Consolidating Parts to One Centralized MRO Storeroom

The Challenge

A modified wood products manufacturer was planning construction of an additional plant to fulfill increasing demand.  The company had already developed a preliminary layout of the facility in tandem with an architect for budgetary purposes.  Establish was tasked with maximizing the storage capacity of the Maintenance, Repairs and Operations (MRO) storeroom space allocated in the preliminary layout.

 

Developing a Cost-Efficient MRO Storeroom

All parts at the existing facility were stored at the point of use.  While this provided quick turnaround time in the event of a line breakdown, there were several disadvantages to point of use storage:

• Securing inventory was nearly impossible. Outside of the primary storeroom, inventory utilization was retrieved by the user and not updated in inventory until control retrieved the use sheets from the location.

• Inventory management took an extremely long time to execute. Inventory control had to walk several miles in order to cover the fourteen locations.

• The same item was stored in multiple locations. Each location stored extra, thereby increasing the total part inventory.

• In order to be close to its point of use, some items were stored in less than ideal locations.

As a result of these flaws, the hypothesis was that the MRO inventory should be centralized in one location, with some of the items only utilized in one location stored at point of use.

Similar to other MRO warehouses, there is wide range in item usage frequency.  Some items are accessed several times a day whereas other items aren’t accessed for years.  Unlike a typical warehouse, the items that haven’t been used in years are not necessarily obsolete, as these parts may be hard to find, not manufactured any more, or the part may be essential to run the production line.  As a result, Establish explored and ultimately recommended customized solutions to match item utilization.  Frequently used items were located in the front of the storeroom and are located on shelves for easy picking.  Items rarely used were stored on space efficient narrow aisle pallet racks, accessible only by pallet walkers.

 

Results

The lumber company got a highly efficient layout that consolidated the storage requirements of the fourteen locations in the existing facility into the one space provided in the proposed facility. Only 60% of the anticipated footprint was needed and the inventory control improved.

 

Key Takeaways

• There are tradeoffs between storing items at its point of use and at a centralized location. The conclusion is however that the savings in space, inventory and handling far outweighs the easy access. Most important is the inventory control that ensures that the right items are available.

• Item usage frequency is important when determining item storage capacity. The less an item is retrieved, the more inconvenient a location it can be stored in.  This inconvenience can be purely positional, such as storing the item in the back of the warehouse, or be due to increased storage density, such as utilizing compression shelving to increase storage capacity in the same footprint.

Black Friday’s Results and Its Logistics Impact

Another year of holiday shopping madness is nearly in the books, and the Thanksgiving and Black Friday results are out.  What happened and what does it mean for your business? Well, not much changed and holiday shopping appears to be following the same trend as it has been. From both personal experience at the Matt at Millenia in Florida and from reports across the country, in-person shopping is decreasing and online shopping is increasing significantly.  According to Visa, cardholders spent 22% more online shopping than last year and Amazon’s sales rose 29%. Not only are people spending more online, they are doing it over their mobile devices, as well: 26% of Thanksgiving sales were made on mobile devices, according to Adobe.  Meanwhile in retail stores, the traffic was less than usual as retailers spread their sales across the week, and not only on Thursday or Friday. The Mall at Millenia was much less crowded (no fights to find parking!) than last year, and the sales were worse, as well.

So what do these changes mean to your company? If you are a retailer or sell consumer goods, the e-commerce sector is here to stay and its portion of your business will keep growing larger. It is best to keep investing and expanding your e-commerce logistics infrastructure and continuously evaluating your brick and mortar vs. e-comm business plan, including your transportation (especially parcel) contracts, modes and carriers.  Additionally, from a technological perspective, your website needs to be simple and easy to use, as well as adaptive to mobile and able to handle spikes in traffic on heavy shopping days. The easier it is to buy your products, the more business you will do, both on mobile and computer web browsers.

Need assistance in evaluating your adaptiveness to the new e-commerce distribution requirements? Establish can both evaluate your current distribution infrastructure as well as design your improved network and distribution facilities. Give us a call at 212-776-9900 and we’ll discuss any logistics problem with you.

Warehouse Design for a Greenfield Building Material Plant

How Can We Reduce The Warehouse Footprint?

A modified wood products manufacturer was planning construction of an additional plant to fulfill increasing demand.  The company had already developed a preliminary layout of the facility in tandem with an architect for budgetary purposes.

A team of warehousing experts from Establish was tasked with reviewing the finished goods warehouse layout in tandem with the architect to reduce the warehouse footprint and resulting construction costs while identifying optimal process flows, storage capacities and item slotting in the proposed layout.

