The "Store" Component of the Global Supply Chain
There is much more to the store component of the supply chain than pallets going in and orders going out of the distribution center. In this podcast, Brian Hudock talks to CEO Jim Tompkins about the implications of storage, including considerations about inventory, the needs of the customer, and even the entire distribution network design.
Hello, my name is Jim Tompkins and wow, I don’t have much of a voice. I hope this podcast is clear. The new year has started, business is picking up and I’m really excited about things. I’m the CEO of Tompkins International and Tompkins International and I’m pleased to be with you today to present our fifth segment in this second series of the Global Supply Chain Podcast. So what we’ve covered so far is the overall opportunity of the supply chain as well as the buy, make and move elements.
Now we move on to the store component of the supply chain. To many, the store component seems like a pretty simple topic: materials and product go into a DC and materials and product come out of the DC.
To help us address this topic today is a leader in the distribution operations practice at Tompkins, Brian Hudock. Welcome Brian, and how do you respond to folks saying the store function is just a simple subject?
Well, Jim, I believe that is an understatement as there is a lot more than storage that occurs in the “Store” process. In fact, although the storage supply chain component is critical in keeping the right products and materials safe and having them in the right location at the right time, there are many other supply chain implications of the store component.
Where the storage of product takes place along supply chain is critical to how inventory is managed, how much inventory is required, and where product should be stored. Based upon the size and type of product being stored, there is a cost trade-off between how close you are to the end customer, the amount of safety stock, and the cost and time to deliver it. The “store” selection criteria are a key component of both network and inventory management functions, whether you have a single DC or multiple DC network. Having product in the right location is one on the key values provided by the store function in any supply chain.
Further, what do you say to the CEO who views the store function as a simple process of taking pallets in and shipping orders out?
I wish it were that simple, but the fact that pallets may go into the facility and cases come out in many operations is only a small part of the value. First and foremost, the basic transformation of general stock into specific order sizes defines a warehouse and distribution center. However, how the product is converted into specific orders covers a wide range of transformations. Equally as important is making sure the product gets to the end customer undamaged. So the three primary values are location, transformation, and protection, with the secondary function of storage.
Brian, let’s dig a little deeper here. Help our audience grasp how product is transformed.
Transformation can be as simple as breaking a pallet into cases or a case into units, mixing cases from pallets and units from multiple cases into complete orders to actually creating a new finished product. We refer to the first as order picking and assembly; in the second case; this is often referred to as value added services. Hence the value add of transformation. This can be done in two ways.
The first way is creating a new product by kitting components together and repackaging and re-labeling. This if often done for special offers, promotions, or displays.
The second way is often referred to as postponement. In this case product is shipped in a generic or unfinished form to the distribution center. This allows for a reduction in total inventory as the generic stock may be branded and packaged for multiple customer specific orders without service delays of stockpiles of pre-branded product being stored. Postponement also has the benefit of reducing wasted packaging, which is common in kitting operations.
You mentioned product protection several times, please expand on this.
A common misconception about warehousing is distribution is that if an order leaves the dock undamaged, it is shipped complete and safely. However, the perfect order requires it be the right product, right quantity arrives on time and arrives in perfect condition, and be billed correctly.
If you do everything right except get it there in good condition, it simply doesn’t matter in your customer’s eye. The excuse the carrier handled it improperly does nothing to help your customer, if you could have packaged, stretch wrapped, strapped, padded, crated, or added more dunnage, you should have in the customer’s mind. There is of course a limit to how much packaging and effort makes sense versus the value and critical nature of all products, but it is the responsibility of the “Store” step to add this value. The added challenge to packaging today is it must also be “green”; the reduction of all types of plastic and paper wastes must be balanced against costs and product protection to further complicate packaging decisions.
There is a lot of activity in “Store,” does anything actually get stored?
A good point, but there is a lot of stored product. The ability to buffer inventory and build up stock for unpredictable demand is why warehouses and distribution centers exist today.
However, the utilization of total floor space is often less than 50% dedicated to storage and less than 25% of the total cube is generally filled with product. There exists a fantastic opportunity to increase the utilization of space in most facilities using alternative designs and equipment, product and zone slotting techniques, and leveraging systems to increase utilization. Over time, even the best designed and managed operations becomes inefficient and need an overhaul to handle changing products and customers most effectively.
So in reality, not everything gets “Stored”?
With a classification like “store” you would think so, but the best distribution centers never truly store product, they pass it through the operation without the product ever stopping or if it does, only long enough for it to be consolidated with other incoming product.
The process of product arriving in one door and leaving through another is called cross docking. True cross docking is scheduled and planned to allow for maximum efficiency and minimal handling, but requires a good deal of automation to manage case level cross docking and fully integrated supply chain systems to coordinate storage-less operations. When planning is not always as precise, other value added steps may be required (think labeling); a staging or consolidation area may be required to facilitate flow through operations.
Staging and order picking occur in designated space, but not always in real time. The less product is touched and moved, the less cost is added to the product. In a traditional operation, travel time is responsible for up to 55% of total labor effort — talk about non-value added costs.
So if you had any advice for listeners, what are some guidelines and best practices that you would suggest?
The secret to designing and managing a successful distribution operation is to fully understand what your requirements of success are, measure them, and focus on improvement. There are eight steps that I see you need to look at:
- Managers must make an effort to understand the customer being serviced, what they want, not what you promise.
- Managers must fully understand the products. How it is packaged, how it should be handled, what risks must be looked for by the staff upon receipt and upon shipment.
- Focus on space management, remove clutter, and reduce lost excessive space around product for access.
- Get lean: reduce wasted touches and unnecessary steps through training, improved processes and improved product accessibility.
- Reduce unnecessary travel by zoning and location slotting product in the facility and by leveraging appropriate automation.
- Leverage systems to streamline processes versus adding steps, data entry, and increasing error opportunities.
- Establish performance goals, set standards, and measure and report performance to the staff. You cannot get better unless you know where you are at today.
- Eliminate waste; not only paper and plastic, but energy waste. This can be a lot more significant than most operations believe it is.
Besides these best practices, one must remember “Store” is just one part of the larger supply chain. Synchronization of supply with demand is a key contributor to the success and design of “Store” functions. Decisions about how to manage inventory, the level of customer service, where inventory is purchased and sourced from, and even the mix of product to be handled affect decisions about the “Store” function. How we choose to handle both peaks and valleys in the business, how ready we are to support unanticipated changes, and how flexible we need to be to compete effectively all play a role in designing the distribution and storage portion of the supply chain.
In simplest terms, no matter how good your product is, how well you buy it, how well you sell it, if you do not get it safely and on time to the marketplace, you will soon be out of business. As with all areas of the supply chain, you are only as good as your weakest link.
Thank you very much Brian. I really appreciate you spending time with us today. In two weeks, we will be pursuing further the global supply chain discussion when we turn to Ralph Cox, a leader at Tompkins in the supply chain practice, to discuss the “sell” step of the supply chain. Thank you for being with Brian and I today. We look forward to speaking to you again real soon.