It used to be that a distribution center's main concern was getting orders out the door as quickly and efficiently as possible. What happened after the truck left the dock was not its problem.
Not so anymore. In many retail companies today, the focus has shifted to improving efficiencies at the other end of the supply chain—that is, in activities like unloading and putaway that take place after the truck reaches the store.
As a result, DCs are increasingly being asked to provide "store ready" shipments, with merchandise packed and loaded with an eye toward streamlining the receiving and putaway processes. That might mean, for example, loading orders into trucks in a particular sequence or shipping more mixed-case pallets, with items that are sold in the same department grouped together—say, dog and cat food, with no cleaning products packed in between. "It's all about reducing the time, labor, and complexity required to re-stock the shelves at the retail store," says Ken Ruehrdanz, market manager, distribution and warehouse systems for Dematic, a material handling and logistics automation company.
The reason behind this shift is simple math. Anything that cuts labor costs at 100 stores will save big bucks, even if it means higher labor costs at the DC that serves those stores, says Lance Reese, technical solutions director for Intelligrated, a provider of material handling solutions.
To be sure, the store-ready concept is not new. Consumer packaged goods companies have been building mixed-case pallets and loading trucks in reverse stop sequence (with orders for the last stop on the truck's route loaded first) for years. But the practice is now spreading beyond grocery, convenience, and drug stores to other kinds of retail establishments, like consumer electronics and club stores.
The store-ready trend is also deepening: In addition to store-ready pallets, some companies are now asking for store-ready cartons and totes. Others are experimenting with store-ready packaging, a concept popular in Europe, where products are packaged to go straight from the truck to the shelf.
Keep the cost down
All of this, of course, has the potential to add significant costs to DC operations. For starters, there's the additional labor required to pick orders in a "store friendly" sequence as well as the labor needed to break down full pallets and build new, mixed-case loads. "The distribution center is now going to cost more to operate," Ruehrdanz says.
For managers whose sole focus up to now has been on optimizing DC costs, this isn't always an easy adjustment, says Tom Kozenski, vice president of product strategy at software vendor RedPrairie. "I've been in meetings with senior executives of logistics who say, 'I'm willing to do things to help [the stores] but at relative cost,'" he says. "In other words, they're saying, 'I'd love to pick these pretty packages for you, but it costs me money to pick them in that order and to ... have my workers walk around instead of yours,'" he explains.
Still, there are ways to accommodate these requests without being killed by the added costs. Ruehrdanz warns, however, that it will take some work. In fact, for a lot of companies, it will most likely mean analyzing and re-engineering the order assembly process, he says.
For instance, if increased worker travel time is a concern, the solution may be to change the warehouse layout to emulate the layout of the store. Essentially, this would mean adopting a whole new slotting strategy, with storage locations determined not by SKU velocity but by the store's planogram (a visual plan that designates the placement of products on a retail store's shelves and displays). So, for example, all men's personal care items would be grouped in the same aisle, even if razor blades move faster than hair-growth treatments. SKU velocity would still be taken into account, but in this case it might mean slotting razor blades and other fast movers in the middle of the storage racks, with the slower-moving SKUs at the top or bottom.
Kozenski sees slotting as a big area of opportunity for controlling labor costs. "That's where the magic bullet is," he says. Kozenski adds that it's not even necessary to follow a standard store layout. "If I'm truly slotting by department, I can pick by department no matter what the sequence of those departments might be from a planogram standpoint," he says. In other words, even if dog food is not located in aisle 5 at all grocery stores, dog food will always be stored adjacent to cat food.
One big exception would be special promotional displays that change weekly. For these items, Kozenski recommends setting up a short line in the warehouse for that week's specials. At the end of the week, the line can be torn down and reset for the next week's promotions.
Man vs. Machine
While a change in slotting strategy can do much to promote picking efficiency, it still leaves another part of the labor problem unaddressed. Typically, creating store-ready pallets requires breaking down single-SKU pallets and then repacking the cases in a specific order on mixed-case pallets. That can be a significant drag on an operation's efficiency. "You don't have full-throttle continuous movement any more [when you're building mixed-case pallets]," says Dan Labell, president of Westfalia, a manufacturer of automated material handling equipment. "Instead, products have to be married up with other products coming from another part of the warehouse."
In some cases, the solution may be automation—whether it's the fully automated route or partial automation. An example of a fully automated system would be a solution that uses an automated storage and retrieval system (AS/RS) for storing full pallets of goods and a robot for order picking. To fill an order, the robot would remove a layer from the appropriate pallet and deposit the merchandise (which may be further broken down into cases) onto a conveyor for transport to an automated sequencing buffer area. There, it would be married up with the other SKUs required for the order.
In the more common, partially automated approach, employees might pick cases to a conveyor belt. The order would then either be automatically palletized or assembled by workers using pallet lifts to make the process more efficient and ergonomic. Sometimes, companies will use robots to build the layers for the mixed-case pallets, with workers manually "topping off" the order with individual cases.
Because of the complexities involved, these automated approaches require sophisticated IT support, whether it's slotting software or a warehouse control system to sequence the orders. Indeed, the algorithms for mixed-pallet sequencing can be quite complex, especially if products of different sizes, shapes, and weights are being packed on the same pallet, says Labell. Kozenski adds that performance management software can be helpful in determining how much labor is truly being saved at the store and how much more is required at the DC.
A mental shift
In at least one corporation, the move to store-ready shipping is affecting more than just the operations at individual DCs. It has led the company to rethink the way it runs its distribution network. As part of a push to improve its direct-to-store delivery process, Pepsi Beverages Co. is piloting a two-tiered distribution network strategy. Under this model, mixed-layer pallets are built by automated equipment at a plant or centralized DC. These pallets are then shipped in full truckloads to satellite DCs or cross-dock facilities, where the pallets are "topped off" with individual cases, said Tim Thornton, vice president of warehouse and logistics for Pepsi Beverages, during a presentation at the 2010 Council of Supply Chain Management Professionals' annual conference.
The prospect of a network overhaul aside, for most companies, the biggest adjustment when moving to store-ready shipping will be the change in mindset required. After years of talking about the savings that can be achieved through integrated supply chain management, distribution and logistics professionals are learning what it's like to take a cost hit for the team. "It's a real paradigm shift," says Ruehrdanz, "and staff [members] are going to have to get used to a whole new way of doing things."
Gartner, Inc.