Nine Ways Warehousing adds Value

Mr Thomas L. Tanel, CTL, C.P.M., CCA, CISCM

President and CEO, CATTAN Services Group, Inc.

AQS Partner

PALEOLITHIC PHILOSOPHY

Let's talk about moving dinosaur thinking into the 21st century. Let's talk about the evolution of warehousing as a means of adding value to your organization.

In another "era," when I first started out, there were basically only four types of warehousing that were thought to benefit an organization :

Storage Warehouse

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.

Production Warehouse

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 DC and a warehouse are closely related: both store products.

The difference between them, however, lies in the way they focus on product movement. 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.

PROGRESSION OF THOUGHT

The field of warehousing and distribution is changing, perhaps more rapidly than at any time since the close of the last century, and with those changes comes a change in the way we handle their challenges-and recognize their value-to our operations.

The introduction of corporate portals, online trading exchanges, and internet-driven commerce brings both opportunity and challenge. It is not just a matter of "click, pick, pack, and ship." The warehouse or DC must be more nimble and flexible than in the past. The concept of distribution has evolved past the traditional DC toward an emphasis on generating a configurable stock keeping unit (SKU); product customization and E-commerce; and creation of a corresponding need for operations with higher throughput demands and shorter order cycle response times.

From an E-distribution standpoint, the DC must now be adaptable enough to handle a confluence of multiple SKUs in the same carton or package. This trend has resulted in a greater amount of less-than-case picking and "pick, pack, and slap" operations. At the same time, from an E-fulfillment order management standpoint, the DC must now be able to handle on-line orders that involve a wider range of line items or SKUs within a given customer order. Because these new E-fulfillment operations face much higher throughput demands than the traditional DC scenarios, this leads to increased use of sortation systems as well as the need for mechanized or automated material handling and storage equipment options.

As warehousing and distribution operations have become more complex, and as order cycle times have become shorter, the four types of operations have evolved into nine. Each one has potential to add new value to your operation.

1. Storage Accumulation

The use of a warehouse to stockpile and to handle overflow.

Such overflow capabilities are needed in two situations: One involves seasonal production and level demand; the other arises from level production and lumpy demand. The warehouse serves as a buffer to balance supply and demand for long-term storage.

2. Postponement

The use of a warehouse as a final step deferment or postponement until a customer places an order for a specific quantity.

Here is the opportunity to manufacture long runs of a standard product and store it in large quantities without fear of having too much of anything. This entails some form of kitting, customization, or private labeling prior to shipment. Postponement is mass customization-putting the finishing touches on a nearly finished product. It allows you to reduce your inventory volume of finished product while still providing a high level of service. It also allows you to keep a lower inventory, in generic form, in a WIP storage area, just prior to shipment. This finishing or final step deferment may include adaptable manufacturing or value-added operations.

3. Order Consolidation

The use of the distribution center to gather product which is to be shipped to a final destination.

Warehouse costs are justified by savings in outbound shipping costs achieved through volume loads. It involves the pull of product by the customer. This type of operation is used to assemble an order of finished products from several different sources.

4. Hub and Spoke Distribution

The reverse of Order Consolidation.

Justified primarily by the freight savings achieved by higher volume shipments, this involves the push of finished goods by a seller to the industrial or consumer market. This type of distribution operation will be a network of large regional or centralized, full-line item DCs that support outlying, limited line item DCs downstream from the hub DC facility. In a Hub and Spoke concept, full truckloads of product are received into the hub DC (the hub where the load is broken down for redistribution) and/or it is crossdocked to the limited line item (smaller spokes) DCs downstream on a daily basis. The regional or centralized DC will also need to maintain inventory of slow-moving items, while the downstream DCs will only forward stock the fast moving items. While customer orders will still come into the spokes for fulfillment, the slow-moving items are now added to the daily shipment of items from the hub facility. At the spoke, those items are then merged with in-stock items to fill a customer order.

5. Product Transformation

Either the use of a warehouse as a central gathering point for product transformation to a shelf-ready state in a manufacturing or retail environment or altering inventory to meet customer specifications.

