Hello, my name is Jim Tompkins and I am the CEO of Tompkins Associates and Tompkins International. I'm pleased to be with you today to present our fifth part of our third series of the Global Supply Chain Podcast.
Today’s topic will continue our discussion of distribution cost reduction by focusing on material handling equipment, software, and controls.
These topics are typically approached from a capital investment viewpoint, but today my guest Paul Faber will show us show how they can contribute to cost-savings initiatives if viewed from the right perspective.
Paul is a Director of Tompkins Associates and the thought leader behind the Tompkins Control System business. Paul, thanks for joining us today.
Paul:
Thanks Jim, happy to be with you.
Jim:
Paul, let’s start right off with you giving us an example of how material handling can contribute to cost-savings initiatives.
Paul:
Let’s take the example where you feel your material handling equipment is currently near full capacity – or overloaded? Even in today’s economic crisis, many companies find themselves with warehouse material handling equipment or software controls that are nearing capacity. In fact, a recent survey of consumer product and retail companies by the Benchmarking and Best Practices Consortium found that close to 40% of companies surveyed foresee capacity problems in the near term. In the past, this would be solved by a capital-intensive MHE system expansion.
Today, capital is tight or non-existent, so material handling system expansions are not an option, or are problematic at best. Luckily, there is a way to find “extra capacity” for material handling and warehouse control systems that are under-performing. This method is a System Capacity Audit of material handling processes, equipment, and software/controls. We’ll cover the specifics of such audits after we cover the areas where additional capacity lurks within your current system.
Jim:
Tell us about this additional capacity.
Paul:
Our experience shows that if your MHE is between five and ten years old, you most likely have an extra five to ten percent of capacity – or more -- waiting to be tapped. This is because of inefficiencies that build up over time to rob the system of capacity. Most MHE systems are optimized for a given set of business assumptions, such as volume, SKU profile, packaging practices, and assume certain given operational practices. As time goes by, the business assumptions change. The original group of trained DC personnel disperses over time due to natural turnover. The staff that remains becomes used to “the way we do things around here,” even if that means extra work to manage around operational inefficiencies in the MHE. Signs of such inefficiencies that rob a system of capacity are as follows:
For Receiving – Are packages staged at induction points because there’s no room to process them at shipping?
For Picking – Are pickers unable to put completed orders on the conveyor due to pick-mod congestion?
In Packing – Are packing operators stacking orders by their workstations because of poor order sequencing or inability to get locate the last item for an order?
Finally, for Shipping – Is the shipping sorter recirculation line routinely full? Or is the read-rate on your shipping carton barcodes less than 99%?
If any of these symptoms look familiar, an MHE systems capacity audit may help you unlock additional capacity from your existing capital investment.
Jim:
Great, very useful Paul, let’s jump onto material handling system capacity audits. What factors do you take into consideration?
Paul:
Jim, an objective material handling systems assessment provides a fresh perspective on your distribution center operations while identifying specific and quantifiable improvement opportunities. The system capacity audit process recognizes that your DC operations rely on more than just conveyors and sorters. The material handling system is really a combination of people, processes, information, and hardware. Therefore a comprehensive system assessment will gather information on each of these areas.
For people and operations: observe and measure such elements as the walk-path and productivity of operators in the areas that show signs of trouble. Compare them to industry standards and each other. For example, does the productivity of your pick-engine operation exceed the packing productivity, resulting in an unbalanced system as evidenced by package congestion and system jams?
For equipment: measure the speeds of conveyors leading to and from each processing area. Develop a node diagram showing the throughput to and from each area. When MHE systems are new, the conveyors are designed to provide balanced performance from one area to another. We have found it surprisingly common that, over time, conveyor speeds can become out-of-balance due to modifications, wear, or misguided “improvements” by maintenance personnel. Symptoms such as persistent conveyor jams or choke-points may simply be a function of incorrect conveyor speeds that create an unbalanced system.
For information systems: evaluate the warehouse controls for the adequacy and timeliness of information. Does the control system provide the correct speeds and feeds for optimal throughput? Is there a WCS to provide timely information on equipment jams and overall operational throughput? Often we can recommend simple PLC modifications that will provide critical system metrics and improved efficiency, even for systems without a full-featured Warehouse Control System.
Jim:
I understand. Maybe to help our audience grasp this at the next level it would be useful for you to give us an example.
Paul:
Ok, Jim, here is a real case study from about two years ago. Tompkins Associates was contracted by an industrial supply company to perform an assessment of their distribution center in New Jersey. The New Jersey facility had difficulty with meeting design capacity and was experiencing large gaps between conveyed product and large recirculation on the shipping sorter, which is indicative of inefficient shipping.
The study showed that the New Jersey DC could gain a 35% capacity in the number of cartons sorted and a 31% gain in the number of lines processed per day by implementing conveyor speed and controls changes alone. Speed changes were made in critical conveyor sections and at the sorter. Controls were optimized to reduce gapping. Additional operational changes were recommended in the pack out areas to increase total velocity through the system. These changes were made for very little money and saved the client the expense of a major material handling system capital investment. The result was more capacity and sharply reduced overtime costs for labor.
Jim:
Great Paul. We have many distribution center executives who listen to our podcast. What are some of the management considerations that they should consider when thinking about a material handling system audit?
Paul:
There are a couple of personnel and project management considerations to keep at the top of your priority list when conducting a system capacity audit and executing the resulting corrective action plan.
The first thing is to recognize that people resist change, particularly when they have been working the same processes for several years. Make sure you present the plan correctly as a shared improvement and an exercise in teamwork. You are doing this to help your company improve efficiency and reduce costs in difficult economic times. Give the department supervisors the opportunity to lead portions of the capacity audit --- this will gain their buy-in to fix issues, instead of motivating them to cover up or minimize any poor performance practices uncovered.
It is also important to measure the results of changes and publish this information to your performance team. This will provide reinforcement of the desired behavior and process changes. In addition, this habit of evaluating the information provided by the system will prevent loss of efficiency as natural attrition or changes in assignments disperse the team that performed the system capacity audit.
Jim:
Paul, how often should distribution executives consider doing an audit?
Paul:
Material handling system capacity audits should be done as a regularly scheduled-program of self-evaluation on an annual basis.
Jim:
Very interesting Paul, are their any concluding thoughts you would like to share with our audience?
Paul:
Certainly, it is really important in this challenging economic climate to realize that this will not remove the performance pressure on your distribution center. In fact, it will increase it. The opportunity exists to recover system capacity lost as your system aged. A system capacity audit will reveal immediate steps to implement now, without the need for long and costly capital improvement projects for your material handling and control systems. Therefore it is important to increase labor efficiency and optimize operational practices on an ongoing basis. To do this you should:
First: Audit and analyze current performance against industry averages and original design assumptions
Secondly: Identify and implement corrective actions
And lastly: Implement training and performance-standards monitoring
Finally, you must deliver critical operational performance-management information to managers in a timely manner with a minimal information technology investment.
You can do this by performing the following steps:
1. Evaluate old WCS and control systems in light of new technology
2. Unlock the data inherent in your system by selective modifications to your current controls
3. Institute regular measurement and analysis for ongoing success
These steps result in improved customer service levels and an improved ability to identify problems and react accordingly.
Jim:
Paul, thank you for your time today. Good stuff. I look forward to continuing this series in two weeks when we dig into the topic of inventory cost reduction with our inventory expert Ralph Cox.
