While abandoning the old facility for a bright shiny new one may seem appealing, doing so may not be the most sound business option. In fact, given the current state of the economy and sales prospects, it may not be an option at all. Companies are understandably gun-shy about sinking significant capital into new distribution facilities at the moment. Nor are they up for taking the risks and disruptions the typical relocation generates.

However, standing still while the vulgarities of smaller orders, shorter order fulfillment cycles, added customer services, changing supplier networks and shifting markets continue to exhaust throughput capacity and degrade productivity, is not an appealing alternative either.

These are just a few of the reasons companies are giving serious consideration to retrofitting when they outgrow the capacities or capabilities of their DC infrastructures. The popularity of this approach can be seen in the fact that for many of the leading material handling equipment and system providers, and logistics consultants; retrofit, upgrade, re-fit, and optimization projects represent a significant percentage of their project work.

Some Retrofit Benefits May Be Over Your Head

According to the Washington, D.C.-based U.S. Energy Information Administration, the median age of a warehouse or distribution facility is approximately 24 years. If your facility falls into this bracket, you are probably looking up at old-style fluorescent lamps and wondering how much money you’re burning up, especially if your DC is operating 24/7. Retrofitting to T5 or T8 lamps may actually turn out to be a dramatic economical move. This is a relatively “simple retrofit” that will result in a more efficient facility with a reasonably quick payback. Another example, especially if you’re thinking green, and who isn’t, would be adding skylights in appropriate locations (over aisles and workstations) which can help to concentrate more natural light in the DC while lowering energy costs.

Once The Decision To Optimize The Facility Is Made, Where Do You Begin?

Many companies find the prospect of retrofitting the facility daunting. Almost no one has the luxury of shutting down completely for an extended period of time. How then do you accomplish a retrofit, while at the same time continuing to ship? It doesn’t have to be arduous. You don’t need to take on the whole operation at one time. The following are a few ideas on how to begin “eating the elephant."

Create a current facility layout drawing: Start by measuring every physical aspect of the building, including the yard around the building, the dock doors, building columns and grid, material handling equipment and layout, rack systems, mezzanines and anything else that goes into the building, noting clearance heights and fixed-in-place obstructions (e.g., power panels, fans, ceiling heating and air conditioner units, drain downspouts, lighting, piping, emergency exits). This information is then fed into an AutoCAD system to plot the current facility arrangement, from which you can calculate the facility’s useable cube capacity.

By the way, don’t be surprised if you find (as in some extreme cases) that as little as 25% of building cube is being used for product and the rest is aisles, dock space and otherwise unused air space.

Evaluate product packaging: The idea here is to determine how well the product(s) fits in its packaging. Because there is often an excess amount of air in most packaging, companies can gain considerable space savings (20% to 30%) in total footprint of their building by reducing (wherever possible) their packaging size and/or configuration.

Also, look at the pallets and cartons to assess how well the cartons fit on the pallets and the pallets fit in the racking. While in the racking system - check for honeycombing, and the amount of partial pallets stored in full pallet locations.

Assess end-customer needs: Another good approach in the early stage is to step back and look at the building as if it were empty. Then consider what’s best for your customers. How should product be loaded onto the trucks, staged to make loading possible, packed to facilitate that staging, picked and staged for packing the order, and so on? In other words, go step by step through the process to conceptualize the optimal flow based on your high-value customer’s order and service requirements.

Digging Deeper into the Real Nitty Gritty Stuff

The next step is to analyze a typical 12-month period of order flow history to assess inventory movement week-by-week from an activity-based costing (ABC) analysis perspective, i.e., which items are fast movers, and which are slow movers. This analysis will indicate whether the inventory is logical when compared against the popularity of its items.

While most companies know their fast movers, they often look at movement in terms of dollars, instead of how often each item is accessed. The data should include sales of units, pieces, cases and pallets in order to identify the volume and item peaks and valleys. In this way, you expose the true physical nature of the business – how often you have to go to a particular stock location. This analysis shows what kind of pressure the operation experiences during the study period. This, in turn, can assist in developing the optimum picking route and storage strategy. Refer to Distribution Digest Article: Designing the Most Effective Order Pick Routing in the DC.

In addition to order history, customer order profiles should be analyzed to determine whether orders typically comprise one line item, 100 line items or 1000 line items. Most DCs are a hybrid of two order types – large and small. This is often where you have the greatest opportunity for bottlenecks and pick/pack slowdowns. Therefore, it is one of the most important areas to optimize in a retrofit plan. By re-slotting your inventory – locating stock items to reduce travel time and increase velocity – businesses can go a long way towards improving facility efficiency. If you compare an efficiently-slotted DC with an inefficient one, most experts agree that you could see a 25 to 30% improvement in labor productivity.

Most companies try to forecast and plan for 3 to 5 years out. The retrofit plan needs to take that information into consideration.

The output of all this research and analysis is a retrofit plan. This plan should run the gamut, from re-slotting the facility all the way to re-designing the flow, tearing out existing MHE and outdated controls (hardware & software) and installing new systems where required, or perhaps adding a mezzanine in the free space over the receiving/shipping dock, and so on. It’s not uncommon for a company to consider several retrofit designs at once, and evaluate what makes the most sense economically and operationally, as well as short-term and long-term benefits.

Develop a Phased Implementation Plan

By breaking the project into smaller and smaller tasks, ones you can get your arms around, you will be able to think through where the domino effect of changes can be executed, so that events and people can be scheduled without oversight. When you do this, you come up with a 50 to 100-step, phased-implementation plan. Using appropriate project management programs, you can create a detailed project plan, assigning resources to each step, and determining the linkages and interdependencies between steps. Depending on the scope and complexity of the project, a full-time dedicated and experienced Project Manager is essential.

No matter how well you plan, however, problems invariably arise. By advising your customers up front, you enable them to plan for potential hiccups.

No doubt, the typical DC optimization project takes a lot of hard work, detailed planning, and careful risk assessment. However, the payback for these efforts can be very encouraging. For instance, if the DC employs 200 people in logistics operations, and a retrofit can boost productivity - saving 10% in labor cost, that’s 20 full time people. And, if you can increase throughput capacity by 20%, you can eliminate overtime hours and possibly survive another 5 years or more in the current facility. These are all good reasons why retrofits, in spite of the many challenges, make good sense.

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