21st century warehousing strategy and operation

21st century warehousing Strategy and

Operation

Patrick Daly

To my wife, Elisa; my children, Brian and Maria; and my parents, Marie and Paddy who always believe PATRICK DALY

Table of Contents Foreword by Alan Weiss, PhD Almost Midnight: Warehouse or Pumpkin?

P. IV

Introduction

P. V

Maximizing the Return on Investment

P. 01

Improving Operating Efficency

P. 05

Best in Class Standards

P. 09

The Practical Application of 80:20 Rule

P. 13

Implement and Sustain Change

P. 16

Choosing a Warehouse Storage Solution

P. 20

Storage Equipment Options

P. 23

Evaluating and Selecting Storage Equipment

P. 26

The Benefits of a Warehouse Managment System

P. 29

The Pitfalls of WMS Implimentation (Miscalculation of Time Investment)

P. 32

The Pitfalls of WMS Implimentation (Integration and Interface Problems)

P. 35

The Pitfalls of WMS Implimentation (Modifications and Upgrade)

P. 37

Conclusion

P. 38

IV

Foreword Almost Midnight: Warehouse or Pumpkin?

I’ve trudged through over a thousand warehouses and storage facilities in my career as a consultant to global, Fortune 1000 companies. Early on I thought that if you saw one warehouse you saw them all, and I’d agree to the tours as part of my efforts to convince executives I was poking into every nook and cranny.

I soon found I was experiencing the difference between Bentleys and Berkeleys.

Some of these facilities were run with laser-like precision, and some were little more than storage dumps. There were some visited by executives and customers daily, and others that would require GPS for a senior manager to locate, let alone visit. Some looked like hospital operating theaters, and some like the aftermath of a collision.

I found that warehouses and warehousing were key aspects of a company’s efficiency, margins, and responsiveness. I began demanding the tours instead of dreading them.

In the pages ahead, Patrick Daly takes you on his tour of how to develop, monitor, improve, sustain, and nurture your warehousing efforts. He knows more about this vital profitability area than anyone on earth, and he has distilled it here as he would organize a warehouse: Material is easy to locate, fresh, fast, and readily accessible.

You’ll learn more in this book than you will from any source short of hiring Patrick himself, which scores of firms have found to be an excellent idea in their pursuits of excellence. I’d suggest that every member of your leadership team read the book, and then have their subordinates read the book, and then discuss how to use the contents as a daily, tactical guide to efficiency and profitability.

Patrick, whom I’ve had the opportunity to work with and who is in the Million Dollar Consulting© Hall Fame, calls the warehouse operation a “Cinderella” function. I’d admonish you to read this before your operation turns into pumpkins.

But if it did, Patrick would know how to store them.

Alan Weiss, PhD East Greenwich, RI, USA Author, The Consulting Bible, and 45 other major works on management

V

Introduction The warehouse has traditionally been the Cinderella department in many businesses, and this has particularly been the case in the manufacturing sector.

However, the advent of supply chain management (SCM) has highlighted the importance that warehousing plays, as a vital link in the supply chain, in helping best-in-class companies to gain competitive advantage and WIN in today’s economy.

The warehouse is highly integrated in today’s supply chain and an inappropriately designed and operated warehouse will play havoc with planning, production, quality and customer service whereas a well managed and operated warehouse will add value to your business and deliver real competitive advantage.

For quite some time now I have wanted to bring together a collection of my best concepts, ideas and real-life case studies for my clients to help them in a truly practical and pragmatic sense to engage with and address the many challenges encountered day-to-day in warehousing strategy and operations.

This audio book “21st Century Warehousing” is the outcome.

The three top items that I hope that you will take away from this audio book are: 1. The warehousing function is a critical component of the supply chain of any business in the economy of the 21st century and a true source of competitive advantage.

2. The warehouse is a highly integrated component of a modern business and as such warrants due focus and attention - the warehouse can no longer be the Cinderella department.

3. There are huge opportunities to improve the effectiveness and efficiency of warehousing operations through the application of straightforward tools and techniques with focus and determination.

Welcome, let’s get started……

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21st Century Warehousing Strategy and Operation

Maximizing the Return on Investment on Warehousing in Manufacturing Warehouses that support manufacturing operations have a number of peculiarities that set them apart and present special challenges to the task of design, organization and management of these facilities.

In my view, to ensure maximum return on invested capital there are a number of key outcomes to be achieved as follows:

• Provide the right mix of storage equipment types to suit the current and future stock and the batch profile • Provide for the projected capacity with high space utilization • Provide effective and efficient processes and logical flow through all the materials movement steps – receipt, put away, work order pick, pick face replenishment, staging, line-side replenishment, sales order pick,

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shipping and so on.

• Provide the right mix of materials handling equipment to support the processes • Determine the labour requirements and ensure that they are deployed effectively and efficiently.

• Determine the skills required by operators and supervisors to work the solution.

• Ensure that the information system (WMS) can support the equipment and process design.

I generally break the challenge down into two sub-solutions to be tackled separately and then to be integrated into one holistic solution.

These are: Firstly - The Storage Solution or the Static Solution, that is, a solution that ensures that I can store all the materials I need to hold effectively and efficiency.

And secondly the Activity Solution or the Dynamic Solution, that is, a solution that ensures that I can access everything I need when I need it in the most efficient way possible.

To develop these two solutions in the best possible way for your particular business, requires a structured analysis of your particular business data.

Essentially two types of data need to be analysed.

Firstly we need the SKU or Stock Keeping Unit Master Data for all live item codes for all the material types that will be accommodated including Raw Materials, Packaging Materials, Work in Process and Finished Goods.

This data gives us the item codes and descriptions and provides the physical information regarding pack types and dimensions essential to determine the space requirements and storage equipment types.

Secondly we need the Movements data over a significant period of time.

These are the movements such as Receipts, Issues and Shipments for all the same categories of materials referred to earlier. These data sets will tell how much or which types of materials are required to be accessed and the frequency of these movements. This is essential to complete the storage and

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materials handling solution designs as well as to determine the material flows, ways of working and manning levels.

