distribution centre optimisation part 2

How to optimise your distribution centre (Part 2)

In this post, we will examine the three phases of a DC optimisation process to explain how companies can achieve their optimal DC solution.

In part 1 of this post, we identified four signals that it may be time to consider either a new Distribution Centre (DC) or refit of an existing DC. In this post, we will examine the three phases of a DC optimisation process to explain how companies can achieve their optimal DC solution.

Concept design phase

The first step in planning your distribution centre’s improvements is to set key performance indicators (KPI’s), which will form the benchmarks against which the final solution design will be measured.

These KPI’s should be directly tied to your organisation’s overarching supply chain goals in order to obtain the ideal optimised network. Examples of relevant KPIs include:

  • Estimated productivity by functional area
  • Storage space requirements
  • Facility and equipment capacities
  • Estimated labour costs

Once KPI’s have been established it is important to develop short and long term solutions by conducting a thorough analysis of operations data. This analysis is vital to determining the optimal flow of products through a facility.

In the concept design stage, each functional area is examined, in combination with product and order characteristics to help establish distribution projections for the future. Processes and functional areas are also examined to gauge if changes such as pre-labelling or advance shipping notifications would improve efficiencies in your distribution centre in the short-term.

Specific areas that need to be evaluated include receiving, put-away, reserve storage, replenishment, picking and value-added services. Other options that may also need to be considered during this phase include assessing the potential use of third-party logistics (3PL) providers, possible consolidation of several facilities into one, transition planning, compliance programs or network analysis.

When collecting relevant data it is imperative that the data is accurate so it can properly reflect the facility’s current operations and performance as well as project future requirements effectively. Any shortcuts taken with data collection, which require estimates or assumptions to be made in the absence of good quality data will almost certainly result in a less than optimal facility design, potentially costing the business more in the long run.

Once the data is collected, a model of both historical and projected throughput and storage requirements will need to be developed. This model will help form the parameters for establishing the distribution capacity requirements over the short and longer term, as well as determine the types and amounts of equipment and space needed for each area of a new distribution centre.

While this model building phase is time consuming and often challenging, the effort required to build a fact based, accurate profile of the existing and future warehousing operation and costs will form the basis for a well informed design solution.

To help ensure an optimal facility design, it is ideal to analyse each functional area independently of the others with the goal of outlining up to four handling approaches per location (which are then also evaluated in terms of design, cost and efficiency and ranked according to the set KPI’s).

Once this is done its time to start piecing it all together by assembling the process to create a conceptual facility layout. This method enables one to see whether the ideal solution for one particular area works well when combined with the other areas. Looking at the sum of these parts is the most effective way to ascertain the best possible solutions.

At the conclusion of the planning/concept design stage (which usually takes 12 to 16 weeks) two or three potential facility concepts have been developed.

The detailed design phase

Once the initial concept designs have been completed, it is time to refine one or all of the top 3 concepts developed in the previous planning phase. 

When evaluating the concept designs it is important to consider the following factors when establishing growth projections:

  1. Are there any potential acquisitions currently under consideration that may affect the future growth and handling capability of the facility?
  2. Are there any planned new products or e-commerce offers that will mean different fulfillment requirements?
  3. Has anything changed during the planning process up to this point, which may impact the distribution centre design concept that you ultimately proceed with?
    Once the final concept design has been selected it is time for a specialist design consultant to develop detailed drawings of the facility and the system, which will include the following components: hardware and software plans, a physical footprint of the facility, detailed equipment layouts and future expansion plans to accommodate future growth. Some designs may be drawn to show staged upgrades in situations where a business may be phasing in a new technology or other initiatives that may take several years to achieve full implementation.

Working with a specialist design consultant will enable you to have a better understanding of the feasibility of each design concept as well as the potential cost as they can identify any necessary structural modifications needed in the case of an improved or new facility that may result in additional convenience or cost savings.

For example, when expanding an existing facility one may have the option of reinforcing the ceiling to enable the suspension of equipment from above rather than having it anchored to the floor, which may adversely impact future facility layouts. A specialist design consultant has the knowledge to ascertain the actual cost differences and future value of each option to help narrow the selection for the ultimate design concept.

This stage should also include a plan for integrating automation systems, process and material handling engineering, meeting compliance requirements and objective vendor selection. These components need to be considered in the context of the overall supply chain initiatives established as part of the network-wide optimisation process.

A thorough comparison of the cost/benefit differences of each concept will help determine the final design. But before proceeding to the implementation stage, it is important that you are armed with the following:

  • A firm fixed price for the implementation
  • A detailed schedule for completion of the project
  • A budget detailing both the initial system as designed, as well as the anticipated cost of projected future enhancements and expansions

The implementation phase

During this phase the expanded or new facility comes to life. Design phase drawings are expanded into detailed installation drawings – equipment is ordered – electronic controls and system software are engineered.

At this stage it is crucial to monitor the seamless integration of the automation systems with the host system, paying particular attention to relating that data as a component of the overall supply chain goals. Once the physical implementation is complete and extensive testing is undertaken (which is conducted in accordance with an agreed-upon commission plan), the system goes live.

To support the new or improved facility and ensure the quickest and most productive usage possible, training needs to be conducted. This training should commence during installation and continue through to the commissioning stage. Training should encompass extensive systems, operations and maintenance training for supervisory, operator and maintenance employees, and be delivered via a combination of hands-on and classroom training.

It is important to continually review the KPI’s established at the beginning of the process to ensure that you are receiving the maximum return on the investment you have made for your improved or new facility. By monitoring and reviewing actual results against baseline standards, you will be able to isolate trends and react quickly if things get off course. And, consistent review and refinement will help your facility keep up with change and growth, ensuring that it continues to meet your operational goals.

Supply chain and logistics management consultants are available at New World Business Solutions to provide you with expert assistance. Contact us today:

Phone: 02 9401 9152
Email: info@newworld.com.au

Download our free white paper to discover why leading global organisations are applying advanced supply chain optimisation tools and methods to improve efficiency, customer satisfaction and profitability: