STRATEGIC ROLE OF THE DISTRIBUTION CENTRE: HOW TO TURN YOUR WAREHOUSE INTO A DC 45

C ommitment is all you need to make the changes in methods, procedures and management systems that can radically alter the effectiveness of your inventory-handling.

Strategic Role of the Distribution Centre: How to Turn Your Warehouse into a DC

Tony Bancroft

Storage of inventory, either raw materials or finished goods, is necessary in all industries to achieve effective manufacturing cycles or service levels. The cost of such storage is often overlooked in the total cost of the supply chain, which ends at the point of sale. For many companies an attitude prevails that substantial inventories ensure insulation from variable factors which might degrade service levels.

The warehouse, with all of its systems, methods, procedures and excessive inventory, is regrettably often operated by management who have "warehousing" attitudes. I would like to share with you some ways in which "warehousing" and "distribution" differ and how changes to the traditional warehouse can significantly improve the operation.

Warehousing, as I have said before, is "transportation at zero kilometres per hour". It does nothing to add value

to the product stored. Distribution, on the other hand, is a dynamic process which moves the goods from the source to the end-user in a nearly continuous flow. Both concepts require that inventory be maintained at certain points in the supply chain, the difference is in the amount of that inventory and the time for which it remains stationary.

Distribution systems operate with generally lower inventories but, with proper controls, the service levels achieved are not degraded: indeed, they are usually better than those provided by a warehousing approach.

With the emphasis in distribution systems on dynamic flow of goods comes a requirement for dynamic information to enable management to be responsive to daily situations. It is no longer adequate to know what the performance of the operation was last week on the basis of an average day's production. Management now needs to know on an hour-by-hour basis how the various elements of the operation are performing against the planned schedule.

How, therefore, can we change a warehousing operation into a distribution operation? Firstly, let me say that not all of the changes will require investment in new equipment. Some changes in methods, procedures and above all operating philosophy can produce startling results. Here are some ideas.

Product Slotting Positioning Relative to Velocity of Product I have seen quite a few warehouses in which product groups are kept together regardless of the movement characteristics of the products. There are, to be fair, some circumstances where such an arrangement is justified (security items or flammables, for example) but generally product used for order-picking purposes should be slotted strictly according to its movement.

It can be demonstrated that an order-filler in a warehouse operation can spend up to 70 per cent of his time travelling between locations from which he is to pick orders. This is often because the stock frontage is arranged in family groups and contains slow-moving product. It takes just as much time to walk past a slot containing a "dog" product as it does to walk past a fast-moving item so get the dogs out of the active pick face and put them into the "amen corner".

On the odd occasions when the order-filler needs to pick a dog, the extra distance will be insignificant compared to the benefits to his productivity for the majority of his time.

Also, slot the products from an ergonomic standpoint. In a two level pallet slot system, for example, make changes so that the fastest moving products are at the bottom level and the relatively slower moving products at the upper levels. However, be conscious of carton weight considerations in this exercise.

46 STRATEGIC ROLE OF THE DISTRIBUTION CENTRE: HOW TO TURN YOUR WAREHOUSE INTO A DC

Stock Location Use of Software Packages to Search for "Most Appropriate" Location In many warehouses, incoming pallets are put into reserve storage slots by the simple process of asking the fork-truck driver to find an empty location and put the pallet away. In small operations, stock location control exists only in the driver's head and he is expected to "remember" where he put what!

As the number of locations increases, and where there is more than one driver, a similar operation often takes place except that the driver is asked to make a note of the location into which he has placed a pallet. Such information is subsequently entered into a "locator card system" or into a computer-based inventory master file.

The driver tends to forget where he placed

pallets Both of these approaches have obvious drawbacks and are seldom used in distribution systems. In the first case the obvious drawback is that the driver tends to forget where he placed pallets and consequently time is used to "find" a particular pallet which is required to replenish a picking location.

In both cases a major drawback is that, unless the driver is exceptionally bright, he will rarely select "the most appropriate" reserve location in which to put the pallet away. By "most appropriate" I suggest that the closest empty location to the pick location should be selected. If these criteria could be followed, the replenishment response time can be significantly improved, which translates into improved order-picking productivity.

