You may have seen Minolta’s catchy advertisement where the paralyzed executive grapples with the integrated capabilities of the new “BizHub.”  He just can’t seem to grasp how a simple copier morphed into a tool, efficiently and effectively supporting multiple tasks.

Until recently, most supply chains featured Distribution Centers highly specialized to the unique handling characteristics of a single distribution method and channel. These DCs were the equivalent of the old, single-purpose copier. In this traditional world, the DCs were expected to: 

• Receive what the buyers bought;
• Ship what the merchants allocated; and
• Replenish what the stores ordered.

As a result of having limited control over their environment, most distribution center executives took the cards they were dealt in those areas within their control: Network, Transportation, Labor and DC Design.

Recently, supply chain professionals have begun to grapple with the demands of the rapidly evolving retail landscape. As companies try to capture the attention - and the wallet - of increasingly finicky customers, distribution centers have been asked to support additional requirements including:

• Localized assortments requiring additional flexibility;
• Additional store formats requiring tailored store support;
• Additional channels (e-commerce, catalog, outlets, full-price owned stores, etc.) incorporating wildly different processes, systems and service requirements; and
• Reduced cycle times requiring more responsive supply chains.

And, as usual, they're asked to support these enhancements while delivering year-over-year improvement in asset utilization and labor productivity.

Many companies have made the initial investment required to respond to these new supply chain challenges through short term solutions such as internal DC retrofit, existing system and process modification and outsourcing of transportation, storage and/or processing to vertical 3PL partners.

Most have not had the luxury of time required to create optimal solutions to react to the challenge of supporting a multi-channel, increasingly customized world.

Breaking the Tradition – Rise of the “DizHub”

Today’s multi-channel, highly responsive, consumer-focused retail landscape demands a supply chain approach that converts traditional DCs into the equivalent of Minolta’s BizHub.

For the sake of this article, we’ll refer to these DCs of the future as “DizHubs.” In the same manner as the BizHub, the evolving DC needs to combine advanced, multi-channel material handling concepts with enterprise-focused process and systems to allow the DC to become the corporate “nerve center,” which optimizes merchandise flow.

The transition from DC to DizHub involves a combination of organizational, process, systems and infrastructure changes that transform supply chain operations from a focus on reactive execution to one of proactive, decision-based planning and enterprise support:

Organization: Organizationally, the successful structure leverages enhanced assortment, product, supply, demand, and operational information flow to support enterprise sourcing and product-flow decision making. This requires an organization that has similar goals across departments, and focuses on sharing information across those departments.

Process: As stated earlier, the process needs to center on proactive, decision-based planning across the entire supply chain network. This includes additional involvement in the decision-making process (sometimes all the way back to the manufacturers), as well as additional decision points in the calendar.

Systems: The systems integrate enhanced forecasting & demand planning capabilities with tools providing real-time visibility of SC-wide inventory availability and movement.

Infrastructure: The infrastructure changes so that each of the individual nodes of the supply chain supports the new needs of the business. For most companies, this means adding new nodes, removing some of the existing nodes and transforming other nodes.

The reconfiguration of an existing network to support these multiple flows and get the most out of the DizHub can be challenging. It will typically involve a phased-in transformation over many years that can include closing existing facilities, opening new facilities, renegotiating vendor contracts and reworking internal capabilities. But in the end, it all comes down to information flow. The successful DizHub communicates with:

• Merchants to decide on the right assortment;
• Sourcing to decide on the right suppliers and packaging configurations;
• Procurement to decide on the right inventory flow strategies to optimize inventory performance; and
• Stores to ensure service, while optimizing inventory investment and margin.

The following graphic shows some examples of the new lines of communication that the DizHub will be handling in these new networks:

A Solution for All Situations

Those companies that have already broken from the traditional DC have created a competitive advantage. As companies look to cut costs in lean economic times, the DizHub is able to react to reduced volumes and support an increased focus on cost reduction. Conversely, as companies prepare for an eventual economic recovery, the control centers will be able to increase speed to market and respond to ‘hot-spots.’

The advantages provided by the DizHub include:

• Getting the right product to the right place at the right time…and for the right cost;
• Planning capabilities to map out product-flow based on projections;
• Reaction capabilities for deviations to the plan; and
• Ability to change priorities quickly.

The DizHub expands companies thinking beyond the four walls of the traditional dimensional world to leverage enterprise information as a weapon for supporting alternative flows and enhanced effectiveness.

Tailored Solutions

There are companies that have begun the transition from DC to DizHub and are beginning to reap the benefits in these trying economic times. One of the things KSA has noticed as we help companies through this transition is that there is not a one-size-fits-all solution.

Your solution will depend on your current infrastructure and vendor contracts, your company’s ability to predict, revise predictions and react ‘on the fly,' and a number of other factors.  Your immediate goal is to open the lines of communication within the organization to allow for a number of potential solutions in each flow decision that  consider all areas of the company.

Agree or disgree with with our guest contributor's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.