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November 15, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

DC Automation - Readers Respond,
Round 2

As we cruise into a Holiday week here in the US, as promised we are offering part two of the many interesting comments we received on my column on The Two Paths for DC Automation), where I suggested that two somewhat opposing forces (high and growing labor costs and challenges, need for greater flexibility), are gradually driving companies towards two extremes in distribution center automation: either highly automated facilities, to drive out labor costs and headaches, or those with little automation, to maximize flexibility. Moderate levels of automation would be squeezed – not eliminated, of course, but companies would tend to drift to one of the extremes.

Gilmore Says:

"Neil Glenney of Material Handling Dynamics and a 30+ year veteran of the material handling industry said our piece caused him to send feedback on an article for the first time in his career!"

What do you say?


Send us your comments here

Two weeks ago, we posted a number of excellent responses we received on the subject (See Readers Respond – Two Paths for DC Automation?). Here are some more.

Dr. Wolfgang M. Partsch, of Supply Chain Executive Advisors, agrees that DC automation has traditionally been more prevalent in Europe.

“We in Europe use much more automation in warehouses and build a lot of fully automated high rise storage,” he writes. But, he says the return on that expensive investment often isn’t great.

“Sometimes they were built as a monument for the company or the owner, sometimes as a wrong strategic decision, because the key question was never formulated: What inventories do I need in the future always on stock for immediate supply? Only this simple question killed a lot of investments in additional warehouse space and useless fixed assets.”

He thinks manual warehousing using RFID can drive high productivity. “Low cost solutions have emerged, which can transfer a manually-controlled block storage in a fully automated warehouse in a very short time, simply by using low cost RFID-tags mounted in the storage floor and navigation antennas mounted on forklift-trucks,” said Partsch.

Sean Neil of St. Onge also offered some very strong perspectives. He notes that in many sectors, such as consumer packaged goods, automation of the case picking process is “the holy grail,” but that “the problem with the automated systems that are being installed in the food, beverage and chain drug distribution operations is that the equipment is very expensive. Using the conventional models, most companies cannot justify the capital spend. Typical financial justification models which calculated NPV and the benefits of the automation are applied looking for a 3 year (or better) return on investment. Companies need to take a longer term look at the investment and focus on the strategic benefit to the supply chain.”

Neil Glenney of Material Handling Dynamics and a 30+ year veteran of the material handling industry said our piece caused him to send feedback on an article for the first time in his career! He shares some very interesting perspective. “We were engineering projects back in the 80's that were far more automated in manufacturing and DC operations than we are finding today in 2007,” Glenney wrote us, saying companies were more focused then on keeping a competitive operations edge.

He says that the rise of ERP systems, and the tremendous resources and attention required for implementation, was a key factor in automation projects being scaled way back starting in the 1990s.

“The IT groups seemed to be driving projects from the many business activities such as sales, marketing, billing, inventory management, HR, delivery and especially accounting! The real manufacturing and material handling engineering personnel seemed to be now over-ruled by the newly minted MBA's,” he added.

He sees many poor distribution projects being pursued today, without enough time to really get the design and automation systems right. For example, “The new 100K square foot DC now being completed in the west side of Phoenix - decision to move-in June 1, 2007 and has to be running in October. There was no time to plan anything more than a shelf system and some very basic conveyors. This had to be completed for the holiday rush coming up - they stated ‘maybe next year to do some retrofitting’.”

Bill Robinson of QuantiSense says industry dynamics in retail mean designing a flexible approach is critical.

“In the last 20 years automation in the DC has had to take two enormous mid-course changes in direction. The first came in the 80s and 90s when it became apparent that vendors would actually collaborate if you asked them. This meant that mass shipments packed at the convenience of the supplier could be packed in a convenient way for retailers, marked, and ready for sale,” he wrote. “This changed the mass holding and sorting areas into flow-through areas. The second came in the late 90s when retail distribution centers suddenly had to begin to ship directly to their customers based on web orders. This required a manual intervention in the automation processes designed to send cartons efficiently to store. Based on this history lesson, retailers would be smart to design their distribution centers with the utmost flexibility.”

