Inside Logistics

Retail column: Program vision

Taking the first steps towards designing a retail DC


October 26, 2012
by Edward Stevens

FROM THE SEPTEMBER 2012 EDITION OF MM&D

MM&D has invited highly experienced supply chain executive Edward Stevens* (along with some of his colleagues), to write about his area of expertise: the retail supply chain. Part one of this series explains how to begin a
successful retail DC design project.

Our most successful design-build-implementation projects all started with a common element: vision. The vision described (among other things) a date and time, what the end state would look like, what the people were doing and
what productivity results were expected. We had a clear picture in our collective mind. We drew it on whiteboards, in notepads or on napkins during lunch. When the right team was assembled, we refined the picture, internalized the meaning and the intent. The next step was to start delivering the message throughout the affected part of the organization.

Engagement

This process drives the project team towards working on the right things at the right time. Does this sound simple? It is not. In order to create this vision, many important questions must be answered and many key stakeholders must become involved (and eventually implicated) in the success or failure.

The longer the timeframe, or more complex the initiative, the more difficult it is to set the vision. Science, whose output appears in data and financial sheets, cannot answer the question. It is accomplished using the art of visioning, and ultimately, the facility design.

Technology

Retail distribution facilities are typically designed for efficient movement of product. This translates into moving the product through the facility at the lowest possible cost, which means moving the product with the least amount of labour possible. Technology and automation certainly contribute to the reduction in labour requirements; however, technology is only cost-efficient if it is utilized. We don’t say fully utilized, as we have not come across an application that remains static.

Planning

Facility design can be a long and arduous process. Bridging the gap between what is needed today and what will be needed in the future is an impossible task. Interpreting the strategic plan and translating this into what is necessary back at the distribution centre is tough. The financial implications must be considered as well. So what is the right approach?

After looking at many facilities over the years, we’ve realized it is common to find distribution centres without enough space for their required inventory, too many (or too few) pick slots, unsuitable material handling equipment for the products and packaging they store and not enough dock doors.

It would be great if the retail landscape did not change from year to year. Facility design would be much simpler. But this is not the case, so we have to design and build with a greater level of flexibility to accommodate future changes in the retail industry.

The bottom line is both building design and material handling equipment have a finite lifecycle. This means we need to rethink the way we plan. First, we need to create short-term plans that take us through the useful life of the
building and the equipment in it. Second, we need to think about the long term and consider future upgrades or replacement paths for the building and its equipment.

Questions

Before you can start on a design, you need to sit down with all of the key players and ask yourselves a list of questions. They will help focus your design and ensure your future building will meet your needs. Some of these questions will be “what if” questions. Others will have concrete answers. There are too many questions to list, but here’s a sample of some that need serious thought and attention:

  • How many SKUs in your selection?
  • What are the physical properties of your goods? (How big are they? How awkward are they to handle? Are they hazardous, or fragile or sensitive?)
  • What is the behaviour of your goods? (Are they fast-moving or slow? Are they seasonal in nature? Are they tied into service level agreements?)
  • What’s your business model? How will it change over the next 40 years?
  • How do your goods and services flow from supplier to end-user?
  • Where is your supplier base?
  • What is the main driving decision behind building a new facility? (Competition? Transportation? New markets? Labour costs? Increasing number of SKUs in inventory?)

The business case

A logical and successful approach is to decide you are embarking on a solution to a supply chain business problem, and then communicate that news to your whole team. Business units such as finance, IT or human resources
are there to support the initiative. It’s not their place to shape your business decisions.

On occasion my colleagues and I (who collectively have over 100 years of experience in this industry) have been part of unsuccessful design projects or have been involved in startups where the organization has allowed one of the supporting business units to drive the decisions, including the timelines and the features. These projects have typically ended with failure to deliver the business capabilities and with severe cost overruns.

The customer

One of the often forgotten, but key, stakeholders in any new DC design is your customer. Your vision for the new DC must align with your customer’s needs. If, for example, the facility process design improves productivity while
doubling your lead-times for order fulfillment, you are advised to get buy-in on this change from your customers before you move from design to the build phase.

Many years ago we implemented just such a process change in a facility. The change was premised on a vision of the vice-president of distribution. Unfortunately, it depended on a significant change in ordering behaviour from the customers, which did not happen. We implemented the physical change, turned on the lights and tested all systems successfully. Then we turned off the lights. Twelve years later, the dust-covered system was torn
down and replaced with a less complex storage system. It was a costly design flaw.

Key elements

The most fundamental step is to establish a program strategy. The objective of the strategy is to determine how the various key elements (or strategies or engagements) are linked together. Doing this creates a two-part roadmap
for stakeholders to follow. The first part is the marketing strategy. This spells out which products and services are offered to which market segments. The strategy sets out distribution requirements based on a consumer-centric retailing strategy.

Additionally, it defines the company’s image: how does the company wish to position itself in the community?

The second part is the network strategy model. The objective here is to determine the optimal distribution network based on the predicted productivity, capacity and capabilities. This is done using two separate tools: network modeling and transition modeling.

At a high level, the SKU characteristics and their associated behaviours form the basis for design of the network model and ultimately the physical building and the material handling equipment. The output of this strategy (predicted demand) provides the project team with the base design criteria. In other words, it answers the question “what do we design to?”

*Edward Stevens is the pseudonym of a professional who has worked in the Canadian retail sector supply chain for over 30 years with a strategic focus in the physical distribution of goods and the systems (including the people, processes and technology) that make up flexible, cost-efficient and effective delivery design. He and his colleagues have extensive experience in facility operations management, industrial and mechanical engineering, and facility design.