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How Real-Time Manufacturing Performance Management Can Supercharge Performance

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Slotting Optimization - Planning and Maintenance

Well, our column two weeks ago on pick face slotting optimization generated a lot of reader response (see Feedback section nearby, and Nov. 20 archived issue at www.scdigest.com).

Typical of the comments came from Jim Emmitt of Anchor Hocking, who wrote: "One of the greatest problems I have faced over the last 13 years with slotting is justifying the slotting and storage mediums required against the marginal revenue of the family of products."

I offered some of my perspective on this topic last time, and thought I would also get some thoughts from David Scott of ESYNC, whom I've known for many years and who has much experience in slotting projects. He agrees with my view that the slotting challenge - and potential technology tools - need to be viewed in two parts: planning and maintenance.

"Planning involves determining the right type and quantity of storage modes, and the general mix of what SKUs you'll store where," Scott summarized for me. "The challenge here is usually the data - most companies don't have the right data [accurate case cubes, detailed order line data, SKU movements] easily available for analysis. It can take a lot of time and effort to get the data."

While there are a few available planning tools that can make this work much easier (such as rapid "what if" analysis on different configurations), the reality is with the right data, significant insight can be gained from brute forcing it in a simple tool like Microsoft Access (if you know what you are doing). And getting the slotting plan "right" by optimally balancing storage mode costs, space availability, and picking and replenishment efficiency, will provide large, on-going efficiency gains.

Maintenance is really the bigger challenge. Scott believes too many companies that purchase slotting tools initially expect they are going to optimize everything, "which becomes a nightmare," he said, "Product A is supposed to go in the location with product B, which is supposed to go where product C is, etc. It becomes a circular problem, and creates a ton of moves."

Scott recommends instead that companies focus on just worrying about maybe the top 10-20 of movers and getting those placed more favorably, based on history and forecast.

Even that can be a challenge. As I said last time, we need better integration between slotting moves and WMS work queues, and more importantly, better "smarts" that allow users to weigh trade-offs between re-slotting efforts and potential productivity gains.

It's also an area frankly, that to get right (in either planning or maintenance) usually requires some outside consulting help if you don't have strong internal expertise. I'm going to look over the next few weeks for some real slotting optimization successes to tell you about in these columns.

Lots of reader feedback nearby. Would welcome more. What is our experience with slotting tools? What are the keys to getting either planning or on-going maintenance right? Let us know your thoughts.

Philips Electronics Finds the Best Way to Tackle Reverse Logistics is to Focus on Root Cause, Enforce Policies
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Excellent article in this month's Supply Chain Management Review on how Philips Electronics tackled its product return problems.

Tony Sciarrotta of Philips was given the challenging assignment of reducing return costs, and he notes that many companies have tackled the "reverse logistics" problem by trying to improve reverse logistics processes and flows. Philips decided to tackle the root causes themselves. As Sciarrotta notes: "While efficient reverse logistics helped minimize our losses, they did nothing to address the profits that were still being lost at every point of the returns process."

It's an uphill battle. Many retailers either have "take it back for any reason" policies, or don't enforce the returns policies they theoretically have.

Sciarrotta notes: "But along with the increase in overall returns was another disconcerting statistic - the rate of products returned with "no defect found" was very high, averaging more than 70% for consumer electronics, more than 85% for PC products, and even over 90% for some small appliances." Apparently, there are even people that do the electronics equivalent of the "buy the dress and return it after the party" scheme, e.g. buy the camcorder for the wedding and return it the next week.

What was the medicine? First, doing a lot of research as to why consumers were returning products, which led to improvements in packaging information, in-store information, training of sales personnel, etc., which had some success in reducing product returns from customers who really didn't understand what they were buying.

More effective - and perhaps more controversial - was getting tough on returns policies themselves. For example, working with retailers to reduce the number of cash returns for "defective products" that aren't defective at all, or to enforce "no receipt, no return" policies. Best Buy appears to be a leader in "get tough" policies.

Philips' efforts in conjunction with retailers seems to be working. It is also getting a lot of advantage from working with the Siras electronics database, which capture serial numbers at point-of-sale, then helps enforce policies when a return is attempted (was it purchased at this store? within the return period?). What I didn't realize was that Siras can eliminate the need for manufacturers to capture serial numbers in outbound distribution processes, which is very expensive.

There's a lot more in this article, but those are the highlights. Bottom line benefits to Philips of $100 million. My perspective is that as price competition becomes ever more brutal, and margins equally thin, that more and more manufacturers and retailers will decide that angering some customers with more rigorous returns policies will increasingly be worth the cost.

Feedback of the week –on slotting optimization:

As a former consulting manager responsible for the implementation of a slotting optimization program, and a current user of slotting software, one of the biggest reasons that these programs are not more widely implemented is the perception that a slotting program is a "nice to have", rather than a business requirement. Couple that perception with the belief that these programs must be run by someone with a degree in rocket science, and the result is a relatively low number of implementations, as well as a limited number of software options.

Even companies who recognize the benefits of proper slotting may not be willing to expend the effort required, because they are currently "getting by" with the 10 year warehouse veteran and a set of spreadsheets. The danger in this approach is that spreadsheets can be very limiting, almost one dimensional, where slotting in the real world can be much more complex. The correct slot may be based not only on order frequency, but item movement as well as physical handling characteristics. What about special requirements for hazardous and/or breakable items? What about the fact that there may be more than one perfect slot for any item? It is difficult using a spreadsheet to justify the trade-offs required to satisfy multiple slotting requirements. The other danger is that with the knowledge and experience all in one person's head, the company could be left with a void in knowledge when that individual is gone. In addition, by relying on one individual, the slotting "strategy" could be incredibly biased, and not exactly what the company needs.

A software solution that allows the company to develop a consistent slotting strategy, and provides the means to monitor and track the implementation of that strategy is worth the time and effort involved in the software implementation. The potential gains from a properly slotted warehouse are out there, and can be significant in terms of labor reduction (from both picking and replenishment), as well as savings from the reduction in product damage. While the initial setup of a slotting program may be relatively difficult and require specialized expertise, the everyday operation of such software should require only simple PC skills and common "warehouse" sense. It is much easier to train someone in the day-to-day operation of a software program that it is to build the experience necessary to slot without such tools.

The biggest challenge facing companies who implement slotting solutions and those who offer them is how do we measure on-going successes? It is relatively easy to justify a re-slot of the building when looking at a static picture, but how do we measure the continuing gains that come from maintenance-type slotting that is required due to constantly changing business conditions (demand, SKU mix, etc)? And how do we balance that against the effort required to do the maintenance slotting? Everyone knows the benefits are there, but it's very difficult to nail down specifics using a stand-alone program. This is the biggest hole in the software solutions, and in my opinion, the reason it has not been addressed is because we, as consumers, haven't asked for it.

The only way to improve these software offerings, in terms of functionality, technology, and ease of use, is to force change from the end-user perspective. Companies who offer software solutions to warehouse challenges do not necessarily have the expertise required to build the "perfect" tool that handles every situation, and provides all the right answers, and most rely on their customers to help evolve their programs.

Waiting for someone to offer the perfect solution will only guarantee that you never actually get it.

David Raetsch

Engineering Project Manager

Pep Boys