Various separate sets of analyses are carried out using these data. The results of these analyses provide the practical working solution to match the specific requirements of the specific stock profile and its static and dynamic characteristics. This varies widely from application to application.

These analyses will tell us: • What profile of average batch sizes is by SKU and therefore which mix of storage equipment will be the most appropriate to make the best use of space. • What level of put away and picking activity there is and how many people will be required to do the work and which types of handling equipment will be needed. • What is the nature of activity, whether it is constant or lumpy, full pallet or item pick, what the needs for staging areas and production kanbans.

All of this output also shapes the design of the processes and operating procedures to make it all work. This enables us to specify the numbers of people, the skills levels and the information systems functionality that will be required.

Following a structured approach such as this will ensures that the solution is practical and effective, that it enhances the economic value of the business and simultaneously enhances the top line while containing the bottom line proving optimum return on investment.

Case Study: Maximizing Return on Investment A multinational manufacturer in the food sector asked for our help to optimise their investment in a new finished goods warehouse alongside their manufacturing plant. The warehouse was to be used to store finished product and to pick and despatch orders to markets around the world.

The product was bulky, palletized and made in batch sizes that ranged

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from 1 pallet to more than 50 pallets. When there are batch sizes in a stock profile that are larger than 12 to 15 pallets like this, there is an opportunity to increase the utilisation of available cubic space in the warehouse by using high density storage solutions such as Push-Back racking and Gravity Flow Racking.

To achieve high average utilisation with these high-density storage systems, experience indicates that the average batch size stored in the racking must be at least 3 to 4 times greater than the depth of the channels in the racking. For example, this would mean that for a 4-deep push back rack we would be looking to store average batch sizes in the range 12 to 16 pallets and in an 8-deep gravity flow rack about 25 to 30 pallets per batch.

For this project, we carried out an analysis of the Production Receipts data over time and projected into the future to determine the average batch size ranges coming in from manufacturing that would have to be accommodated in the facility and we selected three types of storage solution as optimum for this application.

Firstly, 55% of batches were in the range of 1 to 12 pallets and these smaller batches represented about 10% of the throughput. Conventional single deep pallet racking was selected for this group.

Then another 30% of batches were found to be in the range 12 to 25 pallets representing about 30% of the throughput and 4-deep push back racking was specified for this portion of the stock profile, and..

Finally 10% of batches were greater than 25 pallets each representing 60% of the throughput and 8-deep gravity flow racking was specified for these.

Choosing the right storage solution for the right segment of the stock profile, optimised the trade off between space utilisation and product accessibility for this warehouse thus accelerating the return on invested capital and ensuring efficient and cost effective operation throughout the lifetime of the facility.

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Improving Operating Efficiency in the Warehouse Consider this: • Best-in-class warehouse operations are significantly more productive than those with industry average levels of performance according to the Warehouse Education and Research Council’s (WERC) Warehouse Manager’s Guide to Benchmarking • Up to 60% of a warehouse operative’s time in put away, retrieval, kitting and order picking tasks is spent travelling from one place to another, often empty-handed • Work processes and procedures that do not undergo constant revision and streamlining are routinely found to have 30%+ of non-value added and totally avoidable tasks such as waiting, talking on the phone or looking for tools and information.

These are astonishing figures and the time when they can be overlooked as a reservoir of untapped potential is now most definitely over. When business is expanding and the challenge is to keep up with demand it is understandable that the primary focus might be elsewhere. However, when the economy is tight competition is becoming fierce it is essential to get everything you can out of everything that you have got.

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Given that recent WERC surveys of warehouse operations across all sectors indicate that only about 20% of you out there are achieving best practice scores against the most significant performance measures, it is clear that there is a major opportunity to be exploited in warehouse operations.

Let’s just do a quick and dirty, hypothetical, back-of-the envelope exercise based around the above facts to get a feel for what we are talking about here.

Let’s say that you are running a medium to small sized warehouse operation with 30 operatives in a manufacturing or distribution environment. This will mean that you have a wage bill, depending on your location, of somewhere in the region of €1 million to €1.2 million or about $1.2 to $1.4 million annually.

If you could find a way to move even your most critical processes from average to best-of-class on the scale of operational best practice, minimise travel time overall and eliminate dead-leg travel, while at the same time streamlining processes and eliminating non value added and avoidable tasks, what do you think your level of overall performance improvement would be?

I should think that an improvement in labour productivity of say 25% to 30% overall, while it would of course constitute a challenge – change always does – it would by no means be an unreasonable aspiration under these circumstances.

Aggregated over three years this level of improvement could lead to savings that come to a total of around €1million or about $1.2. This is an extraordinary amount of money to be leaving on the floor for no good reason.

Bear in mind also that this is just the labour saving without even quantifying the other benefits that would accrue in terms of accuracy, visibility, performance and quality.

So, what would it take to achieve this level of improvement – in other words, what would you have to do to get from where you are to where you want to be?

Well, inevitably it would take some up-front investment – doesn’t it always?

In this case we are primarily talking about investment of time and commitment, some money – not too much relative to the benefits – and a lot of focused effort and determination sustained over a period of time.

Here’s the high level roadmap;

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• First step is to establish the start point. That is to say, where you are now on the scale of best practice and where you want to get to. This enables you to determine the potential for bottom line benefits that you could achieve in moving up the scale so that you can judge whether it is worth the time and effort to pursue.

• Second step is to decide exactly what needs to be done and in what order – in other words, prioritization. Then you need to build a plan, assign the required resources and set up a small team with a mandate and sponsorship to deliver the required results in a specified period of time.

• Third step is to put the plan into action and manage the change and improvement through to completion.

• Final step is to monitor the key performance measures and metrics and provide on-going support to the operation over a sustained period to embed the improvements on a permanent basis.

