Guest Commentary – Distribution Operations: Market Leader or Laggard? Part 3 Speed is Everything
by Charlie Rizzo
Note: This is the last of a three-part blog regarding competitive leadership in distribution center (DC) “order drop to out the door” cycle time performance.
Speed Is Everything
The previous blog focused on the processes and procedures – the maps and metrics – of daily DC operations vis-à-vis customer expectations and competitive pressure. Now we turn to an assessment of automation systems. Order processing throughput speed is one of the most valuable tools in your arsenal and absolutely essential to achieving a competitive advantage. You can realize significant improvements through process flow charting – (cut out the wasted and no longer necessary activities); by using the functionality in your software systems to minimize excessive entries or steps; by maintaining up-to-date slotting; and, lastly, by fostering a true team effort with cross-functional training and a staff dedicated to a common goal … get every order out on schedule or ahead and go home on time!
Key issues to review include:
Antiquated process systems
Almost all distribution centers older than five years (and not recently upgraded) are designed for “traditional” decades-old order profiles. DC operators are facing ever-increasing order frequency but at much smaller quantities of each SKU along with fewer full case and many more split case picks. Aggravating this is the increased cost of every order shipped, since the process put in place based on those former order profiles no longer works cost-effectively in today’s environment. Compounding the need to rectify the situation is that most ROI models cannot “dollar quantify” these essential process upgrades if you are to thrive. In fact, if sales dollars are flat, most CFOs will not spend CapEx funds on DC changes. This situation exacerbates the problem by lengthening order process cycle times and ultimately leading to dwindling market share.
Antiquated electronics/control systems
Made obsolete by rapidly changing technology, electronic systems (especially control devices), and replacement parts to keep your system running may be difficult, if not impossible to find. Constrained OpEx funds and belt tightening mean a severe reduction of spare parts inventory. Yet, the growing scarcity of hard-to-find repair parts is never factored into ROI calculations with a monetized “lost business cost” until the entire facility is inevitably brought to its knees. Then the CEO rightfully asks: “How did operations management allow the corporate risk to grow to this unacceptable level?”
Outdated software
The failure to update or replace software with improved functionality and constantly available timely support providing real-time status information for your customers is a serious miscalculation. But there is a more insidious problem. Too frequently, software was created by a one- or two-person company now unable to give you desperately needed support, because they are no longer in business. This is perhaps the ultimate risk for a DC operator, but again, most ROI models do not assign a dollar value to this vulnerability.
Outdated material handling equipment
In many cases, speeds and design were based on full-case shipments from order profiles that were dominant. Today there may be more but smaller cartons to handle, and in many cases, throughput rates cannot be maintained since speeds have not been adjusted. Even more of an issue might be that lighter cartons cannot be processed over the conveyors and other equipment originally designed for heavier loads, and jams become more of an issue. Often this equipment can be upgraded to match today’s business at a relatively low cost compared to total replacement.
Assembling the Team
It bears repeating, every business entity that physically distributes a product must change and adapt at a rate faster than their competitors. This, of course is not news to anyone in this business. What is not well understood, however, is the crucial relationship of the various groups within your company that must work in a coordinated and timely manner to stay ahead of the market. It also requires innovative approaches to the timeliness of all activities and the drive to a common goal so that all solutions can be put in place to ensure you are in the “thriving” category.
The CFO must be totally onboard with the entire process and, in an ideal world, might even serve as the internal champion to facilitate a well-coordinated internal approach. It is also of vital importance to harness the often neglected input from your DC first line floor associates who probably know best how to improve processes and speed up process flow. The CFO and his staff may create a new menu of justification factors (with monetized values to what previously have been subjective values, including risk) in order to quantify the process with a cost benefit analysis approach. The CFO also is in an ideal position to explain the critical nature of this process to others in executive management.
Those companies unable to handle this new vision in aggressively maintaining competitive superiority will almost certainly face declining market share or worse. Meanwhile, the Amazons and Walmarts of the world will continue to adapt and set the new standard by which everyone else is judged. Although impossible to match them in every facet, you must do what is required to be the innovative leader in your market niche.
Charlie Rizzo is Program Director, Strategic Accounts with MHI Member FORTE
