RENEWING THE WAREHOUSE

There is an old saying in warehousing: if there is available space, someone will eventually fill it, and usually sooner rather than later. Hence, it is not uncommon for a warehouse to be full even during slow periods.

A warehouse will normally run out of space due to rapid growth, seasonal peaks, large discount buying, planned inventory builds for manufacturing shutdowns, facility consolidation, or even a slow sales period.

Generally there are three types of space deficiencies that occur in a warehouse. The first type results from simply having too much of the right inventory. The second is the result of having too much of the wrong merchandise, and the third comes from using the existing warehouse space poorly. To appropriately address each one of these space issues, one must first understand the issues and what creates them.

TOO MUCH OF THE RIGHT PRODUCT

An abundance of the right product appears positive in terms of customer service and order fulfillment goals, as product is readily available to fill customer orders. Yet, as the sales staff and buyers celebrate making customers happy by fulfilling every order 100 percent, the warehouse operates well below established productivity and safety standards.

A look into this type of warehouse will reveal pallets of product stored in aisles, stacked in dock areas, placed on rack end caps, or multiple SKUs of product mixed in single bin locations. Blocked visibility creates safety hazards, lack of ease in locating inventory, decreased labor productivity and multiple handlings of product. The upside is that these products usually move quickly through the warehouse and space problems exist for only several weeks.

TOO MUCH OF THE WRONG PRODUCT

Having too much of the wrong product is often an indicator that sales projections and/or production planning were incorrect, but it also frequently indicates that the warehouse is not managing inventory levels or obsolete product properly.

Unlike having too much of the right product, where inventory peaks can be handled with extra labor, having the wrong product usually results in inventory remaining untouched in the warehouse for months and even years.

A good example of this lack of inventory management occurred at a mid-sized consumer goods supplier. Upon reaching a full warehouse condition at both their manufacturing and distribution center (DC), the company brought in a consultant who, after examination of their inventory, discovered that 600 of the 3,000 pallets at the manufacturing center had not been used for production in the last 12 months. At the DC, over 400 of the 4,500 pallets on-hand had no sales in the previous three years. Another 500 pallets had zero sales activity in the past 12 months.

Too much of the wrong product was solved with management approval to take a one-time hit to the bottom line. Obsolete inventory has little to no value on the open market, but the earlier it is identified, the quicker a company can cover any losses and better manage its assets.

POORLY UTILIZED WAREHOUSE SPACE

This condition is usually caused by steady growth, changing storage requirements (change in product mix) and ever increasing service requirements. Poorly utilized space is a common occurrence that happens in all warehouses occasionally and is non-exclusive of the inventory type or storage conditions in the warehouse.

Traditionally, warehouses are built and equipped to handle projected volumes, a set number of products and limited unit loads. Then they are expected to adjust to customer demands as well as be more efficient over time.

To accomplish these conflicting goals, warehouses generally accept long-term penalties to accomplish short-term goals like creating customized floor-ready merchandise for end-cap displays, hand-pricing a key customer’s merchandise at the piece level, or creating mixed loads to simplify customer processing when goods traditionally ship in full case or full pallet quantities. All of these customization steps take valuable floor space and labor from primary warehouse functions.

Other common instances of poor space utilization include low vertical space utilization, wide aisles (over 2.7 meters), and multiple products in single bin locations and/or partial unit loads being stored in full unit load locations. These types of problems should be addressed with physical layout and workstation design changes.

Often inventory excesses and general space constraints result from any of the above-mentioned conditions, but consolidation of operations or continuously improving sales creates real space defi ciencies. When relocation or facility expansion are not options, three paths may be followed:

1) External or temporary storage;

2) Internal warehouse redesign and

3) Improving inventory management.

EXTERNAL OR TEMPORARY STORAGE

Inventory builds traditionally occur to handle seasonal peaks or new product introductions. Demand for products such as cold weather garments that fly off the shelves during the first signifi cant snowfall of the season or the first release of a long-awaited music CD are prime examples of planned inventory builds. In some cases, these builds are unavoidable and require temporary measures to handle the inventory peaks.