So, if you have the requisite commitment AND you want get yourself started on the road to operational best practice and cost reduction, now is the ideal time to act.

The first step is a quick audit of your operation reviewing throughputs, productivity, equipment, systems, layout and processes. From this you will learn where you are on the scale of operational excellence now. Then you can work out what you will need to do to improve, how you would measure and track that improvement and what the potential financial benefits of doing so would be.

The time to act is now.

Case study: Improving Operating Efficiency A manufacturing client in the pharmaceutical sector was about to embark on a major uplift in finished goods output and called on us to help them to work with their logistics service provider to help them to prepare their warehouse facility operationally for the throughput volume increase of approximately

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25%. The warehouse operated offsite by the logistics service provider received finished product straight from production for storage and later despatch to markets around the world. Added complexity derived from the fact that the same facility and warehouse team was used to receive raw materials from suppliers and for selection for just-in-time delivery to the production plant on a daily basis.

Initial thoughts on the part of the manufacturer and the logistics service provider were that an additional overlapped evening shift would need to be introduced in order to cope with the increased throughput thus resulting in increased labour and overhead costs.

We carried out an activity sampling exercise on the warehouse receipt and despatch activities to see what proportion of time was dedicated to what tasks and how the work was structured and organized in time.

We determined that through some minor changes to the warehouse racking and materials handling methods combined with a change in the sequence in which work was done, how manpower was deployed to tackle the work, and the removal of non-value added tasks such as searching for information and equipment there was potential to increase work throughput considerably without any increase in headcount or working time.

Implementation of the changes, in addition to the physical changes to racking and handling, included the introduction of more proactive frontline supervision to direct the work teams in real time based on a daily target plan, improved information transparency between the production plant and the warehouse to allow forward planning of the working day, a formalised daily planning template, and vision board inside the warehouse to track actual work done versus the target through the working day and the working week.

The changes to equipment and ways of working took 12 to 15 weeks to implement and bed in. Six months after the changes were introduced the facility throughput had increased by more than 30% with respect to the original throughput, improving the efficiency of the operation and reinforcing the business relationship between the manufacturer and the logistics service provider.

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Best in Class Standards What are the process standards that best-in-class modern warehouse operations work to?

I would like to share with you a small selection of four or five best practices under each of the four headings of Rules and Structures, Measurement and Performance Management, Continuous Improvement, and Facilities Maintenance that characterize best in class warehouse operations.

Here we go.

First up is Rules and Structures 1. On receiving and despatch docks there should be a structured work plan with scheduled receipts and despatches so that shifts can be planned to match resources with demand.

2. Standard ways of working defined and implemented for major warehouse processes such as receipt and checking, put away, picking, replenishment, returns, cycle counting, and shipping.

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3. No part pallet storage or picking in high density racking systems such as push-back racks and gravity flow racks.

4. Structured and selective cycle counting regime, preferably systems driven.

5. Take advantage of round-trip opportunities to complete tasks on the dead leg. For example, if dropping a pallet of packaging to a line side, take advantage of return to warehouse to take back a pallet of finished product.

The next category is Measurement and Performance Management 1. Definition and measurement of key productivity indicators such as dock-to-stock time, pallets put away, lines picked, pallets despatched, stock accuracy, space utilization and so on.

2. Development of standard times for all major warehouse tasks such as put away, picking, checking and loading.

3. Daily and weekly targets and goals for all operatives, supervisors and managers.

4. Vision boards for daily performance tracking of actual work versus planned work.

Next up we have Continuous Improvement 1. Regular and scheduled offline supervisor time to focus on process improvement, training, certification and compliance.

2. Cross-training of personnel across the critical tasks and activities of the warehouse operation.

3. Structured and formalized mentoring program for new hires.

4. Regular offline workshops involving operatives, supervisors and management to improve standard ways of working, solve problems and create new ways of doing things.

And finally my recommendations for Maintenance and Facilities 1. Scheduled time and clear responsibility for warehouse housekeeping activities both indoors and outdoors.

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2. Periodical warehouse storage equipment damage review and repair or replacement.

3. Regular and scheduled materials handling servicing, maintenance and repair.

4. Clear signage and floor markings for designated areas and activities.

5. Regular facilities servicing and maintenance including docks, doors, floors, yards, lighting, air conditioning, fences, gates and so on.

There you have it in less than twenty practices in total that could catapult your warehouse to best-in-class standards of operation in record-breaking time.

Case study: Best in Class Standards In a specialist manufacturing operation in the beverage industry, management wished to improve those warehouse operational processes that were most closely aligned with the businesses strategic goals.

In order to determine the gap between the current state of operations and the desired future state a benchmarking exercise was carried out based on the model developed by the Warehouse Education and Research Council called the Warehousing and Fulfilment Process Benchmark & Best Practices Guide.

This practical guide sets out a framework by which the current state of operations can be compared against a benchmarked gradation of what is considered best practice, good practice, common practice, inadequate practice and poor practice. From this exercise it is possible to prioritize the actions that need to be taken to get the strategically critical processes to best in class levels.

In this case the following warehouse processes were benchmarked against the standard: 1. Receiving and Inspection 2. Material Handling and Putaway 3. Utilization and Efficiency 4. Storage and Inventory control 5. Layout Picking and Preparation

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6. Production Returns 7. Loading and Shipping 8. Warehouse Management System (WMS) The results showed that the warehouse exhibited Good Practice in Materials Handling and Put-Away, Inadequate Practice in Utilization and Efficiency as well as Warehouse Management System and Common Practice under the rest of the headings.

This outcome helped to focus the time and resource effort for improvement to where it is would have the biggest impact. In this case the most critical warehouse processes were those related to product identification, labelling and transactional control and this was a crucial outcome to inform and support the investment decision to invest in a modern, integrated warehouse management system for this operation.

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The Practical Application of the 80:20 Rule to Warehousing.

The 80:20 Rule, the Law of the Vital Few or the Principle of Factor Sparsity states that for many events 80% of the effects come from 20% of the causes.