Developing a Cost-Efficient Warehouse Design

We began by observing the operations at an existing plant to identify the handling and storage processes from manufacturing to shipping.  There were many similarities that could be incorporated in the proposed facility; however, the joint evaluation revealed three key differences:

1. The proposed facility will produce fewer SKUs than the existing facility.

2. The proposed facility will ship finished goods exclusively by flatbed truck whereas the existing facility shipped via a mix of truck and railcar.

3. The proposed facility can rely on two close-by facilities to store additional finished goods inventory, minimizing any potential impact of inefficiencies resulting from an overloaded warehouse.

The client adjusted the mix on the expected production capacity, giving Establish the foundation to develop a layout to store the anticipated finished goods capacity.  As items ranged between eight to ten feet in length based on SKU, adequate item slotting for each item size was maintained throughout the design process.

Establish modeled the shift in outbound volumes and developed potential second step layouts for both railcar and flatbed truck loading areas to accommodate these volumes.

The client also identified a two week time period when the production line shut down. This resulted in significantly larger inventory storage requirements than during the balance of the year.  To address this, Establish developed a layout and process to temporarily store during this surge of inventory while minimizing impact on warehouse functionality.

 

Results

The modified warehouse layout significantly reduced the size of the proposed footprint while still developing a highly efficient warehouse layout.  As a result, the company was able to reduce the budgetary cost of the warehouse section of the facility by over $2 million.

 

Key Takeaways

• In a warehouse with varying item sizes, it is very important to incorporate item slotting early in the process.  Adequate storage capacity should be accommodated for each item size and not simply overall. Averages often lie.

• Accommodating short periods of inventory surges can be incorporated into layouts without utilizing temporary offsite storage.  However, less efficient handling must be accounted for during the inventory surge.

• Identifying outbound volumes by mode is important in determining outbound staging requirements, which is a main driver of space requirements.  In this case, loading into railcars is significantly different than loading flatbed trailers (in both space required for forklift movement and carrying capabilities).  This also applies to parcel shipments, as additional space for packaging is required and order sizes are much smaller.

3 Ways to Increase Sustainability and Profit through Smart Logistics

Nearly all of the150 largest companies in the world have a Chief Sustainability Officer at VP level or higher. Corporate Social Responsibility (CSR) is a major talking point in many annual reports and conferences. This is all good and proper, but many of us have a feeling that it is simply window dressing we are witnessing, and not a lot of concrete action.

One sector to take real, hands-on action is in transportation. In the United States in 2011, 27% of the greenhouse emissions came from the transportation sector, and more than one-quarter of that is from the transportation of goods.

Smart logistics in transportation is about cutting costs and emissions by minimizing the miles trucks drive every day on our roads. It is improving sustainability, hands-on, and real, positive environmental impact can be achieved by three very straightforward methods:

1. Distribution Network Optimization is about finding the right number and locations for your distribution centers (DCs) to create the optimal balance between the costs of transportation, warehousing and inventory to achieve the required service levels. Transportation, on average, accounts for about half of the total logistics costs so it is the primary consideration in determining the optimal distribution network. The results vary depending on situation, but a 15 – 20% reduction in payload distance (ton-miles) is standard. The reduction is due to trucks not moving, so you don’t have to fake any emissions tests. The bonus is that your cost savings are about as substantial.

2. Freight Negotiation is about finding the carrier for whom your shipments will generate the least new miles driven by better utilizing existing capacity. The best example is that if a carrier has a flow in the reverse direction of your transportation needs, the carrier would then transport your goods rather than driving back deadhead. It is financially beneficial to both parties, as the carrier earns money it otherwise would not have and you get much better rates. You are of course negotiating the profit margin, too, but that is not where the major savings come from. The environment benefits from reduced emissions from having one less truck on the road during the former deadhead haul.

3. Freight Planning is about making your shipments as efficient as possible. Three examples of smart logistics in freight planning are: pooling multiple shipments into one, load planning to perfect the balance between weight and volume to optimally fill a truck and route optimization of your own fleet. All three examples reduce the emissions in a way that makes an impact on the environment while improving your bottom line by minimizing the ton-miles you accrue.

Revenues from Logistics and Supply Chain

Logistics and supply chain can be a game changer in terms of creating new revenue for your company. If you break free of the silo thinking you may see ways to use logistics to make more money.