One method to handle these temporary builds is using thirdparty warehousing to store excess inventory or ship orders directly to customers. Unfortunately, a premium is charged for these services on shortterm contracts versus year-round deals. Several manufacturers and distributors have, however, reduced the penalty of seasonal storage by forming alliances with companies that have diff erent seasonal peaks, but similar storage needs.

For example, a sausage manufacturer that has inventory peaks in winter and spring each year to meet high summer demand for barbecues might partner with a turkey producer that has a late summer and fall build for Thanksgiving and Christmas holiday demands. Together the companies can contract with a third party for year-round services.

A second method is to store product on trailers for short periods. This method can be extremely expensive as monthly quality trailer rental or demurrage can range from US$180- $220, not including drop-off charges, trailer loading and unloading labor expenses, and security risks.

Trailer storage is most effective when the company has a true partnership with a dedicated carrier. Often the carrier will manage the freight and store trailers in their yard as part of the freight agreement. The carrier benefi ts by having guaranteed freight throughout the year and by being able to charge a profitable rate for all routes.

WAREHOUSE REDESIGN

It can be said that the warehouse redesign process is more art than science and more common sense than theory. The primary objectives of warehouse redesign are to:

• Use space efficiently

• Allow for the most efficient material handling

• Provide the most economical storage in relation to costs of equipment, use of space, damage to material, handling labor and operational safety

• Provide maximum flexibility in order to meet changing storage and handling requirements

• Make the warehouse a model of good housekeeping

Eight steps are required to make this happen:

1. Measure the space you have to work with,

2. Define the fixed obstacles (columns, walls, doors, clearances, etc)

3. Understand the product stored and handled

4. Establish the material flow paths

5. Determine auxiliary facility requirements (offices, dock staging, hold and inspection, etc)

6. Generate alternatives

7. Evaluate alternatives

8. Recommend and implement improvements

All alternatives must consider not only space, but also material handling and impacts on labor.

INVENTORY MANAGEMENT

In order to properly manage inventory, information on demand at all levels of the supply chain must be maintained in real-time. This includes information at point-of-sale (POS) down to raw material deliveries at suppliers. This requires a real-time warehouse management system (WMS) to maintain inventory and transaction data.

A program of cycle counting should also be implemented to track inventory and to ensure obsolete product is not occupying valuable space within the warehouse. A WMS can help with this as well as to manage an on-going re-warehousing effort. A good WMS is able to assign receipts to the best storage location based on product activity and unit load dimensions.

Management can take control of the flow of product from suppliers using blanket purchase orders that allow draws of inventory from a pre-planned pool of stock with short lead times. This minimizes onhand inventory by having real-time planning information for reordering the right stock.

Another approach to managing inventory is to have only the fast and medium moving products stored in the warehouse and to have suppliers direct-ship slow moving product to customers. This method can commonly eliminate the storage and pick face requirements for over 50 percent of the total items offered, while only impacting five percent of the total orders.

CREATIVE SPACE CREATION

The classic warehouse is a mixture of bulk storage and wide aisle selective (i.e. single) 3 to 12 feet pallet rack. This design works well when fast moving items arrive in large quantities and are stored in bulk, while medium and slow moving items are stored in pallet rack.

However, due to product proliferation and shrinking customer order quantities, many warehouses have lower quantities of all individual products are stored, creating a space shortage as less dense pallet rack confi gurations are installed to handle ever-increasing pick face requirements. The main spacecreating solutions are described below.

Vertical Cube Utilization

To increase the number of pick faces and storage density, the fi rst step is to ensure that the facility’s entire “vertical cube” is eff ectively utilized. Vertical cube includes all space above loads, total building clearance, space above cross aisles, space above work and pick areas, and space above docks.

Within the rack, the opening height should be approximately six inches larger than the load height to facilitate easy and safe loading and unloading of product. A quick formula to check this is to take a sample of unit loads stored in the warehouse and divide a typical vertical bay of product height by the clear height in that area of the building.

