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TriFactor Home > TriFactor Learning Center > White Papers > Designing a Material Handling System for all Seasons

Designing a Material Handling System for all Seasons

TriFactor, Lakeland, Florida, Material Handling System Design, Distribution Center Planning

The Byrds said it best when they sang, “To everything…there is a season”. In warehousing and distribution, we must decide how we plan for these changing seasons in order to be able to react effectively to increases or decreases in both the supply (inventory) and demand (throughput). Since consumer spending accounts for around 70% of our gross domestic product and most retailer’s earn their profit during the time between Thanksgiving and New Year’s, we will use the typical retailer’s holiday rush to remind us of what we need to do in order to stay ahead of this year’s peak season and prepare for next year’s holiday season as our businesses continue to grow. 

Get Organized

Since I get the pleasure of visiting and learning about the distribution center and warehousing operations of so many companies in so many industries, I’ve come to be pretty proficient at sizing up the efficiencies in the labor force in these facilities fairly quickly. Whether a fulfillment center is highly automated or is simple and manual, there are clear indicators of good personnel management that I would strongly recommend implementing before even considering automation to increase throughput and capacity.

First things first, and that is a well-documented process flow for all associates to learn. This forces middle managers to learn and understand what their associates are expected to accomplish as well as realize ways to improve the processes. While doing so, it should also be a priority to take as much subjectivity out of the processes and replace with objectivity in order to return consistent and predictable results. By documenting the processes and making them as simple as possible to implement, the risk of key personnel being “hit by a bus” and the subsequent loss of institutional knowledge is minimized. Probably an even more significant result is that training of new associates will be easier and quicker, which is critical when preparing for a busy season and ramping up the work force with temporary labor.

Conveyor Systems, Material Handling Systems Design, TriFactor, Efficient Distribution Center

Another simple sign of efficient labor management is simply placed signs being located throughout the warehouse. Having visual indicators signifies organization. Also, brightly lit and well-kept facilities are just as much visual indicators as these signs. Although I don’t have a statistic to support my philosophy (73% of statistics are made up anyway), I would bet that warehouses that are clean and organized are more efficient in their fulfillment processes than those warehouses that are dark, dirty and unorganized. Furthermore, when attempting to recruit the best warehouse associates for your busy season that are going to work hard and be dedicated to your cause, remember that you are competing with the warehouse next door and that all associates have more choices during the busy season. If you want an associate that walks toward the light and not the dark side, you better have a well-lit, clean and organized facility with processes in place to keep it that way.

Holiday Inventory – Design for Peak

When planning the storage solution for your distribution center, keep in mind that wise adage about being able to stuff 10 pounds of marbles in a 5 pound bag; simply put, you can’t do it If the business strategy is to be able to maintain an inventory level that will meet the demand of the holiday season, then there is no choice but to be able to have enough storage capacity for that inventory level. This is assuming that other options, such as using 3PL services or pushing quicker lead time requirements down your supply chain, are not viable.

Just because you design your storage solution to accommodate your peak season doesn’t mean that your inventory will be stored in the same manner year round. In fact, the vigilant inventory manager will conduct product velocity analysis for both peak and normal periods and then slot the products in the various storage mediums consistent with their velocities. This implies that there should be multiple storage mediums available, which is critical in being able to store and pick as efficiently as possible. The only situation where there shouldn’t be multiple storage mediums available is when the product velocity is very uniform. In other words, if all products move at the same velocity, then they should all be stored and picked in the same storage medium. However, most retailers follow the Pareto Principle, or the 80/20 rule, in which there is an exponential curve relationship between the products and their velocities.

Designing a Distribution Center, Material Handling Systems, TriFactor

An example of having a storage solution that can accommodate peak season inventory and facilitate an efficient storing and picking process year round is having a combination of selective racking, pallet flow, carton flow, and shelving. During normal seasons, the results of the velocity analysis would slot all active pick items in the pallet flow, carton flow and shelving while the selective racking would be used primarily for replenishment storage on the lower levels and empty on the upper levels. Additionally, there might be rows of selective racking furthest away from the active pick area that are empty. The pallet flow would be used for full pallet picks (highest velocity SKUs), the carton flow for case picks (medium velocity) and split case picks (high or medium velocity each picks), and the shelving for split case (low velocity each picks). During the peak season where inventory levels are at their highest, all of the selective pallet racking is full with the lower levels being used for full pallet picking (high velocity pallet pick SKUs). The pallet flow would be used for full pallet picking (medium velocity pallet pick SKUs) and case picking (high velocity case pick SKUs). The carton flow would be used for case picks (low velocity) and split case picks (high or medium velocity each picks), and the shelving for split case picks (low velocity each picks). Having multiple storage mediums with some locations vacant during the year might feel like a waste of money, but relative to the cost of the building or the cost of automation, storage equipment is fairly inexpensive. Even more of a financial bruise would be the cost of lost opportunities due to the inability to store enough inventory during the peak season and turn away customers.

Holiday Throughput – Design for Growth and Not Peak

As previously inferred, automation is not inexpensive. In fact, it is common for the cost of a new automation system to be a large percentage of the cost of the new warehouse itself. Therefore, careful planning must take place when designing the automated material handling system for a fulfillment center. If you were to ask a distribution manager the ideal design specifications for a new facility, he or she would possibly look to the throughput statistics centered around the holiday season and want a system that can handle those numbers all without requiring the need for hiring additional temporary labor. Unfortunately, that is just not a pragmatic approach considering most retailers’ throughput spikes to double or triple the rate that they typically experience any other time during the year. So a system designed for throughput rates to accommodate 10% to 20% of the calendar year’s activity would result in a much underutilized system 80% to 90% of the year.

Although every distributor is unique and it would be impossible to suggest design criteria for all to use, broadly-based terms can accentuate the point. That is, when designing the automation system in a distribution center, it should be based on being able to utilize the automation system to around 75% of its capability for off-peak seasons with a regular sized labor force operating during regular working hours. During the peak period, the automation system should be 100% utilized with a larger labor force operating more than the regular working hours by possibly adding a second or even third shift.

As an example, the maximum throughput capacity of a picking, conveyor and sortation system for a typical retail distribution center might be 300 cases per minute, which translates to 144,000 cases per 8 hour shift for fulfillment using 100 associates. If we were to use the design criteria above for off-peak and peak seasons, then this system would be best applied in a distribution center that averaged around 75% of 144,000, or 108,000 cases per day with 75 associates working first shift during off-peak season. Then, during the holidays when the daily throughput requirement triples from 108,000 to 324,000 cases per day, the system would need to be run at 100% capacity at a rate of 144,000 cases per 8 hour shift using 100 associates, for around 2-1/4 shifts. In both of these scenarios, the system capacity has room for natural business growth of 5% to 10% per year and the associated throughput increases that occur with this growth.

From a financial perspective, the automated material handling system that is designed to accommodate the tripling in throughput would reasonably cost two to three times more than the system designed for normal periods. Therefore, the cost of the additional labor required during peak periods is likely to be significantly less than the depreciation expense of the difference in capital between the peak period material handling system and normal period system.

In summary, planning and designing the material handling system for a new distribution center is complicated with many variables that affect the labor force strategy and seasonality requirements. The basis for the design is derived from historical and reasonably assumed future data. The storage system design accounts for the product velocities and a disciplined slotting plan for differing seasons. The throughput capacity is calculated with key variables related to the peak vs off-peak system throughput capacity and labor force utilization plans. Therefore, when it is time to design your next distribution center, consider your storage and throughput strategies with the changing seasons in mind.