Order assembly centers: Guaranteed same-day shipment in any quantity
These conventional warehouses of the future are already emerging and being recognized for their ability to fulfill unpredictable order patterns and turnaround times measured in hours.
By Staff -- Modern Materials Handling, 5/15/1998
How the conventional warehouse/distribution center of the next millennium will differ from today's standard DC is a question many are trying to answer. But in the minds of some, the answer is right in front of us."In my opinion, today's order assembly centers will be the conventional warehouses of the future," says Michael Dennis, a senior manager at Andersen Consulting.
The core competency of these order assembly centers is the ability to receive and collate products from several different warehouses or manufacturing locations into a single consolidated order shipment, often utilizing crossdocking or flow-through practices.
In fact, the order assembly center envisioned by Dennis will fill several different roles, including some that have been traditionally assumed by the manufacturing plant.
At one end of the spectrum, the warehouse will kit together parts and preassembled components from several suppliers to support an adaptable man- ufacturing operation. It might also support a field operation like an airline or even a heavy equipment repair and service facility.
At the other end of the spectrum, these distribution centers will be used to assemble an order of finished products destined for consumers or businesses, bringing together products from several different suppliers. Some of the inventory might be stored at several different locations in the supply chain but delivered as one single order to the customer's home or business.
In between those two extremes, the warehouse will act as a central gathering point for finished components from different suppliers that will be kitted together and then flow to a work station for some physical assembly before shipment to the customer.
This is already happening in some warehouses. For instance, Seiko, the Japanese watchmaker, ships watchfaces and watchbands from overseas manufacturing locations to a central distribution center in Mount Olive, N.J.
There, workers assemble the components into watches according to orders from Seiko's customers. As a value-added service, the distribution center also packages, tags, tickets, and labels the products to the retailer's specifications then sorts the order according to different price points.
Likewise, Mitsubishi ships the component parts for its cellular telephones and television sets to U.S. distribution centers centrally located to large Mitsubishi customers. There, the finished products are assembled and shipped at the same pace as individual retailers place their orders.
Along with providing value-added services, order assembly facilities will be able to accommodate a broad stock keeping unit (SKU) mix, fulfill unpredictable order patterns with high precision, and will feature turnaround times measured in hours not days, often in small shipment quantities.
"The key characteristic in all of these order-assembly strategies is that we have multiple sources of the product that the customer wants," explains Dennis. "And secondly, the customer expects or would like a single consolidated shipment. When you come right down to it, that's the real purpose of order assembly."
One way this might be accomplished, says John A. White, III of Andersen Consulting, is to move away from the traditional network of regional distribution centers that each service customers in their geographical territories from stocked inventory.
Instead, there will be a network consisting of large regional or centralized full-line distribution centers that support outlying limited-line distribution centers downstream from the main facility.
White calls this "a hub and spoke" concept. Full truckloads of product are purchased and received into the regional DC (the hub) where the load is broken down for redistribution and crossdocked to the smaller spokes downstream on a daily basis.
The regional or centralized DC will also need to maintain an inventory of slow moving items that used to occupy costly space in each of the small centers serving a particular locality. Meanwhile, the downstream facilities will only warehouse the fastest moving products.
While customer orders will still come into the downstream spokes for fulfillment in a local geographical area, the slow moving items are now added to the daily shipment of product from the hub facility. At the local level, those items are unloaded and crossdocked or transported to a pick-face, where they will be merged with items in-stock to fill a customer order.
White even envisions a role for third party distributors in his model for the next millennium. "Third party distributors who now provide value added services could become assembly centers for multiple manufacturers leveraging economies of scale," he says.
Some of these strategies are being utilized now. For instance, an office products division of Boise Cascade found it was more cost effective to purchase some slow-moving products from a second party and merge them into a single order than it was to continue to warehouse those items in their own facility.
Elsewhere, L.L.Bean developed a miniature version of White's hub and spoke model to expedite as many as 160,000 orders a day.
The mail order specialist built a reserve storage warehouse to receive and putaway cases of product received from a multitude of suppliers. A separate order fulfillment warehouse located 1-1/2 miles distant picks, packs, and ships customer orders in 24 hours or less. The system is sufficiently efficient that on the days leading up to Christmas, L.L.Bean can assemble those 160,000 orders a day without changing their overall materials handling scheme.
Communicating in real time through a warehouse management system that connects the two facilities, the reserve storage warehouse makes between four and eight replenishment shipments a day to the order fulfillment warehouse.
In a vastly different industry, computer maker Dell employs another concept related to order assembly known as merge-in-transit. Computers are all manufactured at a central location in Texas. Dell, however, does not manufacture the monitors it sells, which are often the heaviest unit in a computer system.
To reduce shipping costs, UPS warehouses monitors for Dell at several locations around the country. Once a computer is built and shipped, a monitor is shipped from its warehouse location, timed to arrive at a UPS distribution hub at the same time as the computer. This way the customer receives only one consolidated shipment and is completely unaware of the behind-the-scenes order assembly techniques used to make that practical and cost efficient.
"Merge-in-transit allows you to leverage your shipping to reduce your costs, and ensure the customer gets everything at once," says The Progress Group's Bruce Strahan. "It could be the next frontier for order assembly centers in the new millennium.''
Whichever of these strategies are employed, the materials handling requirements for assembly centers will include automated and conventional storage equipment, automated sortation, and pick-to-light systems. The real key to coordinating these facilities, however, will be information systems including bar codes, radio frequency data communications, and warehouse management systems.
"To make this work, you'll have to have rigorous supplier management programs to make sure that the right pallet is at the right place at the right time," says White. The obvious benefit of order assembly will be decreased inventory and decreased obsolescence. But the real reason behind this strategy is to gain economies of scale by taking unnecessary cost out of the supply chain.
Operational characteristics:
* Keeps reserve inventory on hand for unexpected orders and volumes
* Picks from forward pick faces to maximize speed
* Accommodates broad SKU mix from individual customers
* Ability to ship frequently in small quantities with high precision
* Crossdocks whenever possible
* Guarantees response time even if orders received after 5 p.m.
* Peak activity period from 5 p.m. to 8 p.m. daily
Prominent technologies:
* A mix of automated and conventional storage equipment
* Pick-to-light systems
* Automated sortation
* Bar codes
* Radio frequency data communications
* Warehouse management systems
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