If the space is utilized less than 50 percent, a great opportunity for improvement exists. If the space is utilized between 50 to 75 percent a moderate opportunity for improvement exists. A well-designed facility will have approximately 75 to 80 percent vertical utilization.

In order to recapture lost space, the location opening sizes should be changed to meet the existing unit load dimensions. This means creating multiple opening heights and implementing a re-warehousing program to move partial slow moving pallets into shorter locations.

If product is received and stored in less than one-half pallet loads, decked rack and case flow rack locations should be considered. Typically, the pallet accounts for 10 percent of the storage requirement of a unit load. By hand stacking cases on decked rack or into case flow rack, the pallet is removed from storage. The density of the pick faces then increases dramatically by narrowing the pick face dimension from a pallet width down to a single case width.

Both decked rack and case flow rack may be utilized with pallet rack to optimize vertical cube utilization. It is often found that gains of 20 to 50 percent in vertical utilization can be obtained by simply moving a few beams and adding a small amount of decking or case flow rack.

Tunnel Rack

Another often under-utilized space is the area over cross aisles. This area can be converted to storage space in back-to-back rack sections, also referred to as “tunneling the rack”.

In a warehouse with 20- to 24-foot clearance and four levels of storage, generally the top two levels of rack may be tunneled. This will improve unit load storage capacity by 5 to 10 percent. When tunneling over aisles, it should be noted that pallet decking or netting should be added to prevent falling cases from reaching the floor.

To tunnel existing rack, custom measured and fit beams must be purchased to fit the space between existing sections of rack which often vary by up to an inch in length. Tunneling of rack should be done in conjunction with forklift training to ensure operators are moving with the fork mast down.

Rack Over Docks

Docks poorly utilize vertical cube as the majority of activity occurs in the lower 10 feet of space. A good opportunity exists to place racking over the dock doors for storage of pallets or other packaging materials.

Another potential gain in the dock area is for the long-term storage of staged materials in rack rather than on the floor for shipments that have been pre-picked and are awaiting final release.

Mezzanines

In operations such as direct-toconsumer or small order fulfillment, most items are picked from broken case pick lines and then packed into shipping containers at secondary pack stations. These areas generally require low clearance, but are often located in the general warehouse building.

One method to regain the space in these areas is to build a mezzanine structure above these work areas or to move the work areas to the mezzanine. This will yield roughly 50 percent vertical space utilization improvements, but is an expensive option that reduces future flexibility. Properly designed mezzanines can be used for anything from bulk storage areas, to process areas, to valueadded service areas (VAS).

A large pharmaceutical distributor recently added two such mezzanines to create space for additional packaging materials and refrigerated storage. The first mezzanine was utilized for two days of corrugate storage on the lower level, and the upper level was used for order inspection, invoice printing and final packaging.

The second mezzanine was designed for refrigerated packaging materials on the upper level and a consolidated manifesting operation on the lower level.

The additional space was required to handle increasing small quantity shipments of vaccines to doctors and small clinics. The addition of the mezzanines extended the life span of the existing DC an estimated two years before relocation will be required.

Narrow Aisle Pallet Rack (NA)

An alternative storage method to wide aisle pallet rack, in narrow aisle rack confi guration, the aisle is reduced to between 9-feet and 10-feet clear load-to-load and requires either a stand-up reach truck or a 3-wheel fork truck. However, whenever rack is relocated, so must lighting and inrack sprinklers if they are present in the existing confi guration. In addition, new trucks must be purchased. A 10 to 15 percent gain in storage locations can be obtained.

Very Narrow Aisle Pallet Rack (VNA)

In very narrow aisle rack, the aisle width is generally the load width plus six inches minimum. The actual width for a standard GMA (40 x48-inch) pallet operation would generally be 66 inches rack-to-rack. This allows for pallet overhang in the rack and sway in the truck mast to minimize damage.