When something is shared among a large number of participants there is always a more or less equal sharing out of the something among the participants.

In the case where 50% of the something is taken by 50% of the participants – this means that every participant has an equal share.

In the case where 99.99% of the something is taken by 1% of the participants – this means that very few participants take nearly all of the something The 80:20 rule is a special case of this where 80% of the something is shared among just 20% of the participants. This is a situation skewed in favour of a relatively small group of participants.

Mathematically, there is nothing special about the 80:20 situation but it just so happens that many real world systems do appear to correspond to an unequal distribution similar to this.

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Why is this so ? Why is it important ? What are the implications ? Well let’s see.

It was Vilfredo Pareto, an Italian engineer, sociologist, economist and philosopher who first observed and wrote about the phenomenon. In 1906 he noticed that 80% of the land in Italy was owned by 20% of the population.

For this reason, the 80:20 Rule is also known as Pareto’s Law or the Pareto Principle.

Complex simulation models with rules defined only for the behaviour at the level of individuals have been developed in which the 80:20 rule has been observed as a naturally emergent property of the interaction of the individual agents.

Let’s have a look at how this applies to the practicalities of warehousing.

In typical distribution warehouses, the activities that workers perform are as follows: • receipt and checking of goods • put away of goods to stock (normally into racks with fork lift trucks) • replenishment of products to pick locations from the stock locations • order picking, packing • checking and dispatch The most labour intensive of these activities is by far order picking. It can easily account for 60% to 70% of the entire labour requirements of the operation. In large distribution operations, this is a massive wage bill.

Order picking itself is comprised of the following tasks, • fetch a truck or trolley, a pick note or bar code scanner • travel to the pick location • read the pick requirement from the note or scanner • pick the product from the pallet or shelf to the trolley • scan or tick off the list • travel to the next location and repeat the process

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Let’s face it the only parts of that process that actually add any value are the identification of the correct product and the picking of the product to the trolley.

However, in typical conventional warehousing operations the travel component of order picking can constitute anywhere from 60% to 80% of all the order picking time. This travelling adds no value whatsoever while swallowing up a huge amount of the available labour resource.

In a recent real case example we had 65% of all warehouse labour employed in order picking and 70% of order picking time was consumed in travelling from location to location. So a massive 45% of all warehouse labour resource was adding no value at all travelling from location to location.

Needless to say, the business owner was horrified at these statistics and wanted to know what we could do about it. The answer was “quite a lot actually”, and this is where the 80:20 Rule comes in.

You see the thing is - most business owners and managers have a pretty good idea of what their best sellers are. By that, they normally mean the 20% of products that generate 80% of the monetary sales value. What they often have no idea about is which 20% of products are generating 80% of the physical activity and consequentially, cost within the business. More often that not, these are not the same group of products.

When we analysed the data in this particular case, we found that of the almost 800 products about 150 of these were driving over 80% of the order picking activity and also that a large proportion of orders could be filled exclusively from this group.

By redesigning the positioning of products for picking in the warehouse and making the pick locations smaller so as to access more different products in a shorter travel distances we were able to reduce travel time by half overall.

Half of 45% is a 22.5% improvement in overall labour efficiency by simply changing where stock is located on the racking, the amount of stock held at the pick location and some cosmetic changes to the racking. Even in a small warehousing operation with 20 or 30 warehouse operatives that could be hundreds of thousands in savings per annum.

Simple tool – powerful results.

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Implement and Sustain Change in Warehouse Operations To be successful with any change initiative - such as a warehouse reconfiguration, a change in processes or in ways of working - getting the direct input of the warehouse team to your work at all stages is of paramount importance. These are the people who will be most affected by the change and involving them early and at all changes enables them to:

• actively contribute with their own unique perspective and experience to the work of developing an improved future state (layout, equipment, skills, processes, ways of working, performance measurement and so on) for their workplace • have the opportunity to voice any concerns and issues that they may have in relation to the viability and practicality of the proposals so that these can be addressed satisfactorily • have the opportunity to voice any concerns about how the change may affect them professionally and personally and thus provide a clear

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understanding of what support, retraining, coaching and mentoring that may need to be provided as the changes are implemented • begin to take on a sense of shared ownership of the improvements and changes that will be required to reach the future state and a sense of commitment and urgency about their own role in that change In successful change initiatives in warehousing contexts, the warehouse team will typically be included at the outset of the work, becoming involved in tasks such as work activity sampling, benchmarking and process mapping exercises. This enables them to obtain direct feedback on how their operation ranks against industry benchmarks and provides an objective assessment of how they are performing in relation to industry best practices.

This is very beneficial both from the perspective of management, in terms of what the warehouse teams can add and contribute to the process itself and to the understanding of real operational challenges, and it is to be hoped from the perspective of the warehouse team itself by providing the opportunity to contribute and to get clear cut feedback on the current state of the operation.

Unfortunately, I see too many examples in which warehouse teams consistently live-down to the poor expectations of their managers in terms of their initiative, contribution and ability to solve problems and innovate.

To break this cycle, having the active involvement of these team members at all stages of improvement work will entitle the business to expect more and empower the warehouse team to respond positively to the higher expectations – a win-win all around.

Whether the input from the team is deemed positive or negative, creative or unimaginative, it is valuable because it is real information that shows clearly what tasks, challenges and obstacles lie ahead to move from where you are now to where you want to be in the future.

I have always said that the real challenge in warehouse change initiatives is not the physical reconfigurations of racking and stock but rather the ability to mange and sustain the change in people organization and practice so that you can achieve the best return on the investment in time, money and disruption is obtained.

The sad statistic is that 60% to 70% of business change initiatives do not

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deliver their expected results and the reason is because of a lack of attention to the real needs and requirements of managing change successfully.

A final note, the project sponsor, that is, the person with the ultimate authority to deploy the resources of time, money and people in the organization, needs to be fully aware of what the implications of the proposed changes are in terms of communication, visible commitment, urgency, resource and vision and they must be consistent and coherent at all times in what they say and what they do in alignment with the objectives and goals of the change initiative to ensure success.

