Your company has outgrown its current warehouse or distribution center (DC), and it’s time to add a new facility to your network. Whether you’re a start-up who’s outgrown your parents’ garage or a multi-site omni-channel retailer seeking to serve a new market, the design and planning process for a new DC is essentially the same. So too are the key considerations that should be included in the planning process to ensure that the project will produce a successful outcome that meets your storage, handling, distribution, and fulfillment needs. Be prepared to answer the following questions when planning your new facility.
Where should the DC be located?
Known as a network logistics study, this process determines the optimal geographic location of a new DC based on a variety of factors. Among the data sets to be analyzed are customer locations; sourcing locations; transportation methods (parcel carriers, ocean freight, full truck load); shipping format (parcel versus cases versus full pallet); labor availability; cost per square foot to lease or buy; state, local and regional incentives; and more. Ultimately, the location with the lowest total landed supply chain costs — from acquisition to shipment to customers — will be the optimal location of the facility.
What types of products will be handled in this facility?
Not every product can be stored in an ambient temperature warehouse. Perishables, food and beverage, pharmaceuticals, chemicals, hazardous materials, and high-value items all require special handling considerations. These include temperature, humidity, security, and more that can impact the overall DC design, as well as the types of equipment to be utilized within it.
What has operational throughput been historically?
Although it can be one of the most challenging and tedious parts of the design process, parsing and analyzing historical data from the past 12 to 24 months regarding throughput at existing locations within the network will yield valuable insights into a variety of DC design factors. A design profile for the new DC can be built based upon historical data about inbound inventory profiles, outbound order throughput, seasonal volume peaks, stock keeping unit (SKU) velocities, most frequently handled unit sizes (eaches, cases, or pallets), customer profiles, and more.
What will the business profile look like in five years?
This can often be one of the most difficult questions for an organization’s leadership to answer, particularly in light of the disruptions prompted by COVID-19 in 2020. However, the answers can have a significant impact on the type of equipment planned for the new DC. Consider what percentage of customers represent the different channels your company currently serves and how those proportions might change going forward. Markets can include e-commerce, retail, wholesale, outlet stores, and overseas.
Additionally, estimate the number of SKUs your operation anticipates handling in the next five years. While company leadership might believe that the 50,000 SKUs carried today will remain static, SKU creep is a real phenomenon. Many organizations are eager to add new SKUs, but reluctant to discontinue others — even those that are the slowest of the slow movers. Be realistic about what may or may not happen with inventory going forward based on an examination of the historic data.
Has consensus been achieved on the design dataset?
When all the primary decision makers agree that the projected seasonal curves around inventory and activity are correct — and that the anticipated growth metrics by channel, product, market, labor, and customers are realistic — then it’s time to start designing the facility.
What are the design options in terms of automation?
Most designs fall into one of three general categories: manual, semi-automated, or fully automated. While budget often dictates where upon the spectrum the ultimate design will fall, there are a variety of short-, mid-, and long-term implications to consider when comparing the options and their respective projected returns on investment (ROI).
One of the key considerations in the degree of automation discussion should be labor, both in terms of availability and costs (wages, as well as benefits and time spent attracting, training, and retaining qualified employees). While a manual DC will likely be the least expensive in terms of capital investment, it will also require extensive staffing. Conversely, a fully automated DC will likely require a smaller footprint to provide the same capacity with far lower labor requirements.
Should we simulate the design options?
This depends on the options themselves. A manual DC equipped with pallet rack and forklifts probably does not need a design simulation and analysis to confirm its function. Conversely, a simulation of a semi-automated or fully automated solution is a wise choice, as it is likely to offer process, operational, and functional insights based on a variety of different inventory and throughput profiles.
Additionally, a simulation of a system installed in an existing building — or one destined for new construction — can enable testing of different structural design modifications that might enable the facility to better accommodate different sizes and locations of equipment. This can lead to lower overall engineering and construction costs, as well as reduce installation and commissioning time.
Need help planning your next new DC? To learn more about working with DCS, connect with us.
Mark Kidwell, Director of Supply Chain Consulting, firstname.lastname@example.org
With over 35 years in the material handling industry, Mark Kidwell provides valuable solutions for our clients regarding operations and process improvement, labor efficiency, DC design, and inventory management consultation.