Count the ways distribution centers add value
Written by Thomas L. Tanel, CTL, C.P.M., CCA, CISCM President and CEO, CATTAN Services Group, Inc.
In response to the “New Normal”, the business landscape has changed fundamentally; tomorrow’s distribution environment will be different, but no less rich in possibilities for those who are looking for ways to add value. With new trends and an “e-volution” in moving and storing materials comes the inevitable need to re-conceive how we operate our distribution centers to stay competitive. Outdated philosophies not based on the “New Normal” may prevent us from recognizing and integrating some of the new ways the distribution facility or DC can add real value to our operations.
Let’s talk about moving archaic thinking into the second decade of the 21st century. Let’s talk about the evolution of distribution as a means of adding value to your organization.
In another “era,” when I first started out, there were basically only four types of distribution warehousing that were thought to benefit an organization:
The use of a facility to stockpile inventory for outbound shipment in a make-to-stock plant environment or where MRO items are held for consumption, repair, and service of plant facilities and equipment. The intention is to have long-term storage.
The utilization of a facility to hold materials and components for inventory prior to their need in processing, production, or manufacturing. The goal is to level demand.
Order Fulfillment DC
A facility that holds inventory to meet customer orders from stock on hand through product availability and reasonable order cycle times. The effect is to minimize the amount of inventory while maximizing the order fill rate.
Sorting and Consolidation DC
A facility that serves as a form of terminal, receiving large loads and then distributing smaller shipment without holding stocks. Conversely, it may also serve to assemble small shipments into larger loads.
As you can see, the conceptual principles behind a distribution center (DC) and a warehouse are closely related: both store products. Storage is the primary differentiator for the processes in warehouses, and many of the activities encountered revolve around putting products into storage and taking them out again, driven by customer orders. Although the sortation processes and technologies vary tremendously, Distribution Centers are characterized by a configurable SKU with a unit load degradation throughput process, which may or may not have value-added processing. As depicted below in the chart’s four scenarios a comparison is made between pick versus storage requirements.
High Pick & High Storage
This indicates a large and active warehouse such as a Distribution Center (DC). In these situations, high technology automated picking combined with mechanized handling and high density storage justifies itself.
High Pick & Low Storage
With high picking activity but low storage, the picking area should be compact and dense and storage is dedicated location and simplistic. Some mechanization or automation of picking may be justified.
Low Pick & High Storage
Here the requirement is for high density, random location storage with high bays, multi-levels and dense packing. Low turnover means that picking can be manual or semi-manual.
Low Pick & Low Storage
A simple, small warehouse requires neither automation nor sophisticated storage devices. Stacked pallets, floor storage or simple racks and shelves suffice. Handling is manual.
The difference between warehouses and DCs, however, lies in the way they focus on product movement. Warehousing is “transportation at zero miles per hour”; while distribution moves goods from source to customer in a nearly continuous flow. Normally, a traditional DC serves a transportation function, where larger shipments are more economical to ship than small shipments, either for outbound or inbound freight control. A traditional warehouse, on the other hand, stresses storage efficiency and space utilization rather than emphasizing the material handling and accessibility of products found in a traditional DC. While a warehouse is focused on the most efficient cost effective methods of storing products within its walls, a distribution center's sole mission is to provide outstanding service to its customers. The cost structures for these types of operation means that warehouses place more emphasis on space and equipment investments, while distribution centers place much more emphasis on human resource effectiveness in a high velocity operation.
Check back next month to see the second installment of Count the Ways Distribution Centers (DCs) Add Value by Thomas L. Tanel!
Biden establishes Supply Chain Disruptions Task Force
The US government is to establish a new body with the express purpose of addressing imbalances and other supply chain concerns highlighted in a review of the sector, ordered by President Joe Biden shortly after his inauguration.
The Supply Chain Disruptions Task Force will “focus on areas where a mismatch between supply and demand has been evident,” the White House said. The division will be headed up by the Secretaries of Commerce, Transportation, and Agriculture, and will focus on housing construction, transportation, agriculture and food, and semiconductors - a drastic shortage of which has hit some of the US economy’s biggest industries in consumer technology and vehicle manufacturing.
“The Task Force will bring the full capacity of the federal government to address near-term supply/demand mismatches. It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints,” the White House said.
In late February, President Biden ordered a 100 day review of the supply chain across the key areas of medicine, raw materials and agriculture, the findings of which were released this week. While the COVID-19 health crisis had a deleterious effect on the nation’s supply chain, the published assessment of findings says the root cause runs much deeper. The review concludes that “decades of underinvestment”, alongside public policy choices that favour quarterly results and short-term solutions, have left the system “fragile”.
In response, the administration aims to address four key issues head on, strengthening its position in health and medicine, sustainable and alternative energy, critical mineral mining and processing, and computer chips.
Support domestic production of critical medicines
- A syndicate of public and private entities will jointly work towards manufacturing and onshoring of essential medical suppliers, beginning with a list of 50-100 “critical drugs” defined by the Food and Drug Administration.
- The consortium will be led by the Department of Health and Human Services, which will commit an initial $60m towards the development of a “novel platform technologies to increase domestic manufacturing capacity for API”.
- The aim is to increase domestic production and reduce the reliance upon global supply chains, particularly with regards to medications in short supply.
Secure an end-to-end domestic supply chain for advanced batteries
- The Department of Energy will publish a ‘National Blueprint for Lithium Batteries’, beginning a 10 year plan to "develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America”.
- The effort will leverage billions in funding “to finance key strategic areas of development and fill deficits in the domestic supply chain capacity”.
Invest in sustainable domestic and international production and processing of critical minerals
- An interdepartmental group will be established by the Department of Interior to identify sites where critical minerals can be produced and processed within US borders. It will collaborate with businesses, states, tribal nations and stockholders to “expand sustainable, responsible critical minerals production and processing in the United States”.
- The group will also identify where regulations may need to be updated to ensure new mining and processing “meets strong standards”.
Partner with industry, allies, and partners to address semiconductor shortages
- The Department of Commerce will increase its partnership with industry to support further investment in R&D and production of semiconductor chips. The White House says its aim will be to “facilitate information flow between semiconductor producers and suppliers and end-users”, improving transparency and data sharing.
- Enhanced relationships with foreign allies, including Japan and South Korea will also be strengthened with the express proposed of increasing chip output, promoting further investment in the sector and “to promote fair semiconductor chip allocations”.