STRATEGIC ROLE OF THE DISTRIBUTION CENTRE: HOW TO TURN YOUR WAREHOUSE INTO A DC 45

ommitment is all you need to make the

changes in methods, procedures and
management systems that can radically
alter the effectiveness of your inventoryhandling.

Strategic
Role of the
Distribution
Centre:
How to Turn Your
Warehouse into a DC
Tony Bancroft

Storage of inventory, either raw materials or finished

goods, is necessary in all industries to achieve effective
manufacturing cycles or service levels. The cost of such
storage is often overlooked in the total cost of the supply
chain, which ends at the point of sale. For many companies
an attitude prevails that substantial inventories ensure
insulation from variable factors which might degrade
service levels.
The warehouse, with all of its systems, methods,
procedures and excessive inventory, is regrettably often
operated by management who have "warehousing"
attitudes. I would like to share with you some ways in
which "warehousing" and "distribution" differ and how
changes to the traditional warehouse can significantly
improve the operation.
Warehousing, as I have said before, is "transportation at
zero kilometres per hour". It does nothing to add value

to the product stored. Distribution, on the other hand, is

a dynamic process which moves the goods from the source
to the end-user in a nearly continuous flow. Both concepts
require that inventory be maintained at certain points in
the supply chain, the difference is in the amount of that
inventory and the time for which it remains stationary.
Distribution systems operate with generally lower
inventories but, with proper controls, the service levels
achieved are not degraded: indeed, they are usually better
than those provided by a warehousing approach.
With the emphasis in distribution systems on dynamic flow
of goods comes a requirement for dynamic information
to enable management to be responsive to daily situations.
It is no longer adequate to know what the performance
of the operation was last week on the basis of an average
day's production. Management now needs to know on an
hour-by-hour basis how the various elements of the
operation are performing against the planned schedule.
How, therefore, can we change a warehousing operation
into a distribution operation? Firstly, let me say that not
all of the changes will require investment in new
equipment. Some changes in methods, procedures and
above all operating philosophy can produce startling
results. Here are some ideas.
Product Slotting Positioning Relative to
Velocity of Product
I have seen quite a few warehouses in which product
groups are kept together regardless of the movement
characteristics of the products. There are, to be fair, some
circumstances where such an arrangement is justified
(security items or flammables, for example) but generally
product used for order-picking purposes should be slotted
strictly according to its movement.
It can be demonstrated that an order-filler in a warehouse
operation can spend up to 70 per cent of his time travelling
between locations from which he is to pick orders. This
is often because the stock frontage is arranged in family
groups and contains slow-moving product. It takes just
as much time to walk past a slot containing a "dog"
product as it does to walk past a fast-moving item so
get the dogs out of the active pick face and put them into
the "amen corner".
On the odd occasions when the order-filler needs to pick
a dog, the extra distance will be insignificant compared
to the benefits to his productivity for the majority of his
time.
Also, slot the products from an ergonomic standpoint. In
a two level pallet slot system, for example, make changes
so that the fastest moving products are at the bottom level
and the relatively slower moving products at the upper
levels. However, be conscious of carton weight
considerations in this exercise.

46 STRATEGIC ROLE OF THE DISTRIBUTION CENTRE: HOW TO TURN YOUR WAREHOUSE INTO A DC

Stock Location Use of Software Packages to

Search for "Most Appropriate" Location
In many warehouses, incoming pallets are put into reserve
storage slots by the simple process of asking the forktruck driver to find an empty location and put the pallet
away. In small operations, stock location control exists only
in the driver's head and he is expected to "remember"
where he put what!
As the number of locations increases, and where there
is more than one driver, a similar operation often takes
place except that the driver is asked to make a note of
the location into which he has placed a pallet. Such
information is subsequently entered into a "locator card
system" or into a computer-based inventory master file.

