For the last few weeks leading up to the end of this year, this column has focused on improving and upgrading DC system performance. This is of critical importance given that many U.S. based distributors have postponed investments in projects that require capital funding until they have more confidence that the country’s economy is really on the path to recovery. CEO’s are not thinking as much about how best to invest the company’s money as they are how to survive.

Who can blame them when confidence in politicians to enact policy that will turn the economy around is at an all time low? Forward planning is made all the more difficult when business does not know for sure what the tax rate and other critical cost factors will be. Under these circumstances it makes perfect sense to adopt a wait and see strategy.

However, unless you have a very good crystal ball, or know someone highly skilled at reading the economic tea leaves, timing the market turnaround can be a very tricky business. The risk is in waiting too long and then having to play catch-up to avoid being left behind. But, for those distributors who have completed the analysis and planning stage of their project, they are poised to spring into action.

Rejuvenating Your Stalled DC Project

Oftentimes getting a project started, especially after a lengthy postponement period, requires overcoming the FUD Factor – Fear, Uncertainty & Doubt. While the benefits of a project may seem obvious, assuming that it will be justified to upper management is very risky. For example, during down business cycles, a project that promises to increase throughput volume will be viewed less favorably than one that lowers current operating and per piece handling cost. While the project may accomplish both, it’s important to emphasis those benefits that are most relevant. Reducing operating cost trumps increasing capacity during a prolonged slow business period.

If you are a retailer with multiple stores, the benefits may extend beyond the DC. For example, building a unit load that is store friendly may actually increase labor cost at the DC. However, when the mixed SKU aisle specific unit load arrives at the store it can be placed in an aisle dedicated to the items that are on the load thus reducing store replenishment labor across the chain – the net savings could be huge.

To put your project in the best light, highlight benefits upper management can buy into. Being prepared and knowing how to quantify and effectively communicate the expected results for your project will increase your chances of obtaining approval.

The following are 10 tough questions you can expect the financial officer of your company to ask:

• We couldn’t justify this project in the past. How come we think we can do it now?
• What happens if we continue to wait and do nothing?
• Is the schedule realistic? What is the impact to the project justification if problems delay the startup?
• What unique risks does this project pose?
• What other strategies did you look at and why is this project the best alternative?
• What is the impact to the project justification of changing cost of capital, errors in forecasting, or other unforeseen conditions?
• What do you mean a 24 month payback is unrealistic for this project?
• What is the impact of this project on the company’s strategic goals?
• Why did you quantify intangible benefits such as higher employee morale, improved safety, or greater customer satisfaction? Shouldn’t we just assign them a value of zero?
• Why should we invest in this project instead of giving the cash to the shareholders?

Note: The above questions may be asked of you in a formal pre-scheduled business meeting, or informally in a more casually setting. Therefore, be prepared and on-guard.

Another approach that sometimes can get a project started is to propose doing the project in small steps or phases. The first phase could be consulting/analysis, planning, design engineering and permit approvals, all of which can take a considerable amount of time, but are a relatively small portion of the total project cost. By getting this initial analysis and design work completed, you will be ready with a good set of specifications and system layouts to request competitive bids from various vendors.

For most distributors peak shipping season is not the time to be involved in planning. That’s when the focus should be on the management of basic distribution processes such as receiving, picking, and shipping. Except for internet orders, distribution activity begins to return to normal by mid-December. This is the perfect time to begin evaluating DC performance and making plans to fix the soft spots while they are still fresh in everybody’s mind.

Final Thoughts

ProMat 2011 will kick-off in Chicago on March 21. You don’t need a crystal ball to know that huge bargains will be awaiting those companies who are ready to move forward. In addition to vendors eager to do business, there will be many new innovative order fulfillment ideas, especially those related to automation. Hope to see you there.

Thanks for your feedback and continued interest in SCD and this column.

Happy Holidays!

Wishing you and yours health and happiness in the coming year.

Cliff Holste

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