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 Outdated philosophies not based on the “New Normal” may prevent us from recognizing and integrating some of the new ways the distribution facility or DC can add real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!