The driver tends to

forget where he placed
pallets
Both of these approaches have obvious drawbacks and are
seldom used in distribution systems. In the first case the
obvious drawback is that the driver tends to forget where
he placed pallets and consequently time is used to "find"
a particular pallet which is required to replenish a picking
location.
In both cases a major drawback is that, unless the driver
is exceptionally bright, he will rarely select "the most
appropriate" reserve location in which to put the pallet
away. By "most appropriate" I suggest that the closest
empty location to the pick location should be selected.
If these criteria could be followed, the replenishment
response time can be significantly improved, which
translates into improved order-picking productivity.
A number of computer software packages exist where,
at the time of receipt of a pallet, the system will "search
for" the most appropriate reserve location and having
found it will print a self-adhesive label with the location
number in enhanced characters. This label is affixed to
the pallet and becomes the put-away instruction for the
forklift driver. The computer files the transaction, thus
allowing replenishment retrievals to be scheduled at a later
date.
Scheduled Replenishment
In many warehouse operations, "let down" operations
are usually initiated by the order-filler finding insufficient
product in the pick slot to satisfy the order being picked.
Quite clearly this reduces the productivity of the orderfiller since he must either wait until the let down has

occurred before he can continue or must return to the

slot at the end of the order to complete the picking function
after the let down has taken place.
Computer-based replenishment systems can remove this
problem and are used in most distribution operations today. There may be a need, however, to change some of
the old warehousing methods and procedures before such
a system can produce the benefits expected.
First, if the computer is to be expected to tell you when
to schedule a replenishment transaction it must know the
quantity of product in a picking location at all times. For
each location you will need to inform the computer at what
pick slot stock level you wish the replenishment transaction
to be "triggered".
The first of these requirements is perhaps the more difficult
to satisfy because it may mean changing the entire
philosophy of the warehouse. It means that the computer
must be informed, and keep afileof, the quantity of product
not only in the pick slots but also in all of the reserve
slots. However, if this can be achieved the improvement
in the entire operation will be very measurable.
Picking Documents
In most warehousing operations orders are prepared in
the form of an invoice or pick list. Either way, the orderfiller marks up the document as the quantities of each line
are picked. When, for a number of possible reasons, the
quantity called for cannot be picked, the actual quantity
is entered on the document. These variations must
subsequently be entered into the invoicing and accounts
receivable systems or they will result in customer claims.

A change to the use of pick

labels can remove some of
the disadvantages of pick
lists
A change to the use of pick labels can remove some of
the disadvantages of pick lists. Such labels are prepared
by the computer using the same data which is used to
produce pick lists so that changes to existing software are
limited. The labels are self-adhesive and in principle one
label is applied to each case picked.
The labels can contain not only pick slot identification,
product description, etc., but also, and more importantly,
the customer name, number and address. This results
in all outbound cases being precisely identified for despatch

STRATEGIC ROLE OF THE DISTRIBUTION CENTRE: HOW TO TURN YOUR WAREHOUSE INTO A DC 47

purposes. In the event of out-of-stock situations, the

order-filler returns the unused labels to the control office
where the information is entered into the customer
system. Invoices are then produced on the basis of what
was actually picked, not what was expected to be picked.
An opportunity for real savings in clerical effort.
Inventory Reviews
Earlier, the location of pick slots in relation to movement
characteristics was discussed. In order to achieve the
optimum pick location a product versus movement report
is used. Often such reports are based on a moving average
monthly record. Once you have such a report, a secondary
use can be made of it, and that is to cull out the
non-performers.

The only thing preventing

you from making the changes
is you
There are some businesses where very slow moving
products must be retained in inventory by legislation
(automotive spares, for example). But, by and large, for
most warehousing operations there is little or no
justification in carrying "dogs".
In one operation in Canada some years ago we discovered
nearly 2,000 products at the slow-moving end of the report
which had no recorded movement in 12 months. Clearly

each of these was occupying space and cube in the storage

system, was required to be counted at each stocktake and,
if and when they were ever sold to a customer, would be
sold at a loss. We recommended, and the client undertook,
a "we are moving" sale to remove the lines from the
system.
You, as warehouse operators, will need the co-operation
of other departments, particularly the buying department,
to achieve this inventory reduction objective, but it is an
essential move if we are to change the warehouse into
a distribution centre.
Commitment is All You Need
As you may have noted, in all of the changes which have
been discussed, we have not suggested any changes which
require any significant investment of money in equipment.
They are all changes in methods, procedures and
management systems which can be made simply by
making a commitment and "doing it".
Beyond these changes, and other basic improvements,
the use of more sophisticated techniques such as barcoded labels, scanners, conveyors, sorters, RF remote
terminals, paperless picking systems and the like, which
each have very attractive returns on investment and are
in use in many distribution systems today, still require the
initial investment to be made.
The only thing preventing you from making the changes
we have discussed is you so let's get out of the dark
ages of warehousing and into the challenging, dynamic
world of distribution!

Tony Bancroft is a Director of Technics Pacific Pty Ltd, NSW, Australia.