The changing world of industrial distribution

Both industrial and retail distributors can check the same number of boxes on the list of pressing concerns: increased consumer expectations, reduced cycle times, SKU proliferation, e-commerce, labor availability and, naturally, Amazon. Although a few companies are successfully meeting these challenges, it could be argued that the industrial distribution segment as a whole has lagged somewhat behind retail.

Having tracked the industry’s efforts to catch up, the experts Modern talked to for this article recommend a phased approach to methods engineering, whether through low-cost tweaks or investments in automation. Companies with the best chance of success, experts say, will rely on actual rather than ideal capital budgets and not compromise strengths or differentiators. They will also abandon assumptions, since industrial distribution’s traditional storage, picking and packaging methodologies break down in the omni-channel ecosystem.

“At the start of a project, we once looked at historical data about what the client had been doing, identifying growth periods, volumes and order profiles,” says Ross Halket, executive director of ASD sales for Schaefer Systems International (SSI). “E-commerce has changed all of that. There is not a way to historically look at this.”

Because of SKU proliferation, the Pareto curve, which suggests 80% of sales will come from 20% of SKUs, doesn’t apply the way it used to. Some industrial distributors have seen five-fold increases in SKU counts, which has created a long tail of C-movers and D-movers that challenge traditional practices like discrete order picking and dedicated single-SKU storage locations.

“These pretty well-constructed rules of thumb that had guided the industry for 50 years are now out the window,” says Greg Conner, regional director for Bastian Solutions. “One of the biggest issues is companies that don’t understand what e-fulfillment is, that it’s not the same as classic industrial distribution. And as e-fulfillment increases, traditional industrial distribution channels are decreasing. It’s not enough to just install an e-commerce system; you need a consolidation strategy for the other side of the business.”

Starting small, finishing strong
Industrial distribution facilities are commonly designed around homogeneous storage or picking systems. As the need to hold more SKUs in pallet, case and each quantities increases, facilities have evolved distinct work zones with a variety of technologies and processes.

“Fifteen years ago, the most common answer was to put in a full case pick module, give an operator a sheet of paper, direct the operator to a location, slap a sticker on a box, sort it, palletize it and ship it,” Conner says. “That type of solution is now not efficient for the number of picks needed.”

Early on in the e-commerce revolution, Halket adds, many thought e-commerce orders would largely consist of one line and one piece each. Orders now tend to be multi-line and multi-piece as customer loyalty transitions to the e-commerce channel. Mixed with SKU growth, order profiles need responsive picking processes. In fact, those considering a move from discrete or batch order picking to dynamic waves might also prepare to shift back to discrete methods on a daily basis.

“In the face of aggressive cutoff times, dynamic waves allow more morning batches to get to the floor efficiently, then later in the day you might switch back to discrete picking to be sure each order makes it out the door,” says Jason Gryszkowiec, director at St Onge. To ensure efficient fulfillment, Gryszkowiec suggests a consolidation approach, where separate processes feed a sorting and packaging area. “As you grow, you can start to tailor the picking processes to specific SKU subsets. Some might be suited to pick-to-light, others might benefit from paper/RF batch picking to a cart. But you don’t have to design five different concepts in a consolidation system overnight.”

Many large-SKU industrial distribution operations are implementing a consolidation approach with sophisticated modular systems, which Gryszkowiec says does not necessarily mean expensive or fancy technology. But where discrete picking tends to create an in-line flow, the consolidation concept is more modular, Gryszkowiec says. They can be upgraded in step with growth while helping to build justifications for technology investment along the way.

Targeting picker productivity
Goods-to-person (G2P) solutions like carousels and automated storage and retrieval systems (AS/RS) are among the most effective technologies for addressing the e-commerce challenge. By compressing pick faces into dense storage, automated solutions reduce the time pickers spend walking. By leaning on automation, industrial distributors can distance themselves from labor-related costs including safety, accuracy and seasonal staffing levels.

“If you handle pallets, cases and eaches and have more than 10 people, you’re a fit for G2P,” says Doug Robertson, founder of AS/R Systems. Robertson says some who pick small parts have been sending man-up turret trucks into pallet storage, but it just doesn’t work. “That’s all they knew. They had no sophisticated sequencing and orders were spread out all over. If you’re driving around, you’re only going to get maybe 13.5 items per hour. We saw one carousel application replace 22 people and the 22 forklifts they drove.”

