|
Mistakes to Avoid in
Distribution Center Planning
From Our Free "Best
Practices" Booklet
Too many Distribution Centers (DCs) fail to live up
to business expectations. The reasons are varied but
many DCs share common problems.
- The operation fails to achieve the desired
throughput.
- Errors occur in processing and this impacts
service levels.
- Inadequate inventory controls and accuracy
reduce fill rates and inventory turns.
- Automation fails or is inflexible to changing
business conditions.
- Travel distances are long and the operation is
difficult to manage.
- Inefficiencies and poor productivity cause
staffing issues and cost increases.
To improve, projects such as building a new DC,
expanding an existing DC, or reengineering an existing
operation are launched but many fail to deliver results.
Project teams struggle because:
- Final plan consensus cannot be obtained, causing
project delay.
- Facility and operational designs are too
expensive to implement.
- Proposed materials handling and warehouse
management systems do not provide an adequate return
on investment.
Operations Associates has executed nearly
one-thousand projects. We have documented key mistakes
that are typically made by less experienced project
teams. Our goal is to share this critical information
with you so you can avoid these mistakes. We hope this
helps your project team successfully plan and design
your DC improvement project.
We would like to share “Mistake #1 with you. Please
contact us for a free pamphlet to view all 10 of the
lessons. In subsequent newsletters, we will focus on
each of the 10 Mistakes to Avoid in Distribution Center
Planning.
Mistake #1
Incomplete Supply Chain Strategy
Every DC fits within a network of facilities moving
products, information, and money between trading
partners. How the facility fits within the long-range
strategy affects what functions will occupy the
facility, the service levels, the required capacity and
throughput, and the inventory stocking levels. In
addition, the location of the facility will have a major
impact on service levels and future expansion issues to
meet customer demands. Some companies don’t sufficiently
develop their supply chain strategy. As a result, their
plans include too much space contingency and their
project can be subject to considerable rework and
unnecessary delays.
For example, an Automotive aftermarket parts distributor
was planning to close several facilities and consolidate
operations from two divisions into a new central DC. The
initial plan called for 400,000 square feet ideally in a
central location. Although, after six months of
planning, one of the divisions decided to keep an
existing facility. The project moved forward
consolidating the other facilities. The optimal
location, however, shifted by over 300 miles and the
required size of the new DC was cut in half.
Essentially, six months of time and money designing a
new facility and searching for an ideal site were lost
because the company did not fully develop its supply
chain strategy.
Supply chain strategy drives DC plans
FREE Offers!
Call us for our free "Best Practices"
booklet:
Ten Mistakes To
Avoid In
Distribution Center Planning
also...
OA'S New Overview
Brochure
The Logistics Site
Selection Article
Advanced Project
Management Seminar
Call Mike Rigg for information and
pricing on seminars for your office. |
Logistics Site
Selection - A Weighty Decision
By: Dale Brubaker
A recent headline in a national logistics magazine
screamed the results of a study by a well known
consulting group: “Bloomington, IN selected best
warehouse location.” This was determined by calculating
the population weighted center of the United States. In
other words, in Bloomington, you have minimized the
distance to every person in the United States if you had
one distribution center.
The author went on to show the “best" locations for
warehouses if you have a network of one to ten
warehouses, based on the weighted population center of
the U.S.
What is wrong with this approach? This
over-simplification of the site selection process
grossly miscalculates the impact of transportation costs
to the overall operation costs of a company. By only
looking at minimizing the average weighted distance to
the population, you make two grossly over simplified
assumptions: one, that your logistics costs are only
related to transportation; and two, that your
transportation costs are directly correlated with
distance. Site selection, done properly, takes into
account many other factors that will definitely affect
where your company decides to locate a warehouse or
distribution center.
In this article, we will show a more comprehensive
model for site selection and discuss some of the do’s
and don’ts of the process. We will discuss many cost
factors that have to be evaluated relative to your
company’s situation. We will also discuss some of the
qualitative issues that are often overlooked in the site
selection process and wind up costing companies a lot of
time and money. Finally we will show you how using an
oversimplified approach can lead to significantly
increased costs of operation that will leave your
company at a competitive disadvantage.
The following six steps can be used to form the
framework around the site selection for a new facility.
- Understand your customer base
- Know where your company is going
- Model the quantitative factors
- Understand the qualitative factors
- Build the business case and cost justification
for moving forward
- "Get Local" and evaluate specific sites
It cannot be overstated enough that the first step
in a successful site selection process is to know your
customer. The number, size and location of your
distribution centers (DCs) are directly related to the
service level your customers demand. Understanding how
much additional business you can gain by exceeding them
is paramount. For example, if you are supplying repair
parts for aircrafts, your customer is not worried about
the cost of transportation; they just want the part as
quickly as possible. Therefore you need a single DC
located next to the air hub of an overnight delivery
service. However, if you are shipping to a national
network of retail stores and are expected to deliver the
product within five days of order receipt then you need
multiple DCs that are located such that you minimize
your cost structure while still meeting the customers
expectations. The overarching rule of site selection
is: “Thou shall not ever jeopardize customer
satisfaction to minimize costs.” However, once you
understand the customer requirements there are a lot of
things you can do to minimize costs while still meeting
their goals.
The complete article text is too comprehensive for
the length of our newsletter. Going back to our 1 DC
example, when we consider the weighted cost of operating
the DC and actual transportation costs, the "Best
Distribution Location" shifts to Hickory North Carolina,
although the average distance to population center
increases from 931 to 1014 miles. We've run a similar
analysis for a distribution network of 2 to 10
facilities.
For a complete reprint of our
article and details on this analysis, please contact us!
For more information
contact:
Alan Nager, Principal
AlanNager@oallp.com
Mike Rigg, Principal
MikeRigg@oallp.com
Christi Suchyna, Marketing Manager
ChristiSuchyna@oallp.com
800-860-4902 |
