Early this summer MM&D convened a panel to discuss warehouse and DC optimization. Getting the most out of your facility, equipment, personnel and IT resources requires a lot of oversight, attention and careful analysis.
We brought together Casian Glavce, general manager at Hewitt Material Handling, Skip Miller, VP, customer service and solutions with CHEP North America, and JR White, director, solutions engineering at KNAPP to offer their insights into the pressures and challenges facing warehousing operations managers in 2016, and to share some of the best practices they see being used to make DC operations more efﬁcient.
What is optimization?
The Merriam-Webster dictionary deﬁnes optimization as: “An act, process, or methodology of making something (as a design, system, or decision) as fully perfect, functional, or effective as possible.”
For the supply chain operations manager, achieving optimal results means getting a whole lot of moving parts to work together efﬁciently.
The three panelists agreed that optimization has to begin from a 50,000-foot perspective, looking at the whole operation and what it’s trying to achieve.
“Optimization to me is looking at the entire picture of what you’re trying to do to meet your customer’s needs,” said Skip Miller. “And then all of the variables that go into it: labour, transportation, data, anything else, and look at it as a whole. How do we lower the overall cost of delivering the customer’s needs?”
JR White elaborated: “Optimization is looking at the overall process as a whole and looking at it from a flow standpoint, from a technology standpoint, from a software standpoint, and seeing where you’re having issues with it.”
Casian Glavce pointed out it’s important to remember, “this is not something only for the big companies. If you do not optimize you’re not going to be in business.”
Causes of pain
The three panelists took different tacks in approaching the question of what’s driving the need to optimize.
White cited e-commerce as a major factor that’s been rapidly growing in importance since companies started out by putting a few items up on the web and seeing what would happen. The speed and volume of orders is posing a huge challenge.
“It’s exploded for all of our customers. I come from an apparel background and those guys are used to having a certain number of ﬁxed SKUs in the store because you’ve got a limited footprint,” he said. “Now, on the Internet, they can cover more stuff, more product types, more sizes. I’ve got customers with in excess of 140,000 SKUs in the building and trying to ﬁgure out, ‘I need a pair of shoes and shirt and you need a backpack and a hairband.’ And just trying to pick all that is pretty difﬁcult once you get past where manual is feasible.”
“I think the key piece in optimization is having the goods available so that you can ship it next day, but not building your inventory too high so that your inventory costs are going out the roof,” said Miller.
You have to ﬁnd that delicate balance between optimizing the supply chain to meet customer needs—for immediate delivery, for example—without exploding costs in some other area.
Miller identiﬁed transportation as another piece of the puzzle that dovetails in with e-commerce. Now not only do shippers have to manage truckload shipments, they are also dealing with last-mile delivery of e-commerce orders. Added to that is the growing constraint on capacity thanks to driver hours-of-service regulations and the growing driver shortage.
“It’s challenging to really get enough capacity to effectively get your goods to the market,” he said.
For Glavce the flat economy post 2008 has been a signiﬁcant motivator for companies to ensure they are operating efﬁciently. It’s essential if you are going to stay in business, he believes. “We were pretty much spoiled,” he said. “The market was growing double digits, pretty much every single sector was exploding. Now, especially in Canada, we’re flat, or depending on the sector, even in decline. You have to optimize.”
Operations managers face constant pressure to decrease costs. Miller pointed out that total cost of goods delivered is one of the key metrics that needs to be monitored as a measure of efﬁciency. “If it’s flat or increasing, that’s when you have opportunity,” he noted.
Increasing labour costs are a major factor on the horizon. As Miller noted, pressure to increase minimum wages across the US is already being felt in warehouse budgets.
White agreed and pointed out that an environment where people were “making $100,000 a year driving a forklift” was partly responsible for the decline of manufacturing industries, particularly automotive, in the US.
“I have customers out in Texas and they’re paying 10, 12 dollars for a guy in a warehouse. You can go work for the oil industry for $20 an hour, so it’s a tough sell,” he said.
The other part of the labour problem is seasonal peaks: “If you have the high seasonal peaks—like the Black Friday, Cyber Monday—with 10 times the regular volume, how do you bring somebody in, bring them up to speed and have them be in any way effective and then cut them loose?” White said.
It’s driving companies to consider automation as the Europeans have for some time thanks to high labour and land costs. North American businesses are at least ﬁve to 10 years behind, White asserts.
An optimization innovation Miller shared with the group is a project CHEP has been working on that’s only indirectly related to its platform solutions. The company is engaging shippers with private fleets to use empty trailers that would otherwise be travelling without a load, to backhaul pallets to where they are needed.
“We’ve been able to generate, for our customers, over US$7 million dollars of revenue for the last year to do that,” he recounted. “At the same time, it reduced 6.5 million empty miles from the network. Which then reduces, from a sustainability standpoint, about 17 million pounds of CO2 emissions. So really, it’s optimizing the transportation network.
Miller also noted advantages that can be achieved through packaging optimization, and said that while packaging reduction can help cut transportation costs, it also means that product may be at risk of damage. Flimsy water bottles are an example we are all familiar with. CHEP has developed a lab that can test packaging design to make sure it will survive handling throughout the supply chain.
Glavce highlighted an example in which Hewitt was able to help a customer rationalize its powered warehouse equipment from 23 units down to ﬁve. Through elimination of labour, maintenance and operating expenses, the company is saving between $2.5 and $3 million over the next ﬁve years.
Glavce also offered the example of a technical innovation that helps to improve operations. His case study was about forktruck batteries that reduce draw from the grid, only need watering once a week and can run three shifts, simply charging during breaks. These new cells eliminate the need to change batteries during a shift, they save space in the DC and are safer because they don’t require the manual labour of the changes.
