Transcript of Presentation by Patrick Daly to the National Manufacturing Conference, Aviva Stadium, Dublin on 27th January 2015.
Good afternoon ladies and gentlemen.
Over the last 15 years or so I have had the, dubious privilege and opportunity to look deeply into the inner workings of up to a 100 warehouses all over the world – here at home in Ireland, in Britain, Europe, the Middle East, Asia and North and South America.
60 to 70 per cent of these warehouses have been in manufacturing industry –in sectors such as pharmaceuticals, medical devices, food, beverage and industrial equipment. While all warehouse facilities that support manufacturing operations have fundamentally the same processes, one of the things that has struck me most on my travels is the divergence of standards, practices and performance across these different facilities. There is a big gap between the best-in-class and the also-rans.
The root of this divergence is that until relatively recent times, in most manufacturing businesses, the warehouse has been considered, whether explicitly – or more likely implicitly – somewhat of a Cinderella department in the overall scheme of things. This is a theme that I will return to presently.
Firstly, I would like to give you an overview of what I will be talking to you about today.
- In the first part of my talk, we will take a look at the history and evolution of warehousing in manufacturing industry and where warehousing fits into the wider strategic picture of modern supply chains today.
- Then we will dive in to a more tactical level in the second part of the presentation to touch on two or three specific topics relating to day-to-day operations and discuss how best-in-class manufacturing businesses are improving their effectiveness in these areas to better support their wider business goals.
- Then finally in the last part, we will come back up to a higher level to take a quick look at some of the more strategic trendsthat are already evident and that are changing the face of warehousing in manufacturing industry today and in the future.
HISTORY AND LEGACY – THE CINDERELLA DEPARTMENT
I mentioned in my introduction the idea of warehousing having played the role of the Cinderella department in manufacturing businesses up until recent times. What I mean by this is that the warehousing function, in comparison to others, such as production, sales, marketing, R&D and so on has received proportionately less attention, focus and investment over the years when compared to these other functions.
In my opinion, the reasons for this are historical stroke cultural on the one hand, while on the other they are associated with the physical and environmental nature of warehousing itself.
In the historical and cultural sense, warehousing has rarely been considered as a core competence by most manufacturing businesses. If you look back into the history of your own company you will probably find that in the early days, the business coalesced around a product idea or maybe a production capability or an ability to market and sell.
Consequently, the driving force and the centre of gravity of most manufacturing businesses will tend to lie in these areas. As a result, logistics, and warehousing as a component of logistics has been viewed traditionally as a necessary evil and cost centre. Something that is unavoidable to a greater or lesser degree but not something that generated any kind of enthusiasm or energy for the movers and shakers within the early business. Though the business may now be decades old, in many instances the Cinderella legacy endures.
The other aspect of this phenomenon is the physical and environmental nature of warehouse operations themselves.
These operations are typified by long cycle times with work taking place over long distances and often at great height with heavy equipment such as stackers, fork lift trucks and order pickers and where integrated digital technology is a relatively recent arrival.
Because of these characteristics, there have always beenreal difficulties and challenges with regard to the effective monitoring, management and control of operations in warehousing.
And finally, relatively speaking, in comparison to the factory floor, the labs or the staff offices in your businesses, the warehouse is a harsh, or at least a harsher, environment filled with boxes, pallets, bags, steel racking, fork lift trucks, docks, inverters and trucks.
Executives from the site leadership teams in many companies rarely adventureinto the deep recesses of the plant where the warehouse operations take place.
I exaggerate only slightly here to make a point that in its essence I believe is true.
GLOBALIZATION AND SUPPLY CHAIN MANAGEMENT
However things are now changing quickly, over the last 10 to 15 years or so in response to the challenges posed by globalization – powered by innovations in transport technology such as containerization and airfreight, financial deregulation and information and communications technology, the idea of managing a global supply chain, or probably more accurately, a global supply network has come to the fore and this has had a major impact on the perceived role of the warehouse in manufacturing businesses.
