Striving for World-Class Distribution

April 1, 2009
Being the best is a process, not a goal.

By Roger Morton

Work to constantly improve operations and capabilities is being made more difficult by challenging economic conditions. Those companies that continue to lead are not only nimble but also aware of best practices and putting them to use today. They are world-class businesses and, as these difficult times begin to ease, will emerge stronger than ever.

To gain insight into distribution practices, MHM partnered with industry and market research firms, Industry Insights and the MPI Group, in developing a Census of Distribution. The most recent study indicates significant variance in management practices between those considered world-class and the remainder. According to managers of world-class facilities, the top three operational activities are continuousimprovement programs, benchmarking and lean material management.

More and more technological solutions are being used to handle growing and increasingly complex supply chain demands. Gary Rippen, director of Infor’s distributor distribution solution marketing, observes there is a need for technology to understand, “costs, how fast they can get product, quality, how much inventory is required, facility siting, transportation and so forth. With manufacturing on one side and the retailer on the other, in the middle are distributors with the need always to justify their existence and constantly move to meet new customer needs.”

Infor is a producer of enterprising software solutions. Being attuned to the industry, Rippen points to a recent survey that indicated during 2009, most distributors will be spending the same or more than last year on IT. “They believe this is the time, during this lull, to implement these systems,” he claims, “because they understand the three basic business needs: to increase revenue, lower costs and enhance customer service. If they do those three things, they are a successful distributor.”

Bastian Material Handling's Bill Bastian II

Rippen places particular emphasis on inventory, the biggest asset on a balance sheet. He sees technology providing necessary data to make sure the right inventory is on hand and dispose of inventory that’s not selling. Too, there are demand planning solutions, “that take in all factors to be considered in terms of seasonality, buying patterns, where it is in the system and so forth to make sure distributors have the right inventory on hand at the right time.”

Bill Bastian II, president and CEO of Bastian Material Handling, agrees that effective use of technology is critical to achieving toptier distribution operations. His company provides material handling solutions and information technology.

“You need good material handling technologies,” explains Bastian. “You need to have information flow to your host systems or your warehouse management information systems—all the way down to your control systems. And, you need to be using good, sound operational practices. In other words, you’re doing the right things. When you get all three of those things together, doing well, then overall, that DC does well. To me, that exemplifies a world-class distribution center.”

There are a number of challenges to meet in working to become world class, according to Bastian. There are different velocities for different products being distributed. They may be in different units of measurement. There can be pallets, cases, eaches and so forth. For each category, there may be fast movers, medium movers, and slow movers. “So, a lot of the game,” he says, “is to select the right technology for those various groups. Some may be regular racking. Some might be AS/RS or robotics. If there are high-velocity products, it may mean high-speed shoe sorters.”

Once the engineering is determined, Bastian notes the right technology has to fit the right groupings of product. When they are arranged as islands within a DC, the dots have to be connected with different types of material flow.

That’s the design side. Once that ’s completed, it’s implemented, and material flows. “Then, you get into your information flows,” continues Bastian. “Generally, there’s a host system, probably an ERP. There should be good information flow down to the DC. At that point, a warehouse control system helps manage flows, like an air traffic controller, between the various islands.”

There are a few different takes on using technology to achieve world-class results. Rippen thinks an online presence is important. “You’d think everyone has an online presence now,” he argues. “Statistics indicate a huge number of distributors don’t have an online presence. Most think of it as strictly a source of revenue. However, it speaks to enhanced customer service, as well.”

For Bastian, “another thing referring to world-class distribution that needs to be taken into consideration is the human factor. People are the most important assets. That has to be borne in mind, even as we talk about technology. Those systems are always driven by people.”

Becoming a World-Class Distributor

Infor offers a white paper, “The Five Keys to World-Class Distribution.” It covers what the software supplier claims are ideas for those companies willing to change procedures and concepts by transforming their relationships with suppliers, service providers and customers. Here, in no particular order, are highlights from the paper.

• Exceed customer expectations. Successful distributors manage the entire customer relationship—from prospect, to post-sales service and support—involving the entire organization in a customer focus.
• Cut operations costs. Companies with a lower operational cost structure enjoy an obvious advantage in profitability, and the ability to adjust pricing to meet competitive pressures, if necessary, to maintain or gain market share.
• Reduce lead times. Lead times are cumulative and bi-directional—that is, order handling, picking, packing, transportation, planning, procurement, inspection, handling, the suppliers’ lead time and delivery to and between your warehouses all contribute to lead times; the time it takes to get signals down the supply chain to initiate each activity adds to the overall time it takes to get the job done.
• Streamline operations. Reducing inventory is achieved through smart procurement, proper positioning and close coordination with demand. In the extreme, goods can be crossdocked, moving right from the receiving dock to the shipping dock and never sitting in inventory at all.
• Improve business performance visibility. Increased visibility improves business performance. Today’s fastmoving, ever-changing business environment demands faster responsiveness to changes in the market, product innovation and supply chain events.

There is greater and deeper discussion of these ideas in the full white paper. Request a free copy at

Most IT Budgets for Retailers Stable, Some Growing

Infor's Gary Rippen

Gary Rippen, Infor’s director of distributor distribution marketing, recalls a recent study showing that 2009 fiscal year IT budgets for some distributors will be growing. As a provider, he takes comfort in the fact that technology is seen as a necessity now and a differentiator for the future.

One study indicates that, despite a difficult economy, 51% of retailers expect IT budgets as a percentage of sales to stay the same, and 26% expect budgets to grow because of projects already underway.

These findings are in the first-ever Aldata global retail CIO survey. The study was jointly sponsored with IBM and conducted by Martec International, a retail industry research specialist. CIOs and IT directors in Europe and the U.S. were surveyed in the last quarter of 2008. One important conclusion: Retailers are far less likely to invest in areas that don’t deliver short-term return on investment.

In looking at logistics and distribution applications, retailers chose real-time warehouse management as their chief interest. According to the survey, within the U.S., 84% of those surveyed are already using such solutions, with another 11% planning upgrades.

All U.S. retailers responding to the survey have implemented mobile applications, with 16% of them planning to upgrade over the next three years. By contrast, of those surveyed abroad, 62% have implemented mobile applications, with 29% planning to upgrade or implement new systems.

Of retail survey respondents, 30% consider automatic replenishment as the most important optimization and stock management application, closely followed by demand forecasting, at 27%. Within the European community surveyed, 97% are using automatic replenishment applications, with half currently implementing upgrades or planning new systems.

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