distribution center design Archives

Material Handling Systems Integrators Don’t see Distribution like You Do

As a material handling systems integrator, we meet people all the time that have the concept of distribution as a game, more specifically as a Monopoly game. “Well, we need a new distribution center, so let’s plunk one down here on Baltic Avenue.” (Definitely can’t go on Boardwalk – not with those rents).

They don’t see a distribution center as more than the sum of its parts. They see it as a monolithic “Distribution Center,” just a piece that they need to have, but not a piece that adds value to the company.

Obviously as a material handling systems integrator with a fondness for efficiency and squeezing the full potential from a distribution center, we see it a different way. We know that your supply chain can be a competitive advantage. It can help you outsell your competitors, win new market share and delight your customers.

So why do so many people view distribution as a necessary evil?

Misconception: They do not see their distribution centers as investments; they see them as a sunk cost. If you look at all the advances of distribution center automation in the last 20 years, from carousels to robots to AGV’s as ‘cost’, then you are more likely to see distribution centers as just a piece to plop down. Not as something that will give you an advantage over your competition.

In fact, you may be operating under the premise that all of your competitors have distribution centers designed exactly like yours.

News Flash: They might not be.

Stubbornness: “Well when I came into this business we did our distribution that way and it has been fine for 30 years.” Stubbornness is markedly different from misconception. It is an actual aversion to change itself; an adherence to the status quo for no reason other than “that’s how we always have done it”, and they can’t see a new way.

Unaware: The last, and I think the predominant, reason that people don’t see distribution as an advantage is that they just aren’t aware that their distribution center can be a competitive advantage. And why is that? Their consultant or material-handling systems-integrator hasn’t shown them that it can be. After all, that’s really our job – to show you how you can improve your distribution center.

We help you and provide you all the ammunition to internally sell the “new way” to those who say “that’s how we always have done it.” We know that there is often a person in the supply chain who senses there must be a better way…

If that is you, give us a call, let’s talk.

The Pareto Curve and How it Affects Distribution Center Design

The reason that a lot of distribution center design isn’t efficient or even fails completely can be summed up in one sentence.

If all you have is a hammer everything looks like a nail

Do you have a single-technology distribution center? Do you pick all your SKUs using the same method? If you do have a single technology distribution center you may be missing some huge opportunities for efficiency. Let’s explore why that is; and that means going to Italy.

The Italian economist Vilfredo Pareto first observed that 80% of the land in Italy was owned by 20% of the population. He also was able to apply it to the income in his country. Most of the money was controlled by a relatively small percent of the population.

Years later, business-management thinker, Joseph M. Juran, developed the 80/20 principle and named it after Pareto.

And this rings true across a great swath of the world: 20% of your customers account for 80% of your sales, 80% of your HR problems come from 20% of your workforce, etc. This also hold true in our world of distribution. In fact, there is a great deal of similarity between peas and your distribution center.

The 80/20 rule states that 20% of your SKU-base does 80% of your volume. That’s right: 80% of your volume is done by 20% of your SKUs. And conversely 80% of your SKUs do only 20% of your volume.

Only 20% of your SKUs make up 80% of your volume!

Ok great, so what does that have to do with your distribution center design? Well if you’re picking all of your SKUs the same way, then you are missing out on huge opportunities.

If you have a single-technology picking system you are assuming that every SKU that you add moves at the same rate as the last one you added. So you have a linear function on this curve, as demonstrated by the arrow to the right.

So proceeding with that thought as you add from 25% to 50% of your SKU base, you add from 25 to 50% more business volume.

You are assuming in your one-technology system that everything moves through the distribution center as the same rate.

But Pareto says 20% of my SKU base does 80% of my business volume. And it doesn’t really matter whether I measure my business volume in lines or pieces, however you want to metric your business volume, it really doesn’t matter…

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Material Handling Systems Integrators Don’t see Distribution like You Do

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The Pareto Curve and How it Affects Distribution Center Design

If all you have is a hammer everything looks like a nail

Only 20% of your SKUs make up 80% of your volume!

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Material Handling Systems Integrators Don’t see Distribution like You Do

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Like this:

The Pareto Curve and How it Affects Distribution Center Design

If all you have is a hammer everything looks like a nail

Only 20% of your SKUs make up 80% of your volume!

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Like this:

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