With each year that passes, the warehousing is becoming an ever more crucial link in the theory and practice of supply chain management. With worldwide operations carrying on interrelated activities, the warehouse has become a key interface between sister plants within organizations and between customers and their external suppliers up and down the supply chain.
Nowadays, a poorly designed and operated warehouse can play havoc with planning, production, quality and customer service with potentially massive financial implications whereas a well-designed and operated warehouse can add significant value to your business and deliver realcompetitive advantage.
TACTICAL LEVEL BEST PRACTICES
At this point I would like to take a few minutes to dive into a number of tactical, day-to-day aspects of warehouse operations before returning to the higher level and taking a brief look at future trends.
This is to give you a flavour of what I am seeing among the best-in-class companies around the world as they address challengesin these area with the objective of building capabilities to support their business goals.
Given the limited time that we have today, we will touch on just three of the keytactical areas:
- Warehouse Layout and Storage Equipment.
- Stock Deployment inside the warehouse.
- Standards and Performance Measurement
WAREHOUSE LAYOUT AND STORAGE EQUIPMENT
Just like all other aspects of business, the warehouse is a place in which processes take place. For example – receipt, put away, retrieval, picking, shipping and so on.
These processes involve the movement of people, machines and equipment, the provision of information and interaction between human beings and digital information systems.
The effectiveness and efficiency of these processes is impacted very fundamentally by the layout of warehouse and the storage equipment selected.
Two particular areas of concern are:
- The provision of sufficient open floor space for the staging and flow of goods through the various stages of the process.
- The specification of the right storage equipment to best match the true physical and dynamic throughput characteristics of the stock.
In the best facilities, clearly thought-through layouts, developed with the active participation of multiple stakeholders including facilities engineering, warehouse operations, manufacturing operations as well as Quality and Safetyhelp deliver layouts that minimise travel distances, avoid double backing, dead-legging and the risks and hazards associated with fork truck traffic congestion and pedestrian activity.
Well-designed areas around the loading docks where goods are received and shipped in particular are areas where easy access, logical traffic flow and high levels of safety can make a huge positive contribution to speed, efficiency and quality.
By way of a rule of thumb, the open areas for receipt and despatch at the loading docks of a typical warehouse should, depending on the nature of the operation, occupy 20% to 30% of the footprint of the facility. Less than this and the area can very quickly become a bottleneck.
On the storage equipment front, even if we just focus on pallet storage systems, there are so many equipment types available that they can present a bewildering array to choose from.
Each option will provide a different density of storage within a given space. The choice of storage equipment however should not depend just on the quantity of inventory to be stored and the size of the facility but rather on the true dynamics of the stock.
For example, the portion of the stock profile in which batch sizes are small (say 1 to 10) pallets where ready access is needed to specific pallets at specific times is best suited to conventional pallet racks in which pallets are stored in one-deep format and every single pallet is accessible with the handling equipment from the aisles.
As batch sizes increase beyond about 10 pallets per batch we enter the realm of denser storage systems such as push-back racks, gravity flow racks and other more sophisticated systems in which pallets can be stored 3, 4, 5 or more pallets deep.
The general rule of thumb is that the batch sizes need to be on average a minimum of three to four times the depth of the storage system. If these minimums are not respected, effective space utilisation will drop and double-handling will increase thus negating the expected return on investment.For example 3-deep push back racks would suit minimum batch sizes of 9 to 12 pallets, whereas a 4-deep system would suit minimum batch sizes of 12 to 16 pallets and so on.
The fact is, most real-life stock profiles have the full gamut of batch sizes and this is why in the very best operations, it is common to see a mix of different storage systems to cater to the true requirements of the different segments of the stock profile.
Inappropriate choices of storage equipment can lead to unnecessary handling, excessive travel, product damage, poor space utilisation and many other undesired effects.