It’s new technology that was pioneered in Germany by a company called Hoppecke, who now have a partnership with Jungheinrich to serve Coca Cola in Germany. Hewitt is now offering the technology in Ontario and Quebec.
White shared a couple innovations from the intersection of apparel and e-commerce. The ﬁrst is a system that works for a true omni-channel operation. The client is a sporting goods supplier, and in the DC the retail orders and e-commerce orders are processed at the same workstation. Boxes for the store and e-commerce orders are handled side by side.
But the challenge with the ecommerce orders is that the items can’t just be dumped into a shipping carton willy-nilly. There is a logical order to the packing that prevents damage and ensures the order arrives neatly presented to the customer. In other words, the shoes are not on top of the shirts.
“That’s the ﬁrst thing the customer sees and if you screw that up they’re not going to like it. They’re going to complain about it online and then ten other people aren’t going to shop here—all because of one missed order,” White said.
So Knapp devised a system of pocket sorters that hang from a track and, quite like orders at a dry cleaner, deliver the items to the packer in the order they are to be put in the box.
The second example he shared involved examining the volumes in a customer’s DC and looking at a sequencing system that picks the slower-moving product at the beginning of the day so it’s ready to go, then merges it with the fast-moving items as they are picked when orders come in throughout the day.
“If you have multiple pick areas and you’re trying to get them all done at the same time, you never have an equal work balance. If you have it for this wave, you don’t for the next wave. So for them to be able to say, ‘Okay, let’s take all this slow-moving stuff that’s a pain, throw it in there, get it in the system, now I don’t have to worry about it. Now all I’ve got to do is time the fast-moving stuff.’ It makes it a lot easier for them.”
Although all three panelists agreed that optimizing operations is very dependent on the nature of the business, they do agree on a few commonalities that should be considered.
“I don’t believe there is magic bullet that is going to solve everything,” Glavce said. “But, I think it should be a team approach to efﬁciency in the warehouse, starting with talking to the operators.”
White agreed: “You’ve got to get the buy-in from the different levels because, if you don’t get the people doing the work,” you don’t get the right answers. “I do engineered standards and I can sit up in the room with the managers and CEOs and say, ‘This is the way it should be done.’ But, if you don’t go down on the floor and look at how the actual work is being done, you really don’t have a true picture. You have the rose-coloured glasses.”
Miller agreed that this is the starting point for the optimization process. Finding out what management thinks the processes are and then “we go out and actually walk it and map it and actually what really occurs. And that’s where you see differences between what the standard operating procedure says and what actually happens out in the ﬁeld,” he noted. “And that’s where you start to ﬁnd the inefﬁciency of that translation to the standard operating procedure.”
Glavce also pointed out that process and equipment standardization can both be key to efﬁcient operations: “Companies have to look into standardizing the equipment, the way they handle the operations so they can interchange at any second, and employees,” he said, so they can move from facility to facility without needing additional training.
As with any improvement initiative, optimization will present challenges. We asked the panel what operations managers should watch out for.
White believes siloization is the biggest one. “Get out of your mindset of ‘I’m going to improve my position,’” he said. “Let’s improve it for everybody. If we can do it where we can shorten the order processing time by ﬁve hours, and it makes mine a little worse, and makes yours a little better, it’s better overall for the company. So just truly step outside your box, start thinking about other people and don’t just worry about your day-to-day operations. Look at it as a whole.”
Miller concurred, saying that people within the same organization sometimes have competing objectives. “You’ve got to look to make sure, from a leadership standpoint, that we’re looking at the overall picture and having common goals within the different functions so that everybody then starts to work together to optimize the supply chain,” he said.
Glavce pointed out that one of the challenges he sees is that material handling purchases in larger companies tend to be pushed towards the purchasing department. And procurement’s mandate is to negotiate capital costs as much as possible, without looking at the big picture.
“So if you look at the total cost of life cycle and if you truly partner with somebody who knows what they do, you’re going to achieve that optimization or efﬁciency that you are looking after,” he said.
He recommends a true partnership relationship with suppliers, so they know your organization and have clear, open lines of communication and trust, as well as a thorough understanding of your history, objectives and challenges.
Tips for ops managers
Once you know you need to make a change and have zeroed in on speciﬁcs, our panel offered the following reminders.
Skip Miller urged managers to “aggressively go after change, collaboration with your vendors and collaboration with your customers to ﬁnd that optimization that you can really drive together.”
And key to success in that endeavor, he said, is listening: “listening to your organization, listening to where you see challenges within that, listening to your operators, and getting down and really understanding what’s going on within the operation versus what’s on paper of what’s supposed to be happening.”
White’s advice was to make sure you fully investigate what’s available on the market. “See if there’s anything new and different out there that could really be game-changing,” he said.
And talk to people who have already implemented systems and technology. “A lot of people don’t want to be on the bleeding edge, which I totally understand because trying to run an operation with a half-built piece of equipment is a nightmare,” he asserted. “Do the research, go out, look at the sights, talk to the people. Because we can sit here and sell our stuff all day, but until you talk to other operations managers and they say, ‘This thing’s great. This thing’s awful. I would do this differently.’ I mean, it’s real-world experience you can use.”
The ﬁnal word goes to Glavce, who warns against complacency: “Be comfortable at becoming uncomfortable. Be used to becoming uncomfortable if you’d like to be in this business going forward.”
MM&D’s Equipment roundtable is an editorial feature made possible with the support of the following companies. Their input was exclusively through their participation in the panel discussion.