In a "customer intimate" relationship (Just-In-Time, Quick Response, or Efficient Consumer Response), this may include such value-added services as light assembly, configuration, packaging and labeling, kitting, or custom unit loading. This added value relies on inventory in motion or the supply chain pipeline through a supplier managed inventory program.

6. Order Assembly

The use of a distribution center to fulfill unpredictable order patterns, to accommodate a broad SKU mix and ship same-day orders, as well as to use crossdocks whenever possible.

Frequent shipments to individual customers in small quantities and with high precision are also characteristic of order selection from forward pick faces to maximize speed. This alternative may also include such value-added services as kitting, sequencing, pre-assembly, packaging, unitizing, tagging, labeling, and ticketing. The key characteristic of this warehouse operation involves making use of multiple sources of the product to meet customer expectations for a consolidated shipment. This option also may be used to support adaptable manufacturing.

7. Product Mixing

The use of a distribution center to combine items in the entire product line for a single manufacturer from product-oriented manufacturing facilities in different geographic locations.

Since each facility produces a distinct line of products, this concept allows those customers who wish to order mixed pallet loads, truckloads, or container loads of the entire product line. It also allows economical mixing of product or "rainbowing" because the full line of products is maintained at the distribution center. Under speculation or build-to-inventory strategies, all manufacturing operations are performed prior to the product being differentiated. The product is stocked close to customers and distributed through a decentralized distribution system.

8. Crossdocking

The process requiring a truck to pull up to a warehouse dock and transfer stock directly from the back of one truck into the back of another for deployment to different distribution centers or retail stores.

It eliminates the need to double-handle goods, reduces inventory needs, and often saves on consolidated transportation. Basically, crossdocking covers any method for processing shipments that avoids putting the product into storage before sending it. In its highest form, crossdocking is a total flow-through system, with the distribution center serving only as a carrier hub. Also called "Complex Crossdocking," it requires suppliers of packaged goods to build store-specific multi-SKU pallets. It requires apparel-makers, for example, to provide store-specific, floor-ready ticketed goods. In its simplest form, crossdocking can enable a picker with a paper list to pull hot items as they are received and place them in a staging area for expedited delivery. An intermediate option, sometimes called "Distributed Crossdocking," involves using automated materials handling equipment to sort goods by destination once they have been received at the distribution center.

9. Flow-through

The use of the warehouse, in order to support a manufacturing or distribution operation, as an inventory staging process which relies exclusively on forward picking locations and fills them with only enough inventory for the immediate future (from one day to one week).

Although it shares much in common with crossdocking (since both support high throughput operations), there are some distinctions. Unit load degradation may see the breakdown of a case or split case picking to manage the redistribution of individual SKU items in a flow-through warehouse. While crossdocking is measured in hours, flow-through warehousing is measured in days-here today, and gone some time this week. It allows for staging, processing, and valued-added services to a product. When frequent delivery items arrive in the warehouse, they are delivered right into temporary storage at a pick face, where they will be held until processing. On-hand inventory matches expected demand for the immediate future, thereby acting primarily as a staging center for large quantities of inventory for many customers.

Because the aggregation of orders from a large base of SKUs now is based heavily on order characteristics, item value, and product velocity, your facility may have to rely on a mixture of elements.

SURVIVAL OF THE FITTEST

There are two important dimensions of warehousing and distribution: space and movement. Space involves storage requirements and protection for physical handling activities. Movement includes the transfer of material and products within the DC itself and between the DC and the transportation system. We cannot forget that the two dimensions are interrelated; nor can we overlook the trends that make that relationship more and more complex.

Ask yourself, "How prepared am I to keep my warehousing and distribution facilities more nimble and flexible than they' ve been in the past?"

The answer lies in recognizing the true value of your warehousing and distribution operations - and incorporating into your planning those elements that will keep you flexible and responsive to an inevitably changing environment. Assessing and adapting your warehouse or DC early and often can be one of your best assurances that you'll survive with the fittest.

© 2006 CATTAN Services Group, Inc.