Big Picture: Materials handling comes out of the shadow
St. Onge: The importance of cycle time
For years, distributors have focused on productivity and accuracy in order fulfillment processes. The goal was to reduce the cost per case of filling an order. Typically, that was the result of doing more work with less labor. No one is saying that controlling costs is no longer important, but as the need for order fulfillment speed heats up, there is increased focus on cycle time, says Bryan Jensen, senior principal at St. Onge.
“More and more, the focus is shifting from accuracy and productivity to cycle time diminution,” Jensen says. “Clients want to know what it will cost to take an order by 5 p.m. or later and still get it out in time for overnight delivery.”
While the need for speed has mostly been a direct-to-consumer phenomenon, thanks in part to Amazon, the question is now being asked by businesses selling to other businesses. “Whether they are pursuing these strategies for a competitive advantage or because that’s what they have to do to compete, there is a belief that faster is always seen as more valuable by the consumer,” Jensen adds.
The attention to cycle time is impacting DC design in several ways. For one, some sellers are developing systems that help them recognize just what level of speed a consumer really wants and is willing to pay for. Some customers may be more than happy to wait a week for an order. Some truly want the product next day.
“We’re developing systems to batch orders in waves by order priority for those customers who will pay for speed,” Jensen says. “We might also put more money than in the past into high-speed sortation systems or goods-to-person picking solutions to cover peak periods.”
More importantly, companies are looking beyond the cost of labor. “Leading retailers and e-tailers are no longer just looking at how many people they can remove from the process to justify a system,” Jensen says. “Instead, they’re putting more value on the ability to respond to peak demand in a very short window of time.”
Tompkins International: Optimizing the network
Mergers, acquisitions and consolidation are facts of life for any company intent on growing market share. But, what happens the morning after the acquisition is complete? Then, it’s a little like getting married: After the honeymoon, you have to figure out what to do with two sets of everything. In the supply chain, you have to figure out what to do with two manufacturing and distribution networks that often serve the same geographies.
“Network optimization is a factor we’re seeing across all industries,” says Kelly Reed, a partner with Tompkins International. “Companies are asking us how they can make their network most efficient in terms of transportation and labor costs.”
In some instances, Reed adds, a company may just have two DCs that it wants to combine into one. For larger organizations, however, the questions are more strategic and complex. “In some instances, we have companies focused on the cost of operating a facility or the cost of labor in a location,” Reed says. “In other areas, the network strategy is driven by customer service requirements.” Tompkins recently worked with a client that located a new facility in Fresno so that it could serve both Los Angeles and San Francisco with next-day ground deliveries.
Those types of distribution strategies are also resulting in networks with facilities designed for a specific purpose. Tompkins, for instance, has worked with companies to consolidate all of their slow-moving items into one central facility with regional DCs for faster-moving products. Another strategy is to create one or two large centralized DCs with smaller “forward-located” DCs that can turn around orders very quickly for Internet fulfillment, flash sales or store replenishment of fast-moving items.
“I read recently that Macy’s is using its store rooms as Internet fulfillment centers and picking from store inventory,” Reed says. “As the way we engage with customers changes, many companies are making up the rules as they go along. We’re all learning what works and what doesn’t. It’s going to have implications for distribution networks and how orders are filled.”