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About the Author

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

October 1, 2014

Changing Logistics Landscape Impacts DC Operations

Specialized Customer Services Create New Challenges for Order Fulfillment Operations

Holste Says:

Based on the number of orders picked and shipped today, small orders are rapidly becoming the prominent order profile.
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Previous Columns by Cliff Holste

Sorting It Out: DC Automation -Utilizing Augmented Reality (AR), and Virtual Reality (VR) Technologies Lowers Project Cost & Risk

Sorting It Out : Understanding Key Drivers For DC Automation

Sorting it Out: The Case for Count-Back - Three Step Approach to Getting it Right the First Time

Sorting It Out : Updating Conveying & Sorting Equipment Extends Service Life

Sorting It Out : Keeping Older DC Systems Up-to-Date is an Ongoing Challenge



There can be no doubt that across the logistics landscape, traditional order fulfillment operations are being impacted by the ever growing demand for more specialized value added services driven by online shopping. The changing nature of distribution and order fulfillment is reflected in the types of orders being shipped. Based on recent industry surveys, fewer than 20% of consumer goods DCs surveyed are shipping full or single SKU pallet loads and even a lower percentage are shipping single SKU cartons. Just a few years ago those numbers would have been much higher. Building a pallets worth of mixed products or packing a shipping container with a mix of individual items arranged in the preferred sequence to optimize restocking at the retail store requires a much more complex fulfillment capability.

Traditional wholesale and retail DCs were built and designed to support large store fulfillment orders with only a small percentage of orders going direct to the consumer. Based on the percentage of product volume shipped – that’s probably still true. But, based on the number of orders picked and shipped today, small orders are rapidly becoming the prominent order profile. For example, retailers that once received full pallets of product once a week or month are now receiving carton level and/or item level replenishment almost every day. The proliferation of small ecommerce orders is driving DCs to pick, pack and ship orders as they are received in the facility.

As the order profile evolution continues, there’s an emerging order fulfillment strategy that is based on using the retail store outlet to facilitate customer in-store pickups and/or to deliver same day orders to local customers. In that regard, it’s interesting to note that Sears was runner-up in the supply chain innovation award at CSCMP 2014 for its approach to using stores for e-fulfillment. In addition to selling products on Sears Marketplace and outsourcing fulfillment duties to the retailer, third-party merchants can advertise on Sears Marketplace and allow buyers to pick up merchandise the same day at their local Sears store.

To further complicate matters, grocery store chains and big box retailers are ordering mixed SKU pallets that are designated for specific aisles in a store. These labor intensive changes, and others to come, are keeping DC business managers on their toes.


Deploying Intelligent Processing Systems

There is little question that DC requirements are changing in ways unforeseen only a few years ago. For the most part, the focus is shifting to improving processes and material flow by building greater intelligence into order fulfillment and wave planning processes. There is a much greater reliance on warehouse management and distributed order management systems to make the right decisions about where and how orders should be filled. A good example is the concept of a store within a DC where the store within the building becomes the ecommerce fulfillment center.

While bolt-to-the-floor conveyor equipment and systems are an integral part of DC operations, going forward planners and system designers are looking at more flexible and adaptive alternative solutions so that floor space can remain open for VAS and multipurpose use. Companies must avoid adopting physical systems that lock them into processes that could be obsolete in the near term.

For example: some operations are going back to picking multiple orders to a manual push cart or AGVs equipped with RF and Voice Directed technologies, and only using conveyor for the takeaway process in packing. Others are deploying high-density storage technologies, such as a mini-load or pallet-handling AS/RS, or deep lane rack system to buffer work-in-process and orders ready for shipment. A growing number of companies are considering the implementation of a Product-to-Person fulfillment solution, see – “Key To Lowering Cost – Deploy A Combination Of Manual & Automated Picking Methods”.

While most DCs are still operating with conventional pick/pack & sort methods, the impact of ecommerce on DC operations cannot be overstated as a rapidly growing percentage of DCs are shipping item level orders directly to customers. The adoption of Product-to-Person solutions, as mentioned above, are likely to impact the way that conveyor is used in the DC, or whether conveyor is used at all. Item-level handling, mixed SKU palletizing and faster turnaround times show every indication of increasing. The growing trend for next-day or even same-day delivery will most likely drive the adoption of higher levels of DC automation – DEMATIC’s recent introduction of “RapidStore Mini Load ASRS” for trays, totes and cartons is a good example


A Different Way of Looking At Automation

With all of the recent investments in automation, especially by major retailers as well as food and beverage distributors, a key question is - how is the thinking relative to deploying automated material handling solutions changing?

Based on recent industry surveys, metrics appear to be playing an increasing important role in evaluating and assessing material handling solutions. Most companies that are considering deploying some higher level of DC automation are using more than one metric. According to an April 2013 MMH report, the most commonly cited include:

  • 71% - are measuring maintenance costs
  • 66% - are measuring error rates
  • 63% - are measuring the labor hours required to operate the system
  • 59% - are measuring the units moved on an hourly or daily basis
  • 59% - are measuring time savings
  • 54% - are measuring energy efficiencies

For the most part, the above metrics were not major factors in past DC automation justification calculations. As business managers become more aware of Cost of Ownership issues, and their impact on ROI, deployment strategy will be adjusted accordingly. This becomes more apparent when asked what factors were most important in the purchase of an automated system, MMH reports that:

  • 98% - cited ease of maintenance
  • 98% - cited reliability
  • 98% - cited price
  • 97% - cited uptime
  • 96% - cited design flexibility

When taken in total, the above indicates that the focus of future automated solutions will be on operational benefits gained from greater flexibility, adaptability, and agility, while at the same time avoiding incremental labor increases.

Still other industry reports indicate that labor related issues like safety, training, labor availability and ergonomics are expected to become more pressing in coming years. As more businesses begin to understand that young workers are naturally attracted to the more progressive and automated workplace environments, DC automation will provide an important hiring advantage. See – “The Future Of The Logistics Industry Depends on Attracting & Retaining Young Talent”.

Final Thoughts

As the logistics industry continues to reinvent itself relative order fulfillment operations, it is very likely that there will be a high degree of market specialization based on either equipment solutions such as, AS/RS, AGV, Robotics, etc, or integrated system solutions such as Computer Directed Voice Picking, Automated Case Picking, Mixed SKU Palletizing, Product-to-Person, etc. However, the most technologically challenging initiates will be satisfying the consumer demand for fast and accurate response times. Industry experts agree that some players, providers and shippers alike, will find success, while some will probably lose ground, and still others will hold on tightly to what’s already theirs.



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