Retail: DC at the center of it all

The DC is in the middle of a transformation in the way retailers interact with customers.
By Bob Trebilcock, Executive Editor
April 01, 2013 - MMH Editorial

Blame it on the Internet. Blame it on Amazon. Whatever the reason, there is no debate that shoppers have different expectations today than in the past and that retailers are being forced to rethink how they interact with shoppers.

Whether its free shipping, expedited delivery or unparalleled selection, e-tailers are changing the way the game is played. Brick-and-mortar retailers, in particular, are struggling to master a new set of rules.

The distribution center is at the heart of this transformation. Increasingly, it is the tool that allows a retailer to meet its customers’ expectations. “It’s a new world for distribution centers,” says Jeff Mueller, vice president of Sedlak. “They are no longer just part of the overhead. They are part of the profit equation.” 

These changes are creating a new set of best practices to optimize the processes inside the retail distribution center. Here is a look at five ways retailers are approaching their operations in new and different ways.

1. Flexible solutions for shortened time horizons
One example of how the new retail landscape is impacting distribution centers is in how new facilities are designed. The traditional practice was to construct a building and select equipment to handle the next 10 years growth. “With the emergence of e-commerce, we’re building for a three-year window because you don’t know what’s coming,” says Kim Baudry, market development director for Dematic. “Our customers are building facilities to handle what they do now as a core solution, but with the flexibility to scale in the future as their needs change.”

That process begins with a good, engineered analysis of a retailer’s present business that considers a number of factors including:

Peak-to-average ratios: That is a comparison of the volume of orders that will be filled and shipped on an average day versus peak days during the important selling periods, such as the back-to-school or holiday seasons.

Order profiles: A retailer wants to understand the characteristics of a typical order, including the lines per order and the number of pieces per line.

Growth expectations: Is the volume of orders increasing? Is the volume of inbound merchandise changing? Is the number of SKUs or the cube required for each SKU increasing? Each of these can impact the design of a solution.

SKU profile: Retailers need to understand the cube associated with each SKU, including the dimensions, weight and any special handling associated with an item. That is especially important if more items are going out as parcel shipments for e-commerce orders. Similarly, the movement of each SKU in the facility plays a role in designing storage and slotting solutions.

“Once you’ve done the analysis of the business, you can design a system that makes the most sense for you,” Baudry says. “For instance, if there’s a lot of variation between your peak-to-average shipments, you don’t want to invest in a highly automated system that will sit idle a great deal of the time. In that instance, we may recommend automation for storage but a manual picking system. If you’re average outbound orders is close to your peak orders, an automated goods-to-person picking system may make sense.”

2. Optimizing picking waves
Picking is the most labor-intensive activity in any distribution center. That is especially true with the increase in item-level picks associated with the rising volume of Internet and catalog orders. Retailers that have installed a sortation system to handle their peak volumes in November and December can use those systems to pull inventory from reserve storage areas to fill a wave, rather than have associates walk through an active picking area.

“We look at peak order files at the individual order level by analyzing data for the two weeks before and after Thanksgiving,” says Sedlak’s Mueller. “That allows us to look for the best ways to combine orders and inventory.”

Instead of sending associates to pick slots in the active picking locations for all of the orders, pallets and cases are pulled from the reserve storage area to satisfy half or more of the orders. The cases that will satisfy a wave of orders are queued at the sorter. When the wave is released, the cases are sorted to a picking station where an associate picks the items needed from each case. Those items, in turn, are re-inducted at the piece level and sorted to a packing station where they are prepared for shipping. “The goal is to minimize the amount of walking and handling,” Mueller says. “There is still some picking in the active area, but not nearly as much as if you picked the whole wave from that area.”

3. A store within a DC
Until recently, many retailers operated two types of facilities that were independent of one another. One handled cases and pallets for store replenishment. The other handled eaches for e-commerce fulfillment. That approach not only required two facilities, it also required two buckets of inventory. In many cases, that also meant two different order fulfillment software systems. One might be a warehouse management system (WMS) optimized to receive, pick and ship cases and pallets and then another WMS designed for item-level picks.