Case Study: Implement and Sustain Change In this project the manufacturer of a healthcare consumer product wished to improve the effectiveness and the efficiency of the flows of packaging materials and raw materials from warehouse to packaging and production linesides and from packaging lines to despatch lanes as well as to improve the overall efficiency of labour within the warehouse.

Initially two separate teams worked in the warehouse – one team took care of flows of raw materials and packaging items from outside the plant into the warehouse and a separate team took care of flows from the warehouse into and out of production lines. Each team reported to different line managers and operated different systems of seniority, bonuses and rewards.

The challenge in this project involved both the technical issue of improving flows and efficiency as well as the organizational challenge of merging two teams and changing to one unified line-management structure.

Consequently, it was crucially important to involve supervisors and operators from both teams in the change project from the very outset. They participated actively in various work sessions to map and model the current state of operations, to calculate work loadings, to identify duplication, and inefficiency as well as to help in the design of future work flows, layouts and ways of working.

Additionally, senior managers, operational line managers and human

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resource managers worked very actively with warehouse supervisors and operatives to bring out and address the many issues in relation to job security, seniority, and rewards that were of concern to the team members and that were to be affected by the planned changes.

Sustaining and supporting the people through the change after the teams were merged was very active for a period of 12 to 15 weeks. With so much change, sometimes misunderstandings and miscommunications can take on a life of their own if not resolved quickly. On one occasion about 4 or 5 weeks after the merging of the teams, one aspect of material flow sequencing that had not been well communicated came to light and was causing quite a bit of concern among the associates in the warehouse. Given that supervisors were attentive to just these types of difficulties we were able to engage rapidly, review the concerns and address then quickly and effectively.

Even, what may seem like relatively small operational changes take a lot of support, sustained over a prolonged period to become embedded as the new and better way of doing things.

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Choosing a Warehouse Storage Solution for your Business I would like to talk now about selecting storage equipment such as Racking and shelving in its various guises for warehousing applications in manufacturing, distribution and logistics services businesses.

Racking and shelving systems are now pretty ubiquitous in warehousing and this has bred a certain degree of complacency with regard to the process of choosing and selecting this equipment.

This complacency has lead to many costly mistakes, in terms of miss-spend and waste on both capital outlay and in on-going operating costs.

To some extent, the complacency is understandable because racking and shelving is generally viewed as a low-tech item, and many people fall into the trap of believing that there is little or no science involved in the selection process.

If we add to this the traditionally role of Warehousing as the “Cinderella� department, particularly within manufacturing businesses - it is not surprising that this state of affairs has come about.

However, the advent of Supply Chain Management (SCM) has changed this forever. The warehouse has now risen to prominence as a key element in the logistics and distribution chain.

Warehousing capability is now viewed as a key strategic differentiator.

There is a growing appreciation of the impact of warehousing on enhancing customer service and achieving competitive advantage.

The foundation of best-in-class warehousing operations is the correct selection and deployment of the most appropriate storage equipment.

Consequently, the selection of the right storage equipment from the vast range of types on offer has become a task that requires very careful consideration indeed for all but the very simplest of applications.

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There are three key steps to doing this right.

1. Get clear on the objectives and any constraints 2. Develop the options thoroughly 3. Evaluate and select based on business relevant criteria

Getting the objectives clearly stated at the outset is fundamental and these will depend on the type of business and the supply chain function of the particular warehouse under consideration.

For example a warehouse for the distribution of an industrial product to dealers, will have very different needs for storage and order picking than will the warehouse supporting a pharmaceutical production plant which in turn will be very different from the a warehouse supporting same day delivery of fresh vegetables to main street outlets.

Despite this, it is still common to see warehouses with inappropriate storage equipment, serviced by inappropriate materials handling equipment operating sub-optimally - a warehouse like this will waste space, time and money every single day of its working life.

Sometimes this happens because of the unthinking application of the “maximize-pallet-spaces� mindset that has been common both among suppliers and specifiers of racking systems for too long. That approach is woefully primitive and truly obsolete today.

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Other times it happens because action-oriented business managers are inclined to skip the objectives phase and get stuck into considering the options presented in glossy brochures by eager salespeople too soon in the process.

It is vitally important to consider much more than just how many pallet spaces can be squeezed into a given building cube if you really want a warehousing asset that is truly best in class and contributes every day to achieving the strategic goals of your business.

A more complete set of objectives to underpin your selection process will consider items such as: • What is the number of unique product lines to be accommodated (these often referred to as SKUs or stock Keeping Units) • What order cycle time and service levels are to be achieved • What will be the timing of key activities such as receipt, put away, order pick, replenishment, pack and dispatch) • What is the required level of stock availability • What Stock accuracy must be achieved • What is the required return on investment Due consideration of these elements will ensure that a set of objectives is established that will truly set you on the right path to developing a strategic asset that will consistently add value to your business.

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Storage Equipment Options I have spoken before about the temptation for many of us, business owners and managers, as action oriented people, to jump straight into the selection process at the “Options� stage without giving due consideration to the real business objectives for our warehouse and the results that we expect to follow from achieving those results.

If you find yourself doing this, please stop, think and go back to work out your objectives before going any further. This is THE most common mistake made in the selection of storage equipment. Action orientation together with the proliferation of glossy brochures and eager salespeople also contributes to this situation.

Once you are clear on your objectives, then, and only then are you ready to start considering the options.

These days, there is a bewildering array of options when it comes to storage equipment solutions.

This has been driven by manufacturers and solutions providers response to needs of 21st century business which is characterised by increasing complexity of business, the explosion of SKU numbers, increasing levels of competition and higher service level expectations.

Nonetheless a few basic guidelines will help you navigate your way through the selection process effectively and efficiently.

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The first thing to think about with a given storage equipment option is how does it trade off the attributes of Product Selectivity versus Space Utilisation.