A number of computer software packages exist where, at the time of receipt of a pallet, the system will "search for" the most appropriate reserve location and having found it will print a self-adhesive label with the location number in enhanced characters. This label is affixed to the pallet and becomes the put-away instruction for the forklift driver. The computer files the transaction, thus allowing replenishment retrievals to be scheduled at a later date.

Scheduled Replenishment In many warehouse operations, "let down" operations are usually initiated by the order-filler finding insufficient product in the pick slot to satisfy the order being picked. Quite clearly this reduces the productivity of the order-filler since he must either wait until the let down has

occurred before he can continue or must return to the slot at the end of the order to complete the picking function after the let down has taken place.

Computer-based replenishment systems can remove this problem and are used in most distribution operations to-day. There may be a need, however, to change some of the old warehousing methods and procedures before such a system can produce the benefits expected.

First, if the computer is to be expected to tell you when to schedule a replenishment transaction it must know the quantity of product in a picking location at all times. For each location you will need to inform the computer at what pick slot stock level you wish the replenishment transaction to be "triggered".

The first of these requirements is perhaps the more difficult to satisfy because it may mean changing the entire philosophy of the warehouse. It means that the computer must be informed, and keep a file of, the quantity of product not only in the pick slots but also in all of the reserve slots. However, if this can be achieved the improvement in the entire operation will be very measurable.

Picking Documents In most warehousing operations orders are prepared in the form of an invoice or pick list. Either way, the order-filler marks up the document as the quantities of each line are picked. When, for a number of possible reasons, the quantity called for cannot be picked, the actual quantity is entered on the document. These variations must subsequently be entered into the invoicing and accounts receivable systems or they will result in customer claims.

A change to the use of pick labels can remove some of the disadvantages of pick

lists

A change to the use of pick labels can remove some of the disadvantages of pick lists. Such labels are prepared by the computer using the same data which is used to produce pick lists so that changes to existing software are limited. The labels are self-adhesive and in principle one label is applied to each case picked.

The labels can contain not only pick slot identification, product description, etc., but also, and more importantly, the customer name, number and address. This results in all outbound cases being precisely identified for despatch

STRATEGIC ROLE OF THE DISTRIBUTION CENTRE: HOW TO TURN YOUR WAREHOUSE INTO A DC 47

purposes. In the event of out-of-stock situations, the order-filler returns the unused labels to the control office where the information is entered into the customer system. Invoices are then produced on the basis of what was actually picked, not what was expected to be picked. An opportunity for real savings in clerical effort.

Inventory Reviews Earlier, the location of pick slots in relation to movement characteristics was discussed. In order to achieve the optimum pick location a product versus movement report is used. Often such reports are based on a moving average monthly record. Once you have such a report, a secondary use can be made of it, and that is to cull out the non-performers.

The only thing preventing you from making the changes

is you There are some businesses where very slow moving products must be retained in inventory by legislation (automotive spares, for example). But, by and large, for most warehousing operations there is little or no justification in carrying "dogs".

In one operation in Canada some years ago we discovered nearly 2,000 products at the slow-moving end of the report which had no recorded movement in 12 months. Clearly

each of these was occupying space and cube in the storage system, was required to be counted at each stocktake and, if and when they were ever sold to a customer, would be sold at a loss. We recommended, and the client undertook, a "we are moving" sale to remove the lines from the system.

You, as warehouse operators, will need the co-operation of other departments, particularly the buying department, to achieve this inventory reduction objective, but it is an essential move if we are to change the warehouse into a distribution centre.

Commitment is All You Need As you may have noted, in all of the changes which have been discussed, we have not suggested any changes which require any significant investment of money in equipment. They are all changes in methods, procedures and management systems which can be made simply by making a commitment and "doing it".

Beyond these changes, and other basic improvements, the use of more sophisticated techniques such as bar-coded labels, scanners, conveyors, sorters, RF remote terminals, paperless picking systems and the like, which each have very attractive returns on investment and are in use in many distribution systems today, still require the initial investment to be made.

The only thing preventing you from making the changes we have discussed is you so let's get out of the dark ages of warehousing and into the challenging, dynamic world of distribution!

Tony Bancroft is a Director of Technics Pacific Pty Ltd, NSW, Australia.