By Ian Hobkirk
Managing Director of Commonwealth Supply Chain Advisors
October 30, 2013
A few weeks ago, a major U.S. clothing retailer took a big financial hit due to a variety of problems related to the startup of a new distribution center. According to a press release on the company’s website, comparable store sales for September 2013 decreased 6%, which the CEO primarily attributed to “problems with staffing, design, planning and technical issues” at the new distribution center.
This is a frightening prospect for any company contemplating a new distribution center startup. While the majority of distribution center startups go more smoothly than the example above, it is not uncommon for companies to experience delays in shipping product and significant additional labor costs during the startup period.
In our work with our clients, we frequently assist with planning and executing distribution center relocations. While we have no knowledge of the specific circumstances in the example noted in the previous paragraph, we wished to take this opportunity to point out some general advice to help companies avoid failed distribution center startups:
1. Use a data-driven design: Too often, companies use purely intuitive design methods when determining the layout of the new facility. This can sometimes lead them to simply replicate the same old problematic storage and handling techniques that exist today, or worse, to make invalid design assumptions about introducing new technology. A large element of objectivity can be introduced to the process by creating a data model of the operation which can be used to test potential designs. Interesting findings can sometimes emerge from this data model regarding the current slotting effectiveness, bin replenishment methodology, and pick density. Commonwealth encourages companies to use both a Storage Design Tool and a Throughput Design Tool to evaluate the best design for the facility.
2. Don’t fall in love with technology too early: It’s easy to go to industry trade shows and be wowed by the latest warehouse automation technology, be it robotic handling or some new advance in conveyor systems. It is important to keep in mind that distribution centers vary widely in their business requirements and determining the right technology fit depends on a variety of factors, including handling characteristics of the product, order profiles, product velocity, and so on. The manufacturers of the technology are not always the most objective source of advice on its suitability for a given operation. Independent guidance can be incredibly helpful when making these decisions.
3. Plan for all of the potential visions of the future: Many material handling systems start out with a sound design but are not able to adapt well to changing business conditions. It’s important to map out as many potential visions for the future during the design phase in order to develop a design that is flexible enough to accommodate a variety of scenarios. Modeling the impact of rapid growth, SKU proliferation, and changes to the product mix is vital before bolting down expensive equipment.
4. Be realistic about the timetable: Almost all new distribution center projects experience delays of one kind or another, especially those involving new building construction. It’s important to build in some allowance for unexpected delays into the timetable. Additionally, companies should be reasonable about how hard they push their vendors on timetable during the sales process. Equipment providers may agree to unrealistic schedules out of fear that they will lose the deal to the competition. Simply pushing a vendor to commit to an unrealistic date is a far cry from having the project actually completed on time. Companies should ask vendors for their most realistic expectation for completion dates, and try not to make the shortest timetable a major criteria in the sales process.
5. Allocate enough internal resources for the design: One of the biggest sources of delays in new distribution center projects is due to the company not being ready to focus sufficient resources to the design process. Vendors may be all too glad to allow the schedule to slip for these reasons, as it provides them with more breathing room to complete the project. Companies should plan on numerous extensive design sessions with all levels of management – from the managerial to the VP level – before a design is developed and approved.
6. Stay organized: Especially when new construction is involved, there can be a tremendous number of moving parts in a new DC startup. The actions of many parties must be tightly coordinated: site work, construction, permitting, material handling equipment, product moves, software go-lives, and so on. Having a single project manager have centralized visibility and control of all of these actions is vital to keeping the project on track. In any given week, there may be one or two keys items which will require the most attention from all parties. Identifying these items and focusing attention where it is needed can make a real difference in keeping the project on schedule.
7. Late is better than wrong: Sometimes, painful choices must be made about whether to delay a go-live that is experiencing problems, or plowing forward and working through the issues that arise. A systematic readiness assessment should be conducted to help all stakeholders objectively evaluate the situation. While delaying the launch of a new DC can be embarrassing and can postpone time to value, going live before the bugs are worked out of a new storage and handling system can be catastrophic. Product may be unable to ship, inventory may get lost, and the operation can fall into a trough of inefficiency that it can take months to recover from. When in doubt, wait.
New distribution center startups can be challenging, but with proper planning and decision making discipline, even the most complex project can meet expectations.
Commonwealth’s distribution center design whitepaper series provides a structured approach for planning a new or re-designed distribution center. Parts I and II in the Series are now available:
Read Confidently Committing to a Distribution Center Design – Part I – Storage Design
Read Confidently Committing to a Distribution Center Design – Part II – Throughput Design