 

Turning the Supply Chain into a Revenue Chain

Back in 2001 Harvard Business Review was already talking about ways to make money through supply chain. One example noted was laser surgery to correct myopia. Several of the companies that make the necessary equipment have chosen to share the revenues of doctors and clinics performing the procedures instead of extracting all their profits by selling the equipment outright.

Source: https://hbr.org/2001/03/turning-the-supply-chain-into-a-revenue-chain

 

6 Ways Supply Chain Visibility Can Increase Revenue

Supply chain execution has become a competitive differentiator in many industries. By integrating supply chain capabilities into product development and marketing strategies, organizations can often create new revenue sources or business models.

Source: http://www.socialsupplychains.com/6-ways-supply-chain-visibility-can-increase-revenue/

 

Strong supply chains increase revenue and profit

Business model innovations focused on improving networks, processes, services or channels can have significant and sustainable impact on the revenues of company. Focus on your supply chain as part of the business model of the firm.

Source: http://www.supplymanagement.com/news/2014/strong-supply-chains-increase-revenue-and-profit

Logistics as The New Storefront

Logistics is the new storefront, meaning you can make money for your customers through logistics. You want to be the one who is talking to the customer, because that makes the difference. You want to be in charge of the inventory management because the availability is the key in the new world here of Logistics as the Game Changer!

Hello, Dustin. Thank you very much for inviting me to talk a bit about logistics as your new storefront.

What I mean with logistics as your new storefront, it’s easiest to explain if I give you some examples.

The first and obvious thing here is the online economy and the growth of the same, the Amazons of the world.

As a matter of fact, if you think about it, a lot of people have their main contact as consumers with their suppliers or vendors through what is sent to them in the mail. That means that, for many companies, the actual delivery of a product is the only physical contact that there is between the company and the customer. This is perhaps more clear if you look into the business-to-business market, where more and more companies are buying a solution rather than a physical product per se.

 

Example 1: fighter jets

A very typical example here is that we are working with a manufacturer of fighter jets, and a manufacturer of fighter jets typically wants to sell a hundred fighter jets or so to a government in some country. What’s happening is that the governments are buying airborne hours instead of airplanes or spare parts. This is now a a very different ballgame, and it’s a ballgame where logistics has the skills that make all the difference.

 

Example 2: dialysis supplier

Another typical example is, we work with a company that supplies machinery and supplies for dialysis. What we found was that there were a lot of complaints around their deliveries. The reason why that happened was that the customers didn’t do their part of ordering when they should have and they didn’t respect the quantities and the delivery times.

The reason for this is that these people were physicians or nurses who are busy saving lives; they don’t want to spend time managing inventories of the dialysis water.

You could see that as a problem, or you can use that as your storefront and sell the solution of having all the supplies there all the time; and you can charge for it.

 

Example 3: aftermarket spare parts

Another example is the aftermarket, where you used to sell spare parts. What you do now is keep the car or machine or whatever it is, to keep it running. Then you are selling the availability and service. That, my friend, is raw and beautiful logistics.

 

What do we do in this new, exciting world of logistics as the game changer?

Well, the first thing is to take control.

Here, I’m talking about you have the question that many of our clients are asking, which is: Should we outsource our logistics to 3PL or do it in-house? In this case, the answer is obviously a combination of them both.

For instance, there is a huge difference between transportation and delivery. Transportation is much better done by the carriers of the world, whereas you might want to manage the delivery yourself, the actual vendor-managed inventory or white-glove services. That might be something you want to do yourself, whereas the transportation between point A and point B, that could very well be outsourced.

Another thing is material handling. The forklift truck that is putting the pallet on the racking and taking it down. Possibly done, in many cases, better by 3PL. However, when it comes to value-added services, then you want to be in charge of the quality, you want to be the one who is talking to the customer, because that makes a difference. You want to be in charge of the inventory management because the availability is the key in the new world here.

One aspect of this is the rise of white-glove services. What I’m thinking about here is that you make the delivery to logistics a service. This could be that you’re delivering the product and you’re installing. It could be that you do Vendor Managed Inventory, which is a service; it may be—and it so happens to be in most cases—that you benefit from delivery of services and you get efficient with managed inventory, but it is a service. And while you’re doing a delivery of some supplies to a machine, perform service to the machine to up the availability.

A huge thing here is to realize that all of those things are part of your product or they might be products in themselves. Instead of seeing this and handling this as an increase in cost, you should embrace the productification and charge for it. You package the services and you charge for it. If you charge for it, then you have a customer who is paying his part because he puts a value on it, and you get the resources you need to do a good job because the company’s making money out of it.