In VNA rack, special narrow aisle trucks called turret trucks or swing mast trucks are required to put away and to retrieve unit loads. Case and piece picking occurs on all levels with man-up order picker trucks.

The potential space improvements when the column spacing works is between 25 and 35 percent over wide aisle racks. However, the cost of equipment is significant as well as the restrictions to safe operations. Turret and swing mast trucks can run between $65,000-$100,000 each, and order picker trucks $20,000 and $25,000 each. For high bay (over 40 ft) operations the cost of trucks increases as the type of truck becomes highly specialized.

Double-Deep Pallet Rack

Double-deep and pushback rack can be applied when and if multiple pallets of the same SKU exist in storage. The basic premise of double-deep rack is to put two sections of pallet rack back-to-back with only one access aisle. Pushback rack uses the same premise, except that the pallet moves on carts or rollers to the forward position upon removal of the forward pallet.

In a wide aisle environment, double- deep or pushback sections may be created to add density. However, double-deep reach trucks for double- deep rack and standard stand-up reach trucks for pushback rack will be capable of operating in a typical narrow aisle environment if properly designed.

Pallet Flow Rack

Pallet flow rack works well in multiple- pallet environments of single SKUs. The primary advantage is the elimination of aisles by allowing storage depths of three to 20 pallets on multiple levels. The primary disadvantage is the relative infl exibility to handle changing inventory requirements and rack cost ($200 to $350 per position). Pallet flow rack works best in case or full pallet distribution operations.

Portable Rack

Like bulk storage, but used for nonstackable product, portable racks allow both the utilization of vertical cube in a warehouse and the added advantage of being reconfigurable for any product mix. Disadvantages, however, are the high cost and the storage space required for portable rack components not in use.

Small Parts Storage

One of the last changes to the warehouse is to move all less-than caseproducts from pallet rack locations, including decked rack, into shelving, drawers and vertical or horizontal carousels. This will open up locations for faster moving products and generally reduces the order picking labor associated with slow movers.

MAKING THE MOST OF WHAT YOU HAVE

The implementation of any single or combination of changes discussed will create additional space in a warehouse, but every warehouse has specific operational requirements that must be addressed. After creating the ideal location types and sizes for the present operating requirements, a program must be put in place to review and adjust the storage plan on a regular basis.

All physical changes in a warehouse incur a cost, while only being a part of the solution. If space is the only concern, labor efficiency, safety and throughput will suffer and create even greater problems. Companies can make a lot of improvements but must realize that no change made is the ultimate solution; change is constant.

Uncovering ways to optimize existing warehouse operations while preparing for business changes must become primary concerns for company management. The flexibility to handle both long-term projections and shortterm need is what make operations world-class.

Brian Hudock, Partner at Tompkins Associates, has an extensive background in warehouse operations and facility design.

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HEALTHY EXPANSION

Double the current warehouse storage capacity was the requirement for this recent healthcare logistics facility expansion in Vietnam.

In the last three years, the Vietnamese pharmaceutical market has been growing at an average annual rate of over 16 percent. This market growth brings with it an increasing demand for quality services and total quality assurance.

One of the key players for logistics services is Diethelm Keller Siber Hegner (DKSH) Vietnam, a subsidiary of Switzerland’s DKSH Holdings. Locally, DKSH Vietnam focuses on four business units: Consumer Goods, Healthcare, Performance Materials, and Technology.

Today, as a 100 percent Foreign Investment Enterprise, the company has established a strong foothold in the Vietnamese market, including a comprehensive nationwide network for pharmaceutical companies such as Sanofi Aventis, GSK, Novartis, BMS, Boehringer Ingelheim, Roche, Merck Serono, and Bayer Consumer Care.

International standard warehousing endorsed with GSP (Good Storage Practice) certifi cation by the Ministry of Health is off ered as well as ISO 9001:2000 quality certification.