One of the advantages of combining those different sales channels into one multi-channel fulfillment center is that all customer orders can be filled from one set of shared inventory. The challenge is coming up with a single inventory management system that controls all of the decision making for picking, packing and shipping, says Luther Webb, director of operations solutions development for Intelligrated.

“What we’re seeing is that retailers are using their WMS to create a store within the distribution facility,” Webb explains. “That store within the building becomes the e-commerce fulfillment center.”

The idea is that the case-level product required for e-fulfillment is picked from reserve storage and “shipped” to the store within the warehouse as if it was any other replenishment order for a brick-and-mortar location. The difference is that the e-commerce fulfillment store may be located just a few aisles away from the replenishment system. “Once the inventory is received in the store, associates pick from that inventory to fill orders,” Webb says.

“E-commerce is forcing us to rethink how we receive and how we store inventory in order to satisfy these different order profiles,” Webb adds. “Retailers are struggling with this, but the best are using software systems to drive these changes. If they’re not doing it now, they will be doing it in the next three to five years.”

4. Same-day fulfillment
The battle for retail customers is increasingly being fought over shipping. “Customers want instant gratification,” says Adam Mullen, retail industry lead for Fortna. “The days of a 7- or 10-day promise are long gone. Customers want to know that you received their order, that it’s picked, and that it’s on the way.”

For many retailers, that means same-day shipping—meaning the order is on the truck the same day it was received. For those in an arms race with Amazon, such as Walmart, it could mean same-day delivery in some select markets. Either way, “even a one-day improvement in order fulfillment times can mean a major change inside your distribution center,” Mullen says.

While the solutions that enable same-day fulfillment may vary from retailer to retailer, Mullen says they share several common characteristics.
Visibility is key: The system has to have real-time visibility into the pool of incoming orders. That allows a retailer to make decisions about which orders to pick first to meet cutoff times.

Replenishment is also a priority: Product needs to be available at all times, which means a system in place to monitor inventory levels at picking slots in real time and to coordinate replenishment activities.

Packing is more important than ever: The facility needs to be able to verify the accuracy of the order and pack very quickly at the end of the process.

“At the end of the day, doing this right requires software and automation,” says Mullen. “We’re certainly leveraging a mix of technologies in the systems we’re implementing now.” Those technologies include automated storage and shuttle systems for case storage, voice-directed pick modules, unit sortation and automated packing systems. Above it all are warehouse control, warehouse management and distributed order management systems to make the right decisions about where and how orders should be filled.

5. Sequence at the DC, save at the store
For years, retailers have focused on reducing the cost of handling a pallet, carton or item in the distribution center. Forward thinking retailers are turning that equation upside down and looking for ways to use the distribution center to reduce the cost of handling product in the store.

“A number of retailers are removing store labor by pushing activities back on the DC,” says Rob Schmit, executive vice president of Daifuku Webb. However, Schmit isn’t just talking about value-added services such as price ticketing. “The push is to do product sequencing so a store associate doesn’t have to walk all over the store to put inventory on the shelf,” Schmit says.

The first wave of sequencing solutions involved using a mini-load automated storage and retrieval system (AS/RS) to deliver cartons to a palletizing station in the sequence they would be put away on a shelf in an aisle. The next wave, Schmit adds, is to sequence product into the preferred sequence in a container or tote. That allows a store merchandiser to cut down on the time needed to restock a convenience store, for instance, or to create a counter or shelf display in a department store.

At the other end of the DC, retailers are using automated storage technologies to buffer and sequence pallets, cartons and totes into the back of a delivery truck or trailer.

While sequencing software and automated storage technologies are central to these solutions, so is a new view of the role of distribution within an organization. “The cost of handling a case or pallet inside the DC may very well go up,” Schmit says. “However, the cost of transportation and the cost of store labor go down. To be successful, this has to be high on an organization’s list of priorities.”

Companies mentioned in this article
Daifuku Webb: daifukuwebb.com
Dematic: dematic.com
Fortna: fortna.com
Intelligrated: intelligrated.com
Sedlak: jasedlak.com



About the Author

Bob Trebilcock
Executive Editor

Bob Trebilcock, executive editor, has covered materials handling, technology and supply chain topics for Modern Materials Handling since 1984. More recently, Trebilcock became editorial director of Supply Chain Management Review. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.


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