Ten Steps to Optimizing a Retail Distribution Center

Most retail executives who work in supply chain know that facility design offers opportunities for significant operational savings. The information they lack, however, is the tactical knowledge of how to analyze, plan and implement an optimization strategy within their facilities. There are 10 critical steps to ensure distribution center (DC) optimization success for retailers, all of which set retailers up to generate significant cost savings over time.

Analyze the impact of DC optimization.
A percentage of all sales are directly impacted by the efficiency of the supply chain, and it all starts with the DC. So, how much will DC optimization affect your apparel business? Over multiple stores, items, colors and sizes, the answer is very likely quite substantially.

Begin strategic planning.
Almost immediately after starting your strategic plan, you’ll want to establish a project team and plan objectives as well as priorities. Process improvements will be as much a part of the solution as material handling equipment. A cross-functional project team should be created. The team will:
Consist of DC, information systems, sales and account professionals;
Interact to establish the objectives and priorities for the development of the warehouse strategic plan;
Quantify these objectives and priorities for use as a guide in DC alternative generation and apply as the criteria for the qualitative analysis;
Obtain a consensus on the objectives, priorities and evaluation criteria.

An important thing to consider is strategically planning for an omnichannel retail environment. With a large network of stores, there may be an opportunity to ship from the store or DC, and those decisions will need to be discussed during this step.

Establish a database.
The following pieces of information should be obtained:
  • Planning horizon (two years, five years, etc.)
  • Growth (sales and product)
  • Receiving and shipping requirements
  • Storage and throughput requirements
  • Control system requirements
  • Operating procedures
  • Present warehouse layout
  • Material flow volumes
  • Unit load definitions
  • Present operating cost
  • Economic evaluation criteria and factors
  • Present storage, picking, and packaging procedures
  • Order profiles
  • ABC analysis, which categorizes items based on value (velocity movement of product)
Document current processes, whether they’re working or not.
Be sure to develop cross-functional flows that encompass business systems and develop non-value added vs. value added process flows. Value added vs. non-value added processes, better known a “value steaming,” is a Lean process for evaluating processes within an organization. The concept of Lean and Muda (eliminating waste) should be a key component of both independent consulting firms and material handling integration (MHI) vendors. However, the approach to solve a Lean distribution problem should be based upon simplicity, agility and flexibility. Material handling equipment is neither flexible, nor agile.

Identify, document and evaluate alternative DC strategic plans.
It’s now time to question quantity of SKUs in all locations as well as the methods of receiving, storing, picking, packaging and shipping. Various operating and material handling systems should be considered, with the solution viewed as optimal only if all factors are considered: processes, labor, equipment, space and system.

Make sure you accurately define the investment, installation and operating costs for each plan, including performing an after-tax economic analysis. Select the best warehouse strategic plan based on both economic and qualitative evaluations.

Define the plan and get upper management on board.
Now that you have a plan, it needs to be even further defined. The end result should be a detailed document that is senior management-ready.

Establish a list of potential vendors.
Obtain a list of three to five vendors that might be a fit for your business and contact them about your project. Put together a document for them that specifies the required functionality and bid requirements for the necessary equipment and systems. Topics to include are:
General requirements;
Operational requirements;
Define the functional areas of the warehouse;
Integration and interface requirements;
Software and hardware requirements;
Project guidelines;

This document ensures that all vendors provide an equal level of functionality for the price quoted. Vendors might have questions along the way, but the end result will be a proposal that addresses all the requirements.

Pick a winning vendor.
After on-site visits from top vendor picks, the internal team should evaluate proposals and choose a vendor. Make sure that the expectations and pricing is clear to both parties upfront. Be sure to ask about experience with other retailers of similar size. Designing for retail is different than consumer goods, for example, so direct retail design experience will be immeasurably beneficial. The vendor needs to be able to take into account ship-to-store, cross-stocking and more, which are all retail focused.

Finalize the layout.
Now that you have a partner in place, it's time for them to redesign the conceptual layout which should maximize storage and minimize congestion and show details and dimensions on layout for items such as staging lanes, aisles, section views of storage equipment, forklift maintenance areas and lighting requirements by area.

Develop a transition plan for implementation.
The completion of strategic and detail planning is only half of the battle. Now teams need to collaborate to develop a conversion and transition plan for implementation. The defined tasks will be assigned and the process will be developed to manage this phase.

While 10 steps are definitely substantial—especially since the plan’s implementation has yet to take place—remember, facility design offers significant operational savings for apparel retailers over time. By taking a collaborative approach with your team and with your vendor, the process will be seamless and worth the effort.

Steven (Jimmy) Benefield, a partner at enVista, has more than 20 years of experience in supply chain consulting and project management specifically in manufacturing, transportation, distribution and third party operations. enVista delivers innovative solutions that improve profitability, enhance customer service and reduce waste from source to consumption. enVista’s unrivaled consulting experience, deep vertical industry expertise and comprehensive solutions portfolio, enable clients to leverage one strategic partner that consults, implements and operates across Supply Chain, Transportation, Retail, IT and ERP. 

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