Lastly, regarding what to do in a storefront and what you can charge for –those are achievements within the logistics that are very important.

This could be within the sustainability area, the environmental area, where, if you’re good at your logistics, your achievements of reducing carbon dioxide emissions would far exceed, in most companies, what you could achieve with other measures. This is something that you should market; this is something you should talk about.

To summarize, logistics is the new storefront, and this makes logistics so much more important and so much more fun. Enjoy yourself out there. Thank you, bye-bye.

When to Outsource Warehousing, and When to Keep It In-House

Outsource

 

If your strategy is to grow through acquisitions

The sizing of your warehouses is likely to always be wrong and risk being in the wrong geographical location if you want to integrate your acquisitions into your infrastructure. A flexible outsourcing contract will be easier to adapt to accommodate your ever changing new realities.

 

If you (or someone else) want to minimize capital expenditures

There will be no burden on your balance sheet with an operation outsourced to a 3PL. It will also ensure that you have the latest software and appropriate equipment without having to go through the labor intensive investment application processes.

 

If you’re having short peaks in capacity demands

Obviously you don’t want to build and pay for capacity that is only used for a limited period or infrequently   Two big issues though; First, you would probably want to do a storage only solution since it costs too much time and effort to set up in the WMS system. This brings us to problem number two, which is that you are probably not the most attractive customer for any 3PL, so it can be hard to find a good one.

 

If you need to get the logistics together quickly and don’t have the resources

We would, of course, argue that it is a good idea to hire good logistics consultants to sort out your problems. However, if there isn’t anyone to catch the ball and run with it, then it’s better to face reality and let a good 3PL run your warehouse operations.

 

When you don’t have the size to get the economy of scale

If your volumes are small it could be hard to defend investments in WMS systems, up-to-date-equipment and the resources to manage it.

 

When your volumes are shrinking

When you are in a revenue decline you want to have your costs as variable as possible. Outsourcing your logistics is a very good card to play.

Keep Warehousing In-House

 

If money matters

Many 3PLs run efficient and high quality warehouse operations. It is very rare to come across not-for-profit 3PLs so typically you pay for the services. Also, you will likely find that there are costs you never expected that will bring the margin up. So, if you have a good team and you know what you are doing, chances are very good you will save money by operating the warehouse in-house.

 

If you perform a lot of value added services in the warehouse

In general, it is easier to get good prices on standard services such as receive  a pallet, store it for a month and then pick it and ship it. For special services the margin is often higher as is the cost to train someone to perform the task.

 

If logistics services is an important part of your offerings or your cost mass

When logistics really matter and your company is stable, you are better off figuring out how to run a good warehouse operation on your own. Then you are in control, and can develop better solutions since you have the knowledge and the skills to see what would work best for you.

Seven Trends in Logistics

1. Warehousing; In-House or Outsourced?

On one side, the 3PL providers are getting better and have all the credentials needed, which is tearing down a lot of the walls of resistance towards outsourcing. On the other side is the feeling of lost control and freedom that could be needed as logistics is getting even more important. There are a lot of other reasons, but everybody is talking about it.

2. Ocean Freight

At CSMCP this was the topic for of many discussions and it is changing the thinking in many companies. The intensive rate hikes the last year and the unreliable capacity are some of the problems to wrestle with. It is also a part of the background to the on-shoring, even though it is more anecdotal than substantial statistical facts this far. On-shoring will make the list soon.

 

3. White Glove Services

The term used to refer to companies carrying the furniture into the living room. Now it is often used to refer to the value added services in conjunction with the delivery of a physical product. This service is getting more integrated in the physical product and treated more as a source of revenue than a nuisance. The final yards of the delivery is getting more important as the only physical contact with the customer for many companies.

 

4. S-a-a-S

The Software-as-a-Service concept has enabled smaller companies to operate good and modern WMS and TMS, which facilitates a smaller revolution when it comes to efficiency.

 

5. Intermodal Traffic

It has been talked about for a while and now nobody wants to miss the train (!) The increase in domestic container shipments on rail increased by 7% in the third quarter of 2014 over the same quarter in 2013 according IANA.

 

6. Fuel Prices

The gas price has decreased by 78 cents per gallon from May 2014 to November 2014. What will this mean for the trucking industry? Will the carriers change the fuel surcharge formulas?

 

7. Distribution Structures

Partly connected to the number 1 on the list. With the economy taking off and volumes increasing, we see a lot of companies reevaluating their distribution networks. The managements have learned that there are big savings to be had by optimizing the distribution networks and don’t want to miss out.