PROVIDING PERSPECTIVES

Covering over 12,000 square meters, the new DKSH Healthcare Logistics Center, situated in the Vietnam Singapore Industrial Park (VSIP), located some 30 minutes drive from Ho Chi Minh City, has been designed to incorporate full GMP (Good Manufacturing Practice) requirements and enhanced work flows. More than 5000 new pallet locations were recently added by SSI Schaefer Vietnam, to both ambient and controlled temperature storage areas, in order to double existing warehouse storage capacity.

Also added were close to 1000 more shelf spaces on the single and double-tier modular shelving systems caters for smaller carton boxes.

“SSI Schaefer is a very strong and solid brand name internationally,” says Thomas Neff , Country Logistics Manager of DKSH Vietnam. “But the reason we chose them is because they were able to present us with new perspectives in terms of warehouse space layout and optimization.”

Quality of the storage systems was another important factor of consideration when the working committee was evaluating the diff erent tender bids. According to Neff , the company prefers to invest for the long term and hence cost is secondary when compared to product quality and service standards.

For more efficient order picking, Schaefer recommended the “live storage” concept. With the warehouse workers usually order picking in the late morning for delivery in the early afternoon, the KDR carton live storage system that was installed increased their picking efficiency, especially for faster moving items.

The system is capable of holding 2880 carton boxes, which roll forward automatically when the one in front has been picked, facilitating the First-Expired-First- Out (FEFO) rule.

The expanded Logistics Center also boasts cold chain storage facilities where products are stored at a temperature range of 2-8 deg C, packed at 15 degrees, and shipped in specialized fully validated packaging material to maintain the temperature until they are received by the customer.

A building automation system (BAS) monitors the humidity and temperature in the warehouse such that any equipment malfunction or deviation from defined temperature range triggers optical and acoustic alarms. The facility is also backed up by a generator in case of power failure. Such stringent control and redundancy is necessary for DKSH Vietnam to ensure the integrity of the stored products.

MARKET EXPANSION

Of the 42 pharmaceutical suppliers, DKSH Vietnam provides full agency services for almost one third of them.

“We are the world’s leading company in Market Expansion Services with focus in Asia.” said Mr. Neff . “We provide our partners with fundamental expertise and on-the-ground logistics, which is of paramount importance, in order to expand their market share in existing markets as well as new markets especially for a dynamic and developing country such as Vietnam.”

Healthcare Alliance is the name of such contracted sales and marketing services off ered by DKSH Vietnam, where they assist customers who wish to establish their products in the Vietnamese market without incurring high setup costs. This helps smaller pharmaceutical companies constrained by limited resources.

DKSH Vietnam also sees the need to help raise the bar for the healthcare industry in the country. Seminars are organized for medical clinics, drug stores and hospital pharmacies, on topics such as establishing a GPP (Good Pharmaceutical Practice) standard across the board.

According to Thomas Neff , the sponsorship of such seminars is part of DKSH Vietnam community services and social responsibility programs. “It is our way of contributing to assist in the implementation of quality assurance standards throughout the supply chain for healthcare products.”

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THE KEY TO KPIS

Key performance indicators (KPIs) can offer keen insights into what's really happening in the warehouse, but they must be chosen carefully, says G SHANKAR.

If you can’t measure it, you can’t improve it. This sums up the underlying reason why key performance indicators (KPIs) – defined as management metrics that measure the performance of a logistical system – are becoming indispensable in successful supply chain operations.

Defining the metrics that are most important to your business allows you to filter everything that isn’t related to those key measurements. This leads to improved efficiency for your supply chain.

Companies that monitor metrics can spot threats and opportunities faster, as the KPIs offer keen insights into what’s happening in the business and in the overall industry. And KPIs also provide a framework for making sound business decisions beyond the supply chain.

This recognition of the importance of KPIs and benchmarking against industry norms has prompted more and more supply chain players to adopt these initiatives. And this trend looks set to continue due to factors such as:

Changes in manufacturing strategy In the last decade, centralized buying and outsourced manufacturing have dominated the market. As this involves a lot of coordination, especially in the logistics functions, it becomes more apparent that their eff ectiveness must be measured, e.g. evaluating performance of a service provider.