By selectivity, we mean the ability to directly select any pallet, case or item stored in the system without having to move anything else first. For example a simple storage rack for pallets with only one pallet deep provides 100% selectivity because any given pallet can be stored at any moment in time. This system offers very high selectivity. However because pallets are only stored one deep each side of the access aisle, the cubic space utilisation is low.

On the other hand a compact storage system in which pallets are stored in channels of, say 4 pallets deep, means that when fully loaded only one in every four pallets can be selected directly. This system only provides 25% selectivity. However, because pallets are stored 4 deep on each side of the access aisle, the cubic space utilisation is much higher than in the case of the 1 pallet deep rack.

The fundamental concept to grasp here in relation to storage systems is that those systems which offer high space utilisation such as Drive-in racking, Push Back Racking and Gravity Flow Racking generally have a lower level of selectivity, while those systems with lower levels of space utilisation such as your common or garden conventional pallet racking have higher selectivity.

Consequently, conventional pallet racking is best suited to situations in which there are large varieties of products or Stock Keeping Units (SKUs) but with relatively few pallets per SKU < less than say 10 to 12 pallets average per SKU. However, if there are many pallets per SKUs in a product mix, it will be efficient and cost effective to choose one of the compact, high density storage systems such as drive-in, Push-Back or Gravity Flow.

While the acquisition cost of these high-density systems may be off-putting as an initial consideration (for instance, the per pallet cost of gravity flow rack might be 6 or even 8 times more expensive than conventional racking, this initial outlay is only part of the cost picture. In fact, it is only the tip of the iceberg when comparative operating costs over the lifetime of the systems are considered.

Much more significant in terms of on-going cost is the impact that a given racking configuration and selection is going to have on work processes,

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efficiency and productivity over the lifetime of the installation. The initial capital cost of a racking installation can soon become a drop in an ocean of ongoing cost incurred through inefficiency.

In a recent case study in a consumer goods distribution facility, the total warehouse operating costs were in the region of $900,000 per annum on a turnover of approximately $60,000,000.

The distribution facility had reached capacity constraints while demand continued to increase rapidly. A revamp of the warehouse layout, with some new handling equipment and replacement of some storage systems costing about â&#x201A;Ź80,000 resulted in a throughput gain of 60 per cent with approximately the same operating cost!

This illustrates the point that the cost of planning, designing and purchasing storage equipment soon pales into insignificance in comparison with the implications for on-going operating costs and savings. Too often, acquisition costs alone are the driving consideration in storage equipment selection â&#x20AC;&#x201C; this is short sighted in the extreme.

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Evaluating and Selecting Storage Equipment Faced with a range of options, the selection of storage equipment needs to be based on a structured process. Objective criteria are required on which to base this evaluation. These criteria can be drawn directly from the strategic considerations and the resulting objects that we discussed elsewhere.

Storage capacity and acquisition cost are just two elements to be considered and are not necessarily the most critical. Some or all of the following items will figure in a list of evaluation criteria:

• Operating Cost • Supply Lead Time • Installation Time and Complexity • Flexibility to Change with Future Business Requirements • Manpower Requirements

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• Re-training Requirements • Throughput Rates • Ease of Product Identification • Product Integrity and Protection • Safety and ergonomics • Quality and Finish Because of the increasing complexity of the order profiles within many businesses, there is a trend towards the use of several different types of racking and shelving solutions within the same facility.

For example, it is not uncommon nowadays to see facilities with conventional pallet racking in a very narrow aisle (VNA) arrangement served by turret trucks for the storage of bulk pallets and full-pallet picking, conventional pallet racking in a narrow aisle arrangement with reach trucks and case picking from first and second level using low-level order pickers together with a two-tier shelving structure for the storage and unit picking of small parts or eaches.

Depending on the order profile of the stock, the picking strategy and the volume throughputs, we could also have more sophisticated storage media such as double-deep racking, push-back racking, pallet live storage or carton flow shelving systems.

Increasingly too, we are beginning to see the integration of storage media with other technologies such as conveyors, pick-by-light systems, automatic cranes, sorters and robotic pickers.

The planning, economic justification and implementation of such integrated systems require specific and specialised skills sets and a good degree of practical hands-on experience.

Given that most operational managers will only have the opportunity to implement major warehouse projects a small number of times in their career, we are beginning to see the emergence in the market of specialist service companies and solutions providers who can design, specify and implement these systems as a packaged offering.

In today’s ever changing business environment it is crucial that the

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warehouse solution allow the flexibility to add equipment to or remove it from the operation without significant amounts of disruption to the business.

The majority of modern warehouse equipment is now designed to provide this flexibility to change with business needs. Nowadays most racking and shelving products are modular. Therefore, once manufacturersâ&#x20AC;&#x2122; recommendations are respected racking and shelving systems can be moved and reconfigured to meet changing needs.

Just to recap the two main points again: Firstly - Making a decision on warehouse equipment selection requires the consideration of a wider range of criteria than the traditional storage capacity and per pallet cost of acquisition. In particular, special attention needs to be paid to the effect of the selection on on-going warehouse operating costs and on the ability of the system to meet the required levels of service and quality for your business.

And Finally - The growing complexity of storage, picking and materials handling challenges and the wide range of solutions available requires specialist knowledge to plan, select and implement solutions that will enable the business to fulfil its strategic goals.

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The Benefits of a Warehouse Management System (WMS) The benefits of a warehouse management system are multiple. The most commonly cited by those who have actually been through a Warehouse Management System (WMS) implementation are: • Improved visibility and control of warehouse activities.

• Improved inventory accuracy.

• Improved utilisation of space.

• Improved productivity and performance.

The value of these benefits and other benefits can be considerable and do need to be quantified in monetary terms. This enables the Warehouse Management System to be viewed as an investment rather than a cost.

That said, all Warehouse Management Systems are not created equal and your unique user requirements must be defined at an early stage in the

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process in order to make sure that you select the system that best suits your particular needs.

