Logistics Test 3: Network Design

Direct Delivery

No Accumulation

Sortation

Assembling like products together for storage in the distribution facility, processing or transfer to customers. Effective inventory and order fulfillment

Assortment

Assembly of Customer orders for multiple SKUs held in the distribution facility. This mixing capability avoids the expenses related to placing numerous orders and having them shipped from a variety of locations

Distribution Facility Functionality: Value-adding roles

Assembly, kitting, product postponement, sequencing

Key distribution challenges: Demand Variation SOLUTION

Balancing the DC requirements of seasonal products with products that have alternate primary selling seasons and/or stable year-round demand products

Distribution Technology: Warehouse management system (WMS)

Core software used to manage fulfillment processes, with value-added capabilities, including labor management, automated data collection, task interleaving, fulfillment flexibility, and systems convergence

Key distribution challenges: Labor availability issues SOLUTION

DC Automation

Put-away

Identify the product, verify location, fill storage/pick slots, direct fill orders

Allocation

Matching available inventory to customer orders for an SKU. Break-bulk capacity promotes product availability for multiple customers and in desired quantities

Key distribution challenges: Labor availability issues

Nature of DC operations work creates ongoing turnover challenge, smaller labor pool due to aging demographic trend in Europe and the US.

Accumulation

The DC serves as a collection point for product coming from multiple origins and provides required transfer, storage or processing services, allowing, firms to consolidate orders and shipments for production and fulfillment practices.

Key Distribution trade-off: Equipment v. People

The greater the use of equipment to automate materials handling and distribution, the lower the labor requirements of a facility.

Key Distribution trade-off: Space v. Equipment

The larger the facility and the more space used for distribution operations, the more equipment will be needed in the facility

Key Distribution trade-off: People v. Space

The larger the facility workforce, the larger the facility size and throughput possible

Facility considerations: Size

The more facilities in the distribution network, the smaller they need to be. Demand forecasts for the facility can be used to create rough estimate of space requirements. Each facility must be large enough to accommodate the distribution activities that will be performed within the four walls, and interface with the transportation network.

Distribution Technology: Automatic Identification (Auto-ID tools)

help machines identify objects. (bar codes, smart cards, voice recognition, biometric technologies, radio-frequency identification (RFID)

Facility layout principle: deploy warehouse automation solutions

improves facility productivity and safety, reduces travel time, reduces labor needs

Product location: slotting

the placement of product in a facility for the purpose of optimizing materials-handling and space efficiency

7 Value-adding roles

1. Light assembly services 2. Inventory management and visibility 3. Product kitting, bundling, unbundling 4. Product postponement 5. Production sequencing 6. Quality control 7. Recycling, Repair, and returns management

Distribution Facility Functionality: 4 Primary Functions

1. Accumulation 2. Sortation 3. Allocation 4. Assortment

Distribution operations metric example

1. Distribution cost per unit 2. Distribution cost ratio 3. Capacity utilization 4. Equipment utilization 5. Labor productivity 6. Distribution Efficiency

7 Roles in Distribution Operations in Supply Chain

1. Enhance Customer Service 2. Balance Supply & Demand 3. Protect Against Uncertainty 4. Allow Quantity Purchase Discounts 5. Support productions requirements 6. Fulfill Omni-channel Demand 7.Promote Transport Economies

5 Key Support Functions

1. Inventory Control 2. Safety, maintenance, and sanitation 3. Security 4. Performance analysis 5. Information Technology

Slotting 1

1. Popularity- high volume products near shipping are, low volume products away from shipping area

Customer-facing metric examples

1. Unit fill rate 2. Case fill rate 3. Order Value fill rate 4. Order accuracy 5. Document accuracy 6. On Time Dispatch 7. Perfect Order Index

Slotting 2

2. Unit Size- small size items near shipping area, large size items away from the shipping area

Slotting 3

3. Cube- smaller total cubic space requirements near the shipping area, larger total cubic space requirements away from the shipping area

DC

Accumulation

Network design issues: ownerships

Decisions on facility ownership-private facilities, public facilities or contract facilities-should be made based on the organization's expertise vs. scope of tasks required and financial resources relative to the number and size of facilities needed.

Objective

Decrease Cost/Increase customer service

Distribution Planning and Strategy

Determining the number of facilities needed for a a supply chain involves the evaluation of cost trade-offs with other functional areas. Effective location selection requires analysis of the DCs intended function, sources, and volume of supply, customer locations and demand patterns, and related fulfillment costs.

Distribution planning and strategy

Distribution Strategies should tailor to products being handled, customer requirements and available internal expertise and resources. A series of interrelated planning decisions must be made to ensure that the strategy can be executed at a reasonable cost while supporting supply chain demands

Key distribution challenges: Increasing customer requirements SOLUTION

Flexible fulfillment processes

Cross-docking: High-tech option (Heavy reliance on automation)

Freight is received, checked for accuracy, and prepared for induction, cartons travel thru facility on conveyor system to reduce labor and speed transfer of goods, barcode reader identifies products and deliver cartons down appropriate loading line, cartons are loaded in a trailer. Load of mixed product shipped to retail outlet when full.

Key distribution challenges: Increasing customer requirements

Growth in additional capabilities and services. Lean strategies creating expectations of smaller, more frequent, and faster fulfillment orders

Key Distribution Trade-offs: Functional Trade-off

How to best balance cost and customer service: warehouse, transportation, inventory, customer service

Key Distribution Trade-offs: Facility-level Trade-offs

How to best balance financial and performance: space, equipment, people

Distribution planning and strategy Network Design Issues

Inventory positioning, number of facilities, location of facilities, facility ownership

Proper Slotting

Picking productivity, efficient replenishment, work balancing, load building, picking accuracy, ergonomics, pre-consolidation

Factors affecting distribution Facility ownership

Private if: high throughput volume, stable demand variability, high market density, special physical control needs, high security requirements, high customer service requirements, multiple use needs.

Distribution planning and strategy Capability Requirements (Strategic planning)

Product attributes, flow requirements, roles to be fulfilled

Slotting

Proper product slotting can improve fulfillment performance and generate other advantages for the organization and its customers

Support functions

Provide coordination between key processes and across the supply chain, protect the organization's inventory investment, and improve working conditions within the facility

Facility layout principle : minimize aisle space

Provides more storage and processing capacity

Facility layout principle: Use a one-story facility

Provides more usable space per investment dollar. Results in lower construction costs

Replenishment

Re-supply pick slots, move pallet quantity orders to shipping dock, verify moves

Cross-docking: Low-tech option (Heavy reliance on manual labor)

Receive, sort/stage, load, deliver

Facility layout principle: Use vertical capacity

Reduces building footprint and land requirements

Shipping

Schedule carrier, load vehicle, secure freight, complete paperwork, call for dispatch

Receiving

Schedule carriers, unload vehicles, inspect freight, verify order

Key distribution challenges: Demand Variation

Seasonal demand creates challenges in effectively utilizing the space and equipment resources and retaining labor throughout the year.

Distribution planning and strategy Facility consideration (tactical planning)

Size of operations, interior layout, product location.

Distribution execution: product-handling functions

Storage locations, replenishment, Receiving, put-away, shipping, picking locations, order picking

How DCs work

Supplier sends in bulk. DC mixes and ships. Retailer receives variety

Order picking

Travel to pick slots, validate SKU and quantity, fill customer orders, prep and deliver product to shipping dock

Facility layout principle: use direct product flows

avoids backtracking and costly travel time

Facility layout principle: use an appropriate product storage plan

maximizes space utilization and product protection