More competitive retail trade When it comes to domestic distribution, the exponential rate of growth of modern retail in Asia has put signifiant pressure on logistics, especially in warehousing and transportation. Properly-defined KPIs and agreed by both client and supplier can eliminate ambiguities.

Cost-conscious market Keeping a lid on operating costs plays a vital role in helping a company maintain its competitiveness. Cost of any particular logistics function is a typical KPI.

KPI FRAMEWORK

Setting up a KPI reporting process requires due care and diligence to ensure that it is fully optimized and generates meaningful results. One of the most common pitfalls lies in how some organizations generate lots of KPIs and other monitoring reports on a weekly or monthly basis with very little value. One has to be wary of this; if KPIs are not properly set up, they could be a complete waste of time and also lead to wrong decisions.

Below are the principles that an organization should bear in mind in developing its KPI framework:

• KPIs should reflect and measure key value drivers of that would help achieve specific business goals

• Identify the criteria to be measured

• Develop the KPIs with the target audience in mind

• KPIs should be simple and manageable in numbers

• The source data for KPIs should be reliable and easy to generate

• KPIs should be prepared in consultation with the staff responsible for preparing them

• KPIs should clearly state thresholds, targets and industry standards or benchmarks

• Periodical results should be discussed, off -tracks communicated back on a timely basis, and follow-up actions taken

• KPIs should be reviewed to ensure that they are still relevant at least once every three to six months

SELECTING KPIS

Until recently, the warehouse had traditionally been a much neglected function for most businesses in Asia. But today, companies have started to measure warehousing efficiencies for both in-house and outsourced operations. In fact, many manufacturers set benchmarks of their own and expect the 3PL providers to improve on them

When it comes to selecting KPIs for the warehouse, there could be 25-50 relevant ones. However, from the management perspective, we need to carefully choose the ones that will help us manage our operations efficiently and work towards continuous improvements.

Different companies may want to concentrate on different areas and hence the best way to start is to list down 10 most important objectives that one would want to achieve out of the measurement system.

Alternatively, one could look at the problem areas in the recent months and take this as the starting point. For example, complaints about shelves being empty (out of stocks) in a supermarket could be a good starting point.

Some of the key warehouse process areas and specific suggested measurement criteria:

• Inbound

- Inbound turnaround time and creation of a GRN (Goods Received Note), i.e. the time taken from receipt of the truck in the warehouse, unloading, putaway to creating the GRN

• Inventory Accuracy

- Accuracy at stock keeping unit (SKU) level, i.e. the number of SKUs where the physical quantity matches with the book as a percentage of total number of SKUs

- Cycle count as per ABC categorization (typically carried out on an ongoing basis), to ensure bin accuracy and provide continuity to the checking process - Discrepancy as a percentage of total stock on hand

• Outbound (including deliveries)

- Picking accuracy

- On time loading/delivery

- Order fills – at case, order and line levels

- Perfect orders, i.e. on time and in full -Delivery damages

• Handling of Proof of Returns (PODs)

- Number of PODs returned to administration within the agreed lead time

• Cost of Warehousing

- Warehouse cost per case or m3 delivered

- Warehouse cost as a percentage of sales

• Stock Turns

- Average stockholding/ delivered volume = stock turns or stockholding in weeks/days/ months

• Warehouse Productivity

- Cases/pallets moved per man hour

- Retail picking in cases per man hour

- Idle man hours

- Equipment downtime

FOCUS ON THE FEW

In conclusion, when defining the appropriate set of supply chain and inventory measurements, it is critical to decide which metrics will yield the most benefit and information for the least investment of resources.

The key is to focus on the few measurements that really matter, i.e. those metrics that provide the most balanced view of end-to-end supply chain performance.

But before identifying the few key metrics on which to focus, it’s however important to understand how they all interrelate. The metrics reflect the underlying realities of the supply chain they measure, and as such, none exists in vacuum.

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