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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

April 29, 2015

Logistics News: Escalating Labor Costs Drive DC Automation

Sortation Systems Provide Significant Productivity and Throughput Gains

Holste Says:

...the fact is that in non-mechanized DCs the order picking component represents the single biggest cost factor, frequently amounting to 50% or more of total DC labor cost.
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Previous Columns by Cliff Holste

Sorting It Out: Automatic Conveyor Speed Control - Speed Varies to Accommodate Carton Flow

Sorting It Out: Increasing System Throughput Capacity - The Fix Maybe Easier Than You Think

Sorting It Out: Poor System Performance May Be the Accumulated Affect of Many Small Problems

Sorting It Out: Guidelines for Achieving a Successful Audit

Sorting It Out: Understanding the "Value" of the Distribution Center Audit


In this space over the past two weeks we discussed “Justifying Material Handling Automation” and “Sorting System Optimization”. While these are both very important topics for DC business and operations managers, we know that aside from forklifts and pushcarts most DCs have little or no material handling mechanization/automation.

Shippers that are reluctant to adopt more sophisticated order processing methods are often concerned that they may lose flexibility and adaptability that is essential to servicing their customers frequently changing order profiles – see “System Integrators Offering more Modular & Scalable Solutions”.

While the above mentioned concern is understandable, the fact is that in non-mechanized DCs the order picking component represents the single biggest cost factor, frequently amounting to 50% or more of total DC labor cost. This is especially true in those operations where customer orders are picked individually or in small groups. This discrete picking method (which, by the way, is similar to the way most retail consumers shop for groceries at the supermarket), is both time consuming and labor intensive. In this environment, as the number of customer orders increase, more order pickers are required even if unit sales volume does not increase, resulting in escalating per-piece handling costs. This is a situation that is all too common in DCs where e-commerce orders are taking root.

Whereas with batch picking, order lines are combined (usually by a Warehouse Management System), generally in a batch or "wave", so that an order picker visits a location just one time across orders, using the sortation system to break down the picked cases into discrete customer orders. This can substantially reduce picking labor costs through a reduction in travel time while increasing throughput. But, perhaps even more important, it allows a business to process more orders without an incremental increase in picking labor.

This is especially true in a "pick to belt" scenario, in which the picker puts the picked cases on a conveyor, which transports them out of the pick area for eventual merge onto the sortation conveyor itself. There, these picks will be combined with cases coming from other areas, such as "split case" picking, and then diverted off the sorter for specific customer orders. In other words, cases are aggregated for picking, and then segregated for order consolidation and shipping.

By enabling pickers to visit a location just one time per wave or other picking period, picking and shipping labor costs can be significantly reduced. The sortation system does the work of separating the product back into discrete orders. Sometimes, the cases flow from the sorter divert lanes directly into a truck (such as for parcel shipments or dedicated dock doors, as is often used in retail distribution); more often, the product is palletized for shipment at the end of the divert lane.

In recent years some experts and vendors have been arguing for a "waveless," more continuous form of order release that they believe can offer improved sorter utilization while keeping most of the labor efficiencies of traditional wave-based order release.

Still, the question that persists is: Are the labor savings from batch order picking significant enough to justify the investment in a sortation system? Note: For more insight on this see: “Finding the Sortation System that is right for your Distribution Center”.

Final Thoughts

E-fulfillment and omni-channel marketing are both very important emerging strategies that impact on DC order processing operations and efficiency. Profit margins in e-commerce can often be so thin that shippers need to find ways to shave every penny off of the fulfillment costs. The fact that so many small to medium size companies continue to adopt semi-automated order fulfillment methods says that the economics must be right for them.


Recent Feedback

Great article, Cliff. Automation is an important topic to cover, as it is changing how many companies operate.

Brand Manager
Lista & Vidmar
May, 01 2015