Continuing globalization and changes occurring in such areas as reverse logistics, environmental sustainability, information technology, and overall supply chain integration enforce to further evolve the strategies, roles, and responsibilities for warehouses. Recently the term Distribution Center (DC) is considered much more appropriate in representing the broad range of activities that now occur in modern warehouses that go beyond filling customer orders to provide an ever expanding array of value added services.
There may be number of situations where DC’s simply would add cost to the supply chain rather than adding value. DC’s add little or no value to products bought in bulk (e.g. raw materials, manufactured items) with little or no time sensitivity associated with their use. Products that are insensitive to transportation costs typically move directly to customers.
However, for other products DC’s provide a dual value-added role making supply chains more efficient and more effective. DC’s may add efficiency by consolidating products for shipment to customers, reducing transportation costs, and performing a broad range of value added services such as branding, labeling, assembly, packaging, kitting, reverse logistics. By strategically positioning the distribution centers, products and services get placed closer to major markets and customers. Optimization strategies are utilized for positioning the product availability and delivery as a competitive advantage while also optimizing the cost trade-offs associated with transportation, facilities, equipment, workforce, and other critical cost variables.
Distribution centers also facilitate time utility by storing product until it is demanded. Product types often help in determining the need for and specific role of DC’s in the supply chain. Characteristics to be considered include,
- Seasonality in either production or consumption
- Demand variability
- Manufacturing economics
- Marketing and promotional initiatives
- Transportation economics
- Service requirements
- Customizability and variants of product
Products which have extremely high service requirements from a time perspective, poses unique challenges as they may affect the efficiency, performance, and cost of customers’ operations. When demand is unpredictable it is suggested to assemble and ship to order. Inventories remain generic providing more flexibility and thereby reducing costs. Company must be capable to determine the requirements of distribution channel such as location, design and operations, determining the information and technology requirements, and performance measurement in order to achieve successful networks and operations.
Location
In addition to transportation costs, the location of the distribution channel is determined based on the location of major markets and customers, the location of supply points, the volume of product moving to or from supply points and customers, transportation rates, the level of service required, and the product characteristics. Local conditions including access and cost of labor, land and buildings, IT/communications infrastructure, transportation infrastructure, and government policies (e.g. environment, incentives, taxes) also play a significant role in determining location.
Design & Operations
The primary determinants of design and operations of a distribution center are how the product is received, service levels, nature of customer orders, and transportation mode etc. Product characteristics include weight and dimensions, packaging, shelf life, temperature and lot control requirements, and hazardous material requirements. How the product is received is critical to both inbound operations efficiency (dock to stock cycle time) and space utilization/storage efficiency.
In order to optimize the efficiency in inbound operations it is very important to receive material in an immediately storable conveyance such as a pallet, case or a box. Also the types and volumes of orders that are processed and the number of stock-keeping units (SKU’s) in the distribution channels are important in determining layout, equipment selection, and business process requirements. Storage equipment selection should be matched to product characteristics, volume, and any additional unique requirements.
Note, considering automation in order to reduce transit time in the distribution center almost always represents an opportunity for improved efficiency. Automation of other processes such as receiving, locating/storage, order filling may become a critical constraint particularly if there is a significant variation in demand, change in product characteristics, or change in product mix.