M. Jericho Banks of Select Marketing says high levels of automation based on new technology are coming.

“Automated picking and order bundling is just over the horizon in a revolutionary system invented by an American and being tested currently,” he said. “It can accomplish the same tasks as a conventional DC in a footprint about two-thirds smaller and construction costs and times less than half as much. Additionally, this system--with its one-third sized footprint--is about twice as productive as current DCs.”

Hmmm. We better dig into that.

So there you have it. We’ve had more letters based on publishing the first set of letters that we’ll include in the Feedback section soon. We’d welcome even more thoughts from our readers. The full text of the responses excerpted above can be found below in this week’s feedback. They are really good.

No issue next week.

What is your reaction to our reader comments on this issue? Do you agree that the two extremes – highly automated and manual – will expand, and the middle will shrink? Or will we see the status quo? Why? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

Want a printable version? Go to:

www.scdigest.com/assets/FirstThoughts/07-11-15.php

 

Dan Gilmore

FEATURED EVENTS

Workforce Management in the Supply Chain Videocast Series

Interest in LMS?

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Part 1: On Demand
Getting Real Results from Engineered Labor Standards

Part 2: The Role of LMS Software in a Performance Culture
Dec. 5, 2007

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Hot Topics in
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What key new issues and technologies are coming to the forefront of Supply Chain?

Part 2: Securing the Global Supply Chain

Featuring John Fontanella
AMR Research

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NEWS BITES

This Week’s Supply Chain News Bites – Only from SCDigest

November 15, 2007
Supply Chain Graphic of the Week - Ocean Shipping Capacity and Rates

November 15, 2007
Supply Chain by the Numbers: November 15, 2007

November 8, 2007
SCDigest to Launch New Publication for Supply Chain and Logistics Executives

SCM STOCK REPORT

It was another difficult week on Wall Street as concerns involving the credit market continued to negatively impact stock prices.

Our Supply Chain and Logistics stock index also suffered from the depressed mood.  In the software group, Logility took the biggest beating, down another 14.5% for the week.    In the hardware group, both Intermec and Zebra were down (1.5% and 3.7%, respectively).  In the transportation and logistics group, Expeditor’s International was down 10.4% and Yellow Roadway was off 8.4%.            

See stock report.

NEW ON-TARGET e-MAGAZINE


Weekly On-Target Newsletter
November 13, 2007
Edition


EXPERT INSIGHT:
The S&OP Report

by: Tom Wallace

S&OP and Lean Manufacturing - Can They Work Together?

Lean Strategies are Great - but Sometimes They Need Help

SUPPLY CHAIN TRIVIA

Q. What was the average price of a barrel of oil (West Texas Intermediate Crude) in 2002?

A. Click to find the answer below

YOUR SUPPLY CHAIN QUESTIONS ANSWERED!

Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.

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YOUR FEEDBACK

Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming! In the next few weeks, we'll start adding feedback right on specific story pages, so you can see what others are saying.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On DC Automation

Your comments and findings are absolutely correct. We in Europe use much more automation in warehouses and build a lot of fully automated high rise storages. However, not always are they paying off. Sometimes they were built as a monument for the company or the owner, sometimes as a wrong strategic decision, because the key question was never formulated: What inventories do I need in the future always on stock for immediate supply? Only this simple question killed a lot of investments in additional warehouse space and useless fixed assets.