Bastian’s Conner says a key driver for G2P solutions is operator efficiency amid unpredictable order volume. From a warehousing standpoint, Conner says clients used to be able to do predictive analysis. They figured on average a certain branch location would sell 20 units in a certain time frame, so they would bundle the items and send them to the store in question. “Now, they’re sending one item directly to one customer and 19 others to 19 of his friends,” Conner says. “Each picking is going up immensely, and staffing can quickly balloon when you try to get it all done with the same old pick module.”

Conner says two of the most common automated piece-picking solutions retrieve totes from dense storage using a series of robotic cranes or shuttles. Because of their ability to scale while keeping operators as productive as possible, Conner says G2P systems can keep staffing levels consistent even through seasonal spikes in business—not to mention the ebb and flow of a single day’s orders when geared toward rapid fulfillment and delivery schedules.

Still, a fulfillment engine designed solely around G2P is rarely the answer. Halket says any highly automated G2P system does not have a plan B if it goes down, such as operators climbing into the shuttle area to retrieve items. Carousels are a bit easier to work with when down, but redundancy and readily available inventory are essential to meeting stringent consumer demands across multiple channels. The best way to orchestrate multiple technologies and dynamic responses is with the right software.

The backbone of the back end
As the brains of an operation, software is often startlingly mismatched with the objectives of a business. Just as with rigid storage or picking systems, monolithic software can give the illusion of capability right up until changes in business reveal its crippling flaws.

“The brick wall starts to manifest itself with not being able to achieve throughput or handle order complexity,” says Chuck Fuerst, director of product strategy for HighJump. “More small orders with more lines per orders are one thing, but now returns are becoming a bigger issue for industrial distributors. Their customers expect them to have an online presence and want to order by Web, phone or e-mail with visibility into order updates, confirmations and tracking tools.”

Fuerst says clients are looking for ways to react to demand faster but not necessarily carry more inventory than needed, which used to be a best practice. “If returns are increasing, those can become available inventory,” he says. “Did you put an e-commerce order on backorder when you had the inventory in another party of facility but didn’t have visibility into that?”

The challenge for industrial distributors, according to Helgi Thor Leja, industrial distribution industry leader with Fortna, is how to not only react but also lead the way. Leja suggests that establishing distinct definitions for multi-channel and omni-channel capabilities will help operations navigate these new trends. Multi-channel is literally the service of multiple channels, something Leja says probably every distributor in the country is doing in some way. If retail stores and Web stores are distinct customer experiences, the DC serving them both has multi-channel capabilities.

Omni-channel, however, refers to the overall business approach and how best to serve each channel seamlessly. Orders, pickups, deliveries, returns and packaging should appear virtually identical to the customer if the seller has omni-channel capabilities. “For example, inventory, however it is stored, fulfilled or shipped, should be presented consistently to the end customer while the business avoids robbing Peter to pay Paul, so to speak,” Leja says. “It requires taking a big, shared view of inventory management, integrating core systems, aligning customer communication plans and more. To make it easy for your customer makes it very complex for you.”

At one client site, the first time Leja visited them it took nine hours for an e-commerce order to make its way to the floor. After the order was received they had to check if the item was in stock, perform a credit check, and make decisions on where to fill and ship based on the allocation of SKUs. Since they didn’t have a shared inventory or omni-channel approach, they often needed to buy or transfer SKUs from one channel to another, Leja says. In effect, this eliminated their ability to be competitive with respect to speed. A different client optimized its multi-channel processes into omni-channel strengths, and achieved a 30-minute turnaround from order to ship.

St Onge’s Gryszkowiec says simple software adjustments can sometimes have a big impact. In an industrial distribution facility carrying everything from generators to paper clips, disorganized slotting can mushroom into a bigger and bigger problem. “Even in sophisticated operations, they have to get the slotting right,” Gryszkowiec says. “Software can help you put bolts with nuts and find SKUs with affinities for one another. This can create huge improvements in productivity.”

Robertson encourages software suppliers to join clients in slicing fulfillment methodologies into zones in order to pair the right solution with the right order profiles. “They should set up a network that reviews orders, breaks them out into zones and subdivides,” he says. “Perhaps counterintuitively, by splitting up an operation some clients have cut business costs, labor and space by as much as half.”

Companies mentioned in this article
AS/R Systems: asrsystems.com
Bastian Solutions: bastiansolutions.com
Fortna: fortna.com
HighJump Software: highjump.com
Schaefer Systems International (SSI): ssi-schaefer.us
St. Onge Company: stonge.com