A distribution center may be a retailer’s largest capital investment and, with the growth of e-commerce, such facilities are under enormous pressure to fill orders as expeditiously and accurately as customers expect. The design of the center is vital to the achievement of that goal.
Unfortunately, some retailers have activated a distribution center only to find—after all the time and money spent on the design—that its operational reality did not meet their requirements. In the case of one e-commerce grocery retailer, for example, the center was hitting less than 25% of design capacity more than a year past startup. At that rate, the center was not only falling short of the design requirement, it would also take four times as long for the retailer to recoup its investment.
Any number of things can lead to an unexpected design result. During the design process, a retailer’s business characteristics can change, the budget can change and certain features of a project may be eliminated through value engineering. Typically, no one single decision causes a design to fail. It’s usually more like a death by a thousand cuts, with the aggregate effect of many decisions revealing the poor design.
Just as the causes of a poorly performing distribution center may be multifaceted, so should be the fix. At Kurt Salmon, we not only diagnose the gap between design requirements and reality, we also construct a roadmap for making operational improvements.
MAKING DESIGN REQUIREMENTS A REALITY
When helping a client fix a flawed DC design, our first step is to come in and analyze why the distribution center did not meet the design requirements. During this assessment phase, we review the design criteria, observe the operation of the center and determine the main causes of the design failure. We can quantify the current maximum capacity of the center and recommend both the short-term “quick fixes” and long-term improvements needed to bring the facility up to, or even exceed, the original design targets.
In the case of the e-commerce grocery retailer, we determined that design criteria and daily workflow challenges were limiting the capacity of the operation. The number of totes per order was different from what was expected, and the initial design assumed that flow was consistent across all shifts. In reality, the operation was seeing only about 5.5 hours of production time in each eight-hour shift due to the timing of shifts and delivery routes as well as workload imbalances across the facility.
After determining all the capacity challenges, we identified the changes that could drive a measurable improvement in the facility. We divided the changes into three groups: “limited capital” changes that could be implemented with minimal investment; “high capital” changes that would require investment in material handling equipment; and “additional opportunities” that would require business processes outside of the facility to be modified, such as the schedule for customer order placement and delivery.
As illustrated in Exhibit 1, we projected that the “limited capital” changes would get the facility to an “interim state” of approximately 34,000 orders per week (still 38% below design capacity). To extend weekly order capacities to an improved “future state,” the company would need to invest in material handling design changes.
The assessment phase can take between four and six weeks to complete. But fixing a flawed design doesn’t happen overnight, and with two additional remedial phases —namely, design and implementation—we provide you with a roadmap for what can be a two-year process, depending on the level of changes needed.
The cornerstone of our approach in that correcting a faulty design is effective diagnosis. From there, we can provide actionable recommendations supported by realistic plans that will put your operations and business back on track.
CASE STUDY: A DEPARTMENT STORE FALLS SHORT AT ITS FIRST PEAK
The new e-commerce distribution center for a regional department store was expected to deliver close to 500,000 outbound units per day, but at its first peak was struggling to do a fifth of that. With another peak quickly approaching, Kurt Salmon was brought in to help determine the defects in the design and to provide short-term, low-budget fixes to get the facility through its next peak, as well as long-term fixes that would realize its true potential. In six weeks, Kurt Salmon was able to identify 32 short-term fixes and provide a roadmap with all of the tasks, owners and timelines necessary to implement the changes. The facility is currently on track to deliver on the business needs this peak and is preparing to implement many of the longer-term changes early next year to continue to support business growth.
KURT SALMON’S EXPERTISE
Kurt Salmon’s deep retail experience and broad knowledge of every facet of a modern retail organization help us bring a holistic, cross-functional approach to operations management and distribution center design. With nearly a century of retail and consumer experience, we have worked with 30 of the world’s top 50 retailers and scores of global and specialty brands to design and align how they operate to shape and satisfy their customers’ desires—now and in the future.