STOCK DEPLOYMENT FOR EASE OF ACCESS
The next area we are going to look at is stock deployment within the warehouse. I am not talking here about inventory management which is a much wider supply chain topic with important repercussions for business continuity and working capital, but with how can we best deploy the inventorywithin the storage equipment so that we can access it readily when we need it, while at the same time minimising travel distances, physical effort and the number of times we handle it.
In any real-life stock profile, at one end there will be items that will be consumed very frequently in large volumes, say one or more pallets per occasion, these will tend to be a relatively small number of items out of the overall profile, while at the other end there will be a large number of items that are consumed relatively infrequently and in relatively small volumes on each occasion such as a few cases down to single items. This is an illustration of the well-known Pareto Principle or 80:20 Rule.
The challenge is – how to provide ready access to all of these items in an effective and efficient manner. A lack of attention to detail here can lead to tremendously time consuming, physically demanding and inefficient ways of working when retrieving materials for factory or customer orders.
In many of the best facilities that we see, the true consumption profile of each material item code is determined in terms of both quantity and physical volume. Dedicated, ground-level, picking locations are then provided for a certain quantity of the item that is equal to a reasonable number of days’ consumption.For the high throughput items, this might be several pallets worth of material, for others a few cases, and for others still maybe just a few single items in a partitioned tote box.
These pick locations are replenished as required from overstocks of the same items or batches located on the higher levels. These pick locations will vary in design and capacity – some will be ground level pallet locations, others decked shelf levels set into pallet racking, others smaller shelving units, cabinets drawers or carrousels.
The balance that is being struck here is essentially one between the gain in productivity from being able to access everything from the ground using simple equipment such as trollies, pallet trucks or order pickers over significantly shorter distances versus the extra effort required to replenish the pick faces when needed. Evidently, the larger the capacity of the pick bins, the less frequent the replenishment requirement and the smaller the pick face the more frequent the replenishment.
Now – benchmarked statistics tell us that between 60% to 70% of all warehouse labour effort can be consumed in the selection or picking of items from stock, and 60% to 70% of this picking time can be spent travelling from one location to another, therefore in the vast majority of cases, it is found that optimising picking travel distances as described, even when taking into account the trade-off of the extra handling associated with replenishment, yields significant improvements in productivity.
Ihave been involved in projects where these types of changes have yielded picking productivity improvements between 20% and 30% just by redesigning pick faces.
LABOUR STANDARDS AND MEASUREMENT
Now we will take a quick look at Labour Standards and Performance Measurement. In my introduction I spoke about how the cycle times and distances involved in the work carried out in warehouse operations make it difficult to monitor, manage and control.
In warehouses where layout is poor and stock deployment is unscientific, processes will rarely be fully standardized and as a result they will be highly variable. In an environment like this it makes little sense to develop standards for the various tasks of work, and as a consequence it is very difficult to plan resources to match a given volume of work.
On the other hand, in those higher-end operations, where the major structural elements of layout, storage and handling equipment together with effective stock deployment truly support efficient material flow and well-structured processes then it becomes possible to establish standards for the various elements of work carried on within the warehouse operations.
To be most effective these standards are developed with the active participation of the associates working in the warehouse operations. The standards become a means to establish recognised levels of performance, to provide focus, incentive and comparability between different parts of a warehouse operation or between different warehouse operations within the same business.
Some opt to develop the standards on the basis of consensus estimation and negotiation, others on the basis of the analysis of historical data from the movements transactions within warehouse management systems or enterprise systems and others on the basis of benchmarked or fully engineered standards with direct measurement
Once these standards have been developed and implemented, they can be very powerful n contributing to all aspects of the operational improvement including resource utilisation and planning, the training and development of new hires and pinpointing where processes may be breaking down. They can be a powerful driver of continuous improvement and the prioritizing of retraining.
In conjunction with modern Labour Management Systems that are now available on the market, the use of these work standards can provide real time monitoring and visibility of the progress of work as it happens and a level of insight and control that has been very elusive heretofore in warehouse operations.