If your business is logistics service provision your requirements will evidently be different from those of a manufacturing facility which in turn will be different to those of a distribution sector.

A successful implementation can lead to a rapid payback of the initial investment but due care and diligence applied in the quantification of the benefits, setting clear objectives and determining user requirements will help avoid many of the typical pitfalls encountered in the implementation of systems of this nature.

So what are the major pitfalls associated with the implementation of WMS software?

Well, the participants in an independent survey conducted by T&D, Noll Research, and Prestobiz.com reported the following as the major unforeseen difficulties: • Extent of Training and Size of User Training Curve – 61% of participants • Modifications and Upgrades – 45% of participants • Integration and Interface Problems – 38% of participants • Miscalculation of Time Investment – 25% of participants Pretty scary figures to be sure and sorry to say they do coincide with our anecdotal experience of dealing with clients and working on projects.

So, what can you do about it so that you avoid these pitfalls in your own WMS implementation?

Well, quite a lot actually.

With focus, dedication to the task and determination many of these eventualities can in fact be foreseen and planned for.

If you are the person charged with the implementation of a WMS for your business you will need to take on board that this requires considerable time input at the outset. However the difficulty can be that to those around you this may look like an input of time with no immediate output or result.

When your colleagues and superiors are fired up and ready to go you may

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feel the pressure to move on and skip over the initial planning and visioning.

Big mistake – don’t do it!

This is not easy of course but it is part of your responsibility. You will have to call on all of your resources of assertiveness, persuasion and influence to ensure that things are set up and kicked off on the right foot.

If you are not in possession of these resources at this time well then you may need to question whether you are in fact ready for the task in hand – only you can answer that one!

In subsequent podcasts we will pick our way through each one of the major pitfalls identified in the Noll Research findings and shed some light on how to address each one in order to maximize the probability of a successful outcome on your WMS implementation.

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The Pitfalls of WMS implementation: Miscalculation of Time Investment In an independent survey conducted by T&D, Noll Research, and Prestobiz. com, Miscalculation of Time Investment was ranked fourth among the most common sources of unforeseen difficulties in WMS implementation â&#x20AC;&#x201C; in fact, it was cited by 25% of all participants.

It is true that most organizations that embark on WMS implementations and the systems vendors who service them are clever and competent people in possession of all of the technical and non-technical skills required for such an undertaking. So, if miscalculation of time investment is not a question of skills and competence, the question must be asked?

What is the reason for this?

Evidence would suggest that it is human nature to consistently underestimate the time required to undertake almost any set of tasks with more than a handful of steps associated with it.

Do you remember the last time you moved house? Or the last time you had friends over for dinner?

Chances are, it took whole lot of extra time and effort to complete all the tasks than you originally anticipated, right?

If we combine this inherent human tendency with the in-built bias for action over thinking in operationally focused activities such as manufacturing and warehousing then we have the potential for real trouble.

The very real danger in this type of environment is that the project scoping and planning phases do not receive the requisite time and effort as a result of the understandable desire to see results. In addition, there is often an implicit pressure on the implementation team to be seen to be making progress. Soon this train gathers so much momentum that it carries everyone along with it.

Before you know it, you can find yourself in a situation in which you do realise that things need to be scoped out and planned properly but you cannot stop or interrupt the project because of the irresistable push to deliver.

Rob Thomsett author of Radical Project Management sums it up in his

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article “Project Pathology: Causes, Patterns and Symptoms of Project Failure” when he says that people can end up saying,

“We can’t stop the project for planning, we have a deadline to meet”.

If this is happening on your project – then you know that you are in trouble.

So, what can you do to make sure that you avoid this pitfall in your WMS implementation?

Well assuming, as absolute pre-requisites, that the project is effectively sponsored and that the business case is solid in the first place, the fundamental thing is to take on board the conviction that scoping and planning are valueadded phases of the project and not just paper or intellectual exercises.

Thereafter, here are a few pointers that will be helpful: • Resist the pressure to act until the scoping and planning phases have been thought through and completed properly – if there are still grey areas in the scope or the plan, then you are not yet finished with this phase.

• Identify all the stakeholders, articulate their interest in the project, and how this will impact scope and time.

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• Plan all the required tasks in detail and add more time than you think you will need. If you have done the task before and know how long it takes – add 25% extra. If you have not done the task before add 100% extra – seriously!

• Put in place a robust system and procedure to deal with legitimate changes to scope that may occur during the implementation phases of the project and replan as required.

These simple yet effective measures will reduce the probability of your project falling into this all-too-common pitfall and increase the likelihood of a successful WMS implementation.

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The Pitfalls of WMS Implementation: Integration and Interface Problems The third ranked source of unforeseen difficulties in WMS implementation as identified by the independent survey conducted by T&D, Noll Research, and Prestobiz.com, was problems related to Integration and Interfaces which were cited by 38% of all participants.

Hang on a minute! Donâ&#x20AC;&#x2122;t go anywhere!

I can almost sense your eyes glazing over at the very mention of integration and interface problems and therein lies the crux of the problem. Because these matters relate to aspects of the project that reside at the edge of the scope of supply or competence of the various parties involved it is a particular danger point and source of difficulties.

WMS projects by their nature are at the same time both technology projects and warehouse operations projects. Therefore, to avoid the danger of things falling between stools it is essential that IT and Operations are as one from the outset.

If the project is lead exclusively by one or the other there will be major difficulties ahead. Working together, Operations can ensure that the solution is practical and effective, while IT will ensure that the technology and interface aspects are considered from early on.

That said, it is at implementation stage that the real difficulties can arise.

In a WMS implementation, we will often have a plethora of interested parties involved.

It would not be unusual for example, in an implementation that integrates materials handling and other equipment such as cranes, conveyors, pick-bylight systems, fork lift trucks, label printers, cubiscan devices etc. as well as other

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computerized systems to have some or all of the following stakeholders involved in this crucial area: • WMS Vendor • Warehouse Operations • Internal IT Department • Internal Quality and Validation Teams • Corporate Host System Vendor and Consultants • Other IT Systems Vendors e.g. Shipping Manifesting, Demand Management etc.

