I was in New York last week and had lunch with some colleagues in the industry. We all noted that over the last few months, we’ve seen what seems to be a real increase in companies that are out of space in their distribution centers and need to make some crucial decisions soon about what to do. When the Great Recession hit businesses in 2008, many companies canceled their facility expansion plans. Instead, they hunkered down and reduced inventories, leased seasonal overflow space, and in some cases, just lived with a distribution center that was over-full. Commonwealth actually published a white paper in 2011 that was very popular amongst our readers, titled, “6 Ways to Postpone Your Distribution Center Expansion”. For many companies however, these strategies have run their course, and they can no longer kick the can down the road and postpone capital investment in distribution center design changes or a new distribution center.
This is an encouraging economic sign to be sure: many companies are still experiencing slow, steady growth. However, for the companies in question, it’s time for some hard decisions. Whether a company decides to expand, relocate, or stay where they are and invest in high-density storage systems, all of the options on the table involve capital expenditure. While companies may have made their peace with spending the cash, many still seem to be paralyzed by indecision over the required distribution center design. In the new economic environment, most companies simply cannot commit to a growth forecast beyond the next few quarters. Should they be optimistic and risk building a bigger distribution center than they need? Or should they be conservative and risk having to repeat the whole expansion process again in a few years? Should they put in a lot of automation that might not meet their needs if some sales channels grow faster than others?
To address these needs, a new class of distribution center design tools has emerged. These applications can quickly show a company the storage and throughput implications of a wide range of potential growth scenarios. The tools, which are based on actual SKU-level sales data from the company, usually feature an interactive dashboard where variables like volume growth, SKU proliferation, inventory policy, replenishment method, and so on can be actively manipulated by a user. As these variables are changed, the tool displays in real-time a virtual distribution center design – what storage mediums should be used, how many pick-faces will be required, and what pick rates will be needed. Using a distribution center design tool may not help build a better forecast, but it can show whether a proposed design will be flexible enough to adapt to most of the key ways that the future could unfold. In today’s uncertain age, “flexibility” is often the overriding design principal for new facilities, and can help break the decision paralysis that many companies are experiencing with their distribution center design plans.