In spite of the optimistic signs that the recession is receding, it would be illusionary to believe that everything will revert to the way things used to be. As a result of the economic turmoil, distribution centers are experiencing fundamental changes and redefining their relationship with material handling integrators. Together, these factors will shape the post-recession era. Here is an assessment of what distribution centers need to do to gain competitive advantage in the year ahead and even beyond.
1. Green Technologies Propelled by efficiency, consumer awareness and increased regulation, green initiatives will gain momentum in the recovery. A rapidly emerging, environmentally-friendly technology in the low voltage arena, the 24-volt motorized drive roller (MDR) conveyor, will see increased demand in 2010 as the price becomes more in line with conventional AC powered conveyors. Running only when necessary and offering a high degree of modularity, the MDR conveyors combine efficiency, ergonomic design, reduced noise levels, and low maintenance with 30% to 60% energy savings.
The green movement will also affect existing equipment. Programmable logic controllers (PLCs) will be reprogrammed and photo eye sensors added, enhancing energy efficiency with a Sleep Mode that detects the presence of product, automatically shutting down certain sections where there is little or no product and restarting when demand increases. Start up sequences of the conveyor system will also be reprogrammed so that motors turn on one at a time, decreasing the energy spike resulting when all motors start at the same time.
2. Multi-channel distribution under one roof In recent years, a new distribution paradigm has emerged as organizations are increasingly integrating their distribution channels under one roof. This has proved a vexing task for many organizations that traditionally developed their channels as separate silos; however, there are significant cost-saving advantages in high speed order fulfillment, tight inventory controls, and management of numerous SKUs, new product additions, and increased changeovers when channels are properly integrated.
Complexities increase because warehouse requirements vary by channel, necessitating more rigorous planning. For example, direct-to-consumer involves a high unit pick volume and requires high technology solutions such as A-Frames, Pick to Light, Pick to Voice coupled with carton flow pick modules.
On the other hand, the retail distribution channel typically does not have many unit picks, but is mostly case and full pallet picks, and the wholesale distribution channel normally requires full pallet shipments and inventory control software to ensure that the pallets of goods meet the requirements to ship wholesale. In addition, each channel has different needs with regard to cost-effective outbound transportation.
Furthermore, distributors are called upon to do more things, with more variety. There are rising expectations to receive the product as needed, and distributors will be expected to provide “value added services,” such as special packaging or adding promotional materials.
These changes have profound implications for the relationship between integrators and distributors as distributors look to integrators to provide creative, flexible solutions, not just equipment. Advanced planning – often taking nine to twelve months – will become intrinsic to the process.
3. Understand vendor consolidation Look for continued consolidation of manufacturers in 2010 and beyond. The credit crunch and broad recessionary pressures have created significant opportunities for distressed merger and acquisition activity among both small and large companies. In 2009, the largest pallet rack manufacturer in the world, Mecalux Group, acquired the largest rack manufacturer in the United States, Interlake Material Handling, Inc., out of bankruptcy. Additionally, two conveyor manufacturing powerhouses combined when Intelligrated purchased FKI Logistex.
Distributors working with integrators that can still draw from multiple lines will be in a better position to obtain objective and unbiased solutions.
4. Productivity reporting Pervasive uncertainty and cost pressures will continue to impact distributors in 2010, intensifying the need to monitor carefully productivity and identify opportunities to improve efficiency. Software has the capability to provide operational performance data across various departments/ functions down to work shifts or an individual employee. Expect to see more of it in 2010.
5. Automation: checkweighers The bar will be raised on quality control in 2010 and automation will be the answer. Checkweighers protect against unacceptable under or overweight packages reaching customers. More distributors will recognize the opportunity to increase profitability and minimize customer complaints through tighter processing and packaging controls.
6. Not just speed, lower costs: crossdocking at the DC An old concept, crossdocking is gaining renewed interest. Moving product directly to shipping from receiving eliminates unnecessary tasks and reduces costs. It is best done with a receiving conveyor system that integrates with the warehouse management system and the warehouse control system. While accelerating speed to market remains a critical goal, real time control that cuts costs and adds agility in the supply chain during these challenging economic times will drive crossdocking decisions in 2010.
7. Automated pallet building and wrapping The shift toward smaller, more frequent shipments and demand for processing orders with ever increasing speed will continue in 2010. Accuracy and minimal product damage in order fulfillment is vital and automated pallet building is an easy to justify answer. With advances in technology and an expanded supplier base, payback on automated pallet building can be achieved in less than one year. Some palletizers are also equipped with automatic stretchwrappers, adding more functionality by combining the two labor-intensive operations.
Those adopting the technology in 2010 will benefit from reduced labor costs, improved safety, and a higher degree of order accuracy.
8. Automated print & apply labeling Another labor-intensive area that will see increased automation in 2010 is printing and applying labels. Automatic label application provides significant time savings, as well as consistency and accuracy. Incorporating a box erector prior to the label operation adds functionality and further reduces labor costs. ROI varies with the number of shifts/people performing the operation, with the payback period significantly shortened when multiple shifts/people are involved.
9. Velocity analysis and Slotting The reoccurring theme of cost reduction in 2010 will foster efficiency producing measures that drive down costs in storing, picking and replenishment operations. Measuring product velocity, or how much and how often the SKU is picked at various durations of the year, identifies fast, medium and slow movers and places high-velocity SKUs in readily accessible and ergonomically friendly pick areas. Of critical importance in 2010 will be the ability to adapt with agility to changing demands and changing SKU velocities.
Further strengthening the slotting of SKUs, the physical dimensions of each SKU package can be determined automatically with product dimensioning systems, like the Cubiscan. This measures dimensions and weights and feeds the data into the inventory management system, eliminating human errors and assuring the most efficient packaging.
10. Outsourcing Labor force reductions mean either downsizing or eliminating engineering departments and in-house maintenance staffs. Increasingly, outsourcing is a viable option, a way to move from fixed to variable costs. In 2010 look for more companies to seek trustworthy partners to perform engineering and maintenance functions.
Faced with increased complexity and rising costs, others will take even more sweeping steps and outsource entire distribution operations. The year 2010 will see the continued maturing of the 3PL industry with a focus on keeping the supply chain management efficient and priced right for customers. Those who use the economic climate as a catalyst for innovation and leverage their existing technologies and workforce will emerge as leaders.
The recession’s impact on distribution will not fade quickly. While the trends of the green movement, consolidation, automation and technology are not new to the industry, they will take on new direction in the years ahead as cost savings, agility and flexibility will be the key drivers. Driven by residual uncertainty and relentless pressure to reduce costs, distributors will scrutinize their relationships and demand new ways to do business. The desire to realize increased value will dominate during the post recession era and material handling integrators had better be ready.
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