• Multiple Equipment Suppliers • Systems Integrators In this type of environment, it is very easy for people to assume that “someone” else is going to look after a particular aspect of interface or integration and quite often this is just the assumption that they do make.

The problem is however that too often that “someone” does not look after it.

As the project owner, or end user, you may not have an in-depth understanding of the technical intricacies involved here – nor should you necessarily.

What you will need to make sure of however is that you, or your Project Manager, have ensured that all the issues and tasks involved have been identified with the help of your IT support and that the resulting responsibilities have been assigned and the milestones agreed between the parties involved.

Do not let the fact that the subject matter is highly technical in nature intimidate you into abdicating your responsibility and do not allow yourself to be lured into the complacency that the “Techies” have it under control.

You are responsible for the project not the “Techies”, they do not have the same bird’s eye view of the overall business process that you have.

Take control, learn the basics of the technologies involved, be proactive and lead with confidence.

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The Pitfalls of WMS Implementation: Modifications and Upgrades A full 45% of participants in the independent survey conducted by Noll Research, and Prestobiz.com on the sources of unforeseen difficulties in WMS implementations cited Modifications and Upgrades as a major source.

One major contributor to this is that the strategic aspects related to the Information Technology policy of your organization may have been overlooked or omitted from the WMS specification and selection process. This can occur if the project is driven to an exclusive or excessive degree by Operations.

Remember that WMS is both an operational project and a technical project.

It is essential that your IT people are intimately involved at the specification stage to ensure that the technology requirements are understood and aligned with the corporate IT strategy. Your IT Department will be able to provide guidance on database choice, operating systems, ERP changes and so on.

Failure on this point can lead to very nasty and expensive surprises â&#x20AC;&#x201C; make sure that IT have a co-leadership role on the project at the outset and all the way through.

Another major contributor to this problem is that the current and future state processes may not have been developed and documented to the requisite level of detail. The functionality and interface specifications provided to the vendor are poor as a result. These deficiencies will resurface during installation and commissioning leading to expensive modifications and time overruns.

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The involvement of the associates on the warehouse floor from the outset is highly beneficial. The benefits not only relate to getting the requirements right first time and avoiding costly modifications but also relate to laying the foundation for the intense training and familiarisation with the system that will be a crucial aspect of successful implementation.

WMS solutions are highly interfaced and therefore consideration needs to be given from early on to the requirements of those other systems and functions that depend on those interfaces for vital information e.g. shipping, invoicing, customer service, manufacturing and so on.

One very effective tool that can be taken from the Lean Six Sigma toolbox and applied in order to provide a framework that helps ensure that all aspects of the core warehouse processes are captured and documented effectively is the SIMPOC Model. The initials in SIMPOC stand for Suppliers, Inputs, Measures, Procedure, Outputs and Customers. Systematically documenting the processes in this way can ensure against missing out crucial aspects of required functionality and interfaces.

Conclusion As I indicated at the outset, the time when the warehousing function within a business can be overlooked as a Cinderella department has well and truly passed into history.

Today the warehouse is a highly integrated, high technology component of the global supply chains of the worldâ&#x20AC;&#x2122;s top businesses and the people who work in warehousing are highly skilled and motivated to develop their businesses and to continuously improve performance.

Right now the best of companies all around the world are committing to leveraging their warehousing activities to strengthen their supply chain and to transform their business in the future.

I Hope that this book will inspire you to take action and infuse energy into your warehousing activities for the greater benefit of your entire business.

The time to take action is now!!

Expert Guidance for Warehousing Excellence in

21ST CENTURY SUPPLY CHAINS Patrick Daly, Managing Director of Alba Consulting in Dublin, Ireland and inductee of the Million Dollar Consulting © Hall of Fame is an expert in supply chain management and rapid, profitable growth. He has worked with top companies in Europe, Asia, and the Americas, helping to improve return on capital while reducing risk and complexity. He consistently presents profound case studies to colleagues to assist in their learning as he acquires new clients and challenges. Read his blog, albalogistics.com, and listen to his podcast series Daly Thoughts on iTunes.

“When it comes to 21st Century Warehousing concepts and strategic thinking, Patrick Daly is the leading innovative thought leader of our era. Read this book and learn how to transform the success of your organization.”

Chad Barr, President - CB Software Systems and The Chad Barr Group Author of Million Dollar Web Presence - Shaker Heights, OH, USA

“Patrick’s warehousing solutions definitely deliver cost and capital savings, increased productivity and guide you to a “World Class” warehousing operation. One of our international warehousing projects delivered over 40% productivity improvement, which helped us also to improve our order fulfilment Index by 13%.”

Richard Illek, Senior Director - Manufacturing - PepsiCo Worldwide Flavours - Cork, Ireland “ As GM of Oral B Ireland and PG Braun Shanghai, I was fortunate to have Patrick lead the design of our warehouses to enable the implementation of Kanban based material flow from Suppliers through our warehouse “Supermarket”, to production, and to Shipping. I know of no better consultant in the business of warehouse design.

Liam Cassidy, Managing Director LCL Consult Ltd. - www.lclconsult.com - Dublin and Shanghai “Patrick’s work to optimize materials management and associated storage solutions has redefined Stryker’s approach to warehousing. His fresh innovative thinking has transformed the view of Senior management to understand the benefits associated with managing a World Class Warehouse. Patrick has been a key enabler on Stryker achieving operational excellence as part of our Warehousing Strategy.”

Ronan Guest, Logistics Manager, Stryker Ireland

Alba Logistics Consulting Logistics

Unit 49 Guinness Enterprise Centre, Taylor’s Lane, Dublin 8, Ireland T +353 1 415 1252 • M +353 86 811 6030 pdaly@albalogistics.com • www.albalogistics.com