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Cliff Holste

Supply Chain Digest
Material Handling Editor

Logistics News - Sorting It Out

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.

December 6, 2017

Sorting It Out: A Different Way of Looking at DC Automation


Logistics Industry Continues to Reinvent Order Fulfillment Operations

 

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 online orders as they are received in the facility.


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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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.


As the order profile evolution continues, there’s an increasing popular 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.

 

The in-store pickup concept, as initiated by Sears, is now available at a growing number of retailers such as Wal-Mart, Target, JC Penney, TJ Maxx, Kohl’s, and Macy’s just to mention a few.

 

We further note that according to a recent CNBC report, Sears Holdings is shuttering another round of stores after the 2017 holidays. Additionally, it has been reported that Sears is testing smaller store formats across the U.S. and in some cases moving to occupy a pint-sized portion of a bigger box as mall operators look to redevelop their properties. However the Sears Marketplace concept remains as Sears continues to transform their digital capabilities to match the needs and preferences of their customers.

 

With the growing interest in DC 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 various 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, 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:

  • 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.

 

Final Thoughts

 

As the logistics industry continues to reinvent itself relative to 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, Goods-to-Person, etc. However, the most technologically challenging initiates will be satisfying consumer demand for fast and accurate response times.

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