Getting the most from value-added services

More customers are demanding value-added services when they order, but too few DCs have developed processes to perform them efficiently.

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When IT provider CDW built a new distribution center in North Las Vegas several years ago, Nevada, processes to handle value added services were an important part of the design.

The ability to configure computers and servers to a customer’s specifications has long been one of CDW’s competitive advantages. But in the company’s primary DC in Illinois, they were often handled manually.

In the new facility, however, orders that involve custom configuration are automatically conveyed to a special value-added services area where a technician installs custom software or a disk drive. Afterwards, those products are automatically conveyed to the shipping area where they go through the same packing and labeling processes as any other order. To the operators, its one seamless process.

That’s a key to value-added services: any time you can step back and take non-value added touches out of your operations, you can make an operation that much more efficient.

Increasing value added services
Just what is a value-added service? The simple definition is a process to perform a function in the warehouse that the customer would normally do at its own facility.

Value-added services are especially common in the retail supply chain. More store-ready functions that used to be done in a stock room are getting pushed back to distributors or the DC. That may include everything from custom packaging and labeling to facilitate cross-docking at a retailer’s DC to creating a special assortment for an in-store promotion.

Although more labor is being devoted to value-added services, too often they are an after-thought to a DC’s operations. They don’t have tools to manage the labor, and they haven’t planned for the space or the processes to be efficient. That lack of control, and metrics, means that even if a company wanted to charge its customers for these services, they don’t know what it’s costing them, Spain adds.

Planning for value added services
There are several challenges to planning value-added services. One is that the volumes are often seasonal and unpredictable. Another is that some WMS systems don’t have modules for tracking inventory through a value-added processing area. But the biggest challenge to value-added services is that they slow down processes because they’re not integrated with the rest of the order fulfillment flow. That’s because the demand for any particular value-added service, such as adding a pricing sticker, is unpredictable.

For that reason, the first step to getting control over those processes is to map the processes in a way that identifies what has to be done and to identify the volumes associated with each process. It’s not unlike setting up a warehouse: you’re thinking about volumes, the amount of labor required and whether you can justify automation.

After mapping out processes, a next step is to decide where to locate the value-added processing area. Since it is often not a high-transaction area, you don’t want to expand your building to accommodate value-added services. For that reason, warehouse designers often coaches clients to locate value-added services on a mezzanine over the receiving dock or shipping dock, depending on whether the service can be done before product is put away or right before it’s shipped.

Seasonal or sporadic processes might be located in an area already being used for another purposes. Carton labeling processes, for instance, may fit into the same area where customers do weight and tolerance checks, creating a steadier volume of product through that area, and better utilization of the space.

Introducing automation
Manual process may still predominate, but any time automation can be introduced, there’s an opportunity for savings.

For instance, one watchmaker offers custom price labeling to big box retailers. The challenge it faced was that not every customer wanted price labeling and not every customer charged the same amount for the same watch. But with volumes approaching 80,000 units per shift during the peak season, there was an opportunity to introduce automation into the process. 

The solution was to integrate an inline scanning and labeling process at the induction station of the order fulfillment scanner. That allows the maker to batch pick everything, regardless of what customer it’s being shipped to. At the sorter, a UPC label on the bottom of the box is scanned, the product is assigned to a specific customer and then a price label is automatically printed and applied before it’s sorted to a specific DC or store, depending on the client.

At the same time, the manufacturer also adds hang tags to individual watches that are sold from point-of-sale displays. While that is still a manual operation, there is still an opportunity to semi-automate the process and make it more efficient for the operators. The watches that require hang tags are segregated into totes and conveyed to a semi-automated labeling system that scans the label on a tote, automatically prints the tags that are going to go onto the watches that are then applied at an ergonomically-designed work station. There is still labor involved, but it represents a significant savings over what they had been doing.

That’s a value-added service that benefits the customer and streamlines distribution processes.

About the Author

Bob Trebilcock
Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.

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