But, today low cost solutions emerged, which can transfer a manually controlled block storage in a fully automated warehouse in a very short time, simply by using low cost RFID-tags mounted in the storage floor and navigation antennas mounted on forklift-trucks. The corresponding information between location and transport unit is transferred to a WMS and paperless picking is done by the forklift drivers. Especially the food and beverage industry is embracing this technology, because they ship on standardized pallets. But any other industry using standard cases, boxes or pallets are able to save a lot of money and create satisfied customers. I know an application, where this technology is in place more than one year with ZERO fault and not onemistake in order processing. I guess, this is a solution, which is more than attractive for the U.S. market, where automation is a wish, but conventional automation in warehouses is too expensive.

Dr. Wolfgang M. Partsch
Partner
Europe,
Supply Chain Executive Advisors LLC

More on DC Automation:

Thanks for the opportunity to provide another perspective to your article. As St. Onge Company continues to perform DC master planning for our clients we are hearing about the increased costs of employee turnover. Distribution jobs do not lend themselves to a high level of loyalty. Not that distribution center employees are not loyal but at a $10 to $12 per hour wage rate its hard not to make a move to another job for a 10% increase.

Our detailed master planning process requires the optimization of the current operation as a baseline. This established baseline is then used as a comparative mechanism to justify different levels of automation. I would argue that you cannot and should not automate a process that has not been optimized. As one of my partners says, “Automation enables process. Automating a suboptimal process will yield a suboptimal result.” The optimized baseline provides the foundation for designing the automation as well as the productivity and financial benchmark to ensure effective use of capital.

There are a number of technologies that have matured from concept to viable options. AGV’s are a great example of this. The technology was installed in a number of manufacturing plants in the 1980’s and 1990’s. Some of these multi-million dollar systems never provided beneficial use. They sat in the corner gathering dust. I was at Promat in the 1991 and saw the demo of the Caterpillar AGV loading a tractor trailer. The demo was a success but it has not been until the last year or two that companies have deployed AGV’s to perform this task. The technology has evolved, the applications have been simplified and the units have increased their reliability (ex: the previous units had 14 circuit boards with 3 adjustments pots, current units have 1 circuit board with not adjustment pots). What was previously and idea is a now a viable technology application.

The automation of the mixed pallet is the Holy Grail of the Materials Handling Industry. With about 60% of the labor of CPG distribution centers focused on picking mixed SKU pallets, automating this process holds the key to significantly reducing labor and the associated problems. The problem with the automated systems that are being installed in the food, beverage and chain drug distribution operations is that the equipment is very expensive. Using the conventional models, most companies cannot justify the capital spend. Typical financial justification models which calculated NPV and the benefits of the automation are applied looking for a 3 year (or better) return on investment. Companies need to take a longer term look at the investment and focus on the strategic benefit to the supply chain.

Sean O. O'Neill
Vice President
St. Onge Company

I have been in the Material Handling engineering business for more than 30 years and this is the 1st time I have responded to an editor - your recent article on 'The Two Paths for DC Automation' really got me motivated to write you back. (BTW, for reference I have attached my resume only to indicate the extent of my industry history and why I am so passionate about this subject).

First, some Cliff Notes history!

I feel we were engineering projects back in the 80's that were far more automated in manufacturing and DC operations than we are finding today in 2007.

Why in my experience? The customer's were in FEAR of losing their competitive advantage back then when the trend to export work overseas to save money (labor, process equipment, facilities, etc.) began.

Changes in the 90's were very interesting to my business - I had to totally change my approach to selling engineering/design services!

Why the changes during that period of time?

Businesses were now thinking less about MRP systems and MRP II and for the first time we starting to focus on the trend of ERP. At this point we were constantly running into project delays due to the fact no one seem to know who was "integrating-the-integrators"? The IT groups seemed to be driving projects from the many business activities such as sales, marketing, billing, inventory management, HR, delivery and especially accounting! The real manufacturing and material handling engineering personnel seemed to be now over-ruled by the newly minted MBA's. The decision process to think strategically (like you would consider from an MBA client) seemed to quickly turn into short-term thinking. I found some of this due to decision makers wanting to quickly "climb the corporate ladder" and not wanting to stick it out through an automated system implementation/test/and acceptance program. Times were about making systems flexible and easy to install. Some marketing campaigns' were advertising "Simple, Quick and Affordable"!

