerman Co.
Place can be important enough to keep you rooted in your existing building or locating nearby. "Rehabbing" an old building can be as costly as building a new one, notes warehousing guru Ken Ackerman, principal of K.B. Ackerman Co., and author of several books on warehousing. However, thanks to tax incentives and other inducements, moving to an existing building may still be an attractive option. Ackerman suggests you assess an existing facility literally from the ground up.
Not all floor problems are immediately visible. One DC in suburban Dallas, Ackerman remembers, was so bad the whole building had to be torn down and a new one built in its place. The soil in the area requires special treatment before building, Ackerman explains, or the expansion and contraction will destroy the floor. “The most critical construction of any building new or old is the floor,” he emphasizes. “It's the one thing you will may not be able to fix it if it's really bad.”
Everyone notices and talks about the walls, Ackerman quips, but they're the least critical—they don't do anything but keep the wind out. When you get a bad floor in something as big as a warehouse, it's sometimes cheaper to demolish and start over.