These are just three of the many day-to day aspects of warehouse operations where best-in-class companies are applying more focus, more structure and more science to the development of excellence within their warehouse operations.
At a higher level, overlaid on top of these very basic elements of day-to-day operations we have a number of overarching trends that are exerting their influence to transform warehousing operations into sophisticated, digitally integrated elements of the supply chain, populated by individuals with high level skills and knowledge thatenable them to contribute positively to delivering value for their businesses.
I will touch on just three of these:
DIGITAL INTEGRATION INTO THE SUPPLY CHAIN
The first trend is the Digital Integration of the Warehouse into the wider business and the supply chain.
High-functionality warehouse management systems, integrated with the wider enterprise systems are now becoming more common in many organizations. When implemented appropriately these systems underpin and enhance the benefits and returns from good design, effective stock deployment and standard work. Integrated with Labour Management Systems, Barcode Scanning and Voice Systems and automated materials handling equipment they are converting warehouses into digitally integrated high-tech work environments.
COLLABORATION WITH OUTSIDE EXPERTS
The second significant trend is the development of deep Collaboration with Outside Experts
Despite all the developments and improvements that we have spoken about, it is still true that for many manufacturing businesses, warehousing is not a core competence and never will be. Space is often at a premium, and investment capital is more likely to be approved for new manufacturing capability rather than the expansion of warehouse capacities. Consequently many manufacturing companies have opted to develop partnerships with outside service providers for a wide range of logistics services including warehousing.
The challenge is that in manufacturing, warehousing integrates right up to line-side replenishment, line clearing and the support of line changeovers and cannot be easily “outsourced” in its entirety.
As a result, we are seeing the emergence of multiple hybrid models where off-site third party warehouses holding the greater part of the inventory required to sustain the manufacturing operations support in-plant stock supermarkets and kanbans.
This requires rapid replenishment based on coordinated call offs and effective communication and information sharing between manufacturer and service provider. We are also seeing third party personnel being deployed inside manufacturing plants to do, some of, and sometimes all of, the tasks and functions previously carried out by the warehousing associates of the manufacturing company.
There is no single best model here but rather a complex variety of constantly evolving models of cooperation which continue to develop as the participants increase their knowledge and mutual trust over time.
DIGITAL MEDIA TRAINING
And finally, the third significant trend is the use of Digital Media and Mobile Technology for the delivery of training and the development of skills.
More structure, more technology, more interaction with other departments and third parties requires warehouse associates, supervisors and managers who are highly numerate, highly articulate with good interpersonal skills as well as being comfortable in the use of a wide range of equipment and technologies while at the same time understanding the requirements of regulatory compliance, health and safety and appropriate behaviour in the workplace.
Training and developments requirements have increased multi-fold as a result. The delivery of training can be time consuming and costly requiring people to come off the job in groups, maybe even travel to training centres where knowledge retention in classroom environments can often be patchy.
What we are beginning to see now among top companies is the delivery of training that leverages high-end multimedia, and digital learning management platforms to deliver training modules in a flexible, individualised manner through mobile devices such as laptops, tablets, and smartphones close to the workplace or indeed outside of the work environment.
FOOD FOR THOUGHT
These are just some of the trends impacting warehouse operations in manufacturing today and into the future for you to consider and ponder.
The historic legacy of warehousing in manufacturing, the introduction of improved tools and techniques at the tactical level and the overarching trends that will shape the warehouses of the future give us food for thought on the following pointS.
- The warehouse is now a critical component of the global supply chain.
- The design and operation of modern warehouses in manufacturingrequires a careful, structured and scientific approach.
- There are still huge, untapped opportunities for improvement in the warehousing operations of most manufacturing businesses.
To conclude then I would just like to say that while I recognise that the warehouse may never become the princess to the manufacturing prince charming, I am pretty sure that she certainly cannot continue to be the Cinderella of this particular story.