Today I find the best analogy to describe many of the company's we are working with today as "there is a new circus coming in town"!

Maybe the business will start 'when that next big order hits' and we need something installed yesterday (reference the new 100K square foot DC now being completed in the west side of Phoenix - decision to move-in June 1st 07' and has to be running this month. There was no time to plan anything more than a shelf system and some very basic conveyors. This had to be completed for the holiday rush coming up - they stated "maybe next year to do some retrofitting"?

Also, there are "stories" floating around through the corporate ranks that we too often have to defuse that "automation at XYZ Company just didn't workout" When I ask why they respond with a typical blank stare. The stories seem to get passed around the "top floors" like a chain letter would be to 8th graders - changes from conversation to conversation!

We need constant help to defuse these myths of automation failures! I feel most of the people we are meeting with at decision levels are not reading success stories in trade magazines but instead get basic info mouth to mouth among their peers. Yes, this practice has always been out there but, the people making these decisions today seem to have NO background, or have actual working experience in an environment that has build-up to a successfully implemented automation system. Decisions about automating their operations are NOT for the "faint-of-heart" - decision makers must understand the benefits of leading the organization around a common goal to make every move as simple as possible. First by breaking down the many outdated 'tribal practices", they have been executing over the years with constant turnover of personnel, and understand the most basic of all engineering principals - 'making things simple (streamlining operations) is the most difficult program any company could ever undertake to begin an automation project'!

The best advice I ever received was while working on a new MFG/DC Greenfield project for Mars, Incorporated (the M&M candy bar people in their industrial division manufacturing automatic coin changers) was the driving force of every function within that operation - "Do It Right the First Time" and "Touch it Only to Add Value"!

How simple is that? There were no wasted steps anywhere it that operation and the automation worked perfectly the 1st time and the culture was totally integrated.

I have been using this theme as the basis of every material project now for some 20 years! The only problem today is that people like John Mars just don't seem to be involved with improving their DC operations - they seem to be passing it on to overseas production and 3rd party distribution.

Some good news!

I have completed projects for people like Ma Boyle at Columbia Sportswear in Portland, OR, and her son Tim Boyle (President), who hired the "right mgt team" to automate their DC's because they decided the real reason to automate - 'It's their CORE Business'!!

Sorry for too many words - I just couldn't stop once I got started!

Neill E. Glenney
Material Handling Dynamics
Solution Providers Group

Automated picking and order bundling is just over the horizon in a revolutionary system invented by an American and being tested currently. It can accomplish the same tasks as a conventional DC in a footprint about two-thirds smaller and construction costs and times less than half as much. Additionally, this system--with its one-third sized footprint--is about twice as productive as current DCs. In brief terms, it does the same job and more of it, in a smaller facility that costs significantly less to build in a shorter period of time.

M Jericho Banks
Partner
Select Marketing

In the last 20 years Automation in the DC has had to take two enormous mid-course changes in direction. The first came in the 80s and 90s when it became apparent that vendors would actually collaborate if you asked them. This meant that mass shipments packed at the convenience of the supplier could be packed in a convenient way for retailers, marked, and ready for sale. This changed the mass holding and sorting areas into flow-through areas.

The second came in the late 90s when retail distribution centers suddenly had to begin to ship directly to their customers based on web orders. This required a manual intervention in the automation processes designed to send cartons efficiently to stores.

Based on this history lesson, retailers would be smart to design their distribution centers with the utmost flexibility.

Bill Robinson
Senior Executive
Quantisense

SUPPLY CHAIN TRIVIA

Q. What was the average price of a barrel of oil (West Texas Intermediate Crude) in 2002?

A. Just $26.21, a number that seems unbelievable today. The price in 2002 was up less than 1% from 2001.

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