Managing Multisite Distribution Apr 30, 2008 1:30 PM
, By Kate Vitasek and Steve Symmes
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Opening a second distribution center can more than double
day-to-day complexity and increase the cost of operations. While most companies
tend to focus on the network and facility design, it’s important to also
consider the less obvious factors that can make running a multi-site DC
environment challenging. One needs to look beyond the network models, facility
designs and pure cost analysis, and consider the impact on customers and daily
operations.
Maintaining service levels
Expanding your operation will not only put a lot of stress on your people,
processes and resources, it could put stress on your customer relationships,
too. That’s why it is important to tell your customers about your decision to
expand your operations ahead of time. This way you can tell them what to expect
– after all there might be a few “glitches” that will occur as a result of the
reorganization. At the same time, it is also an opportunity to tell them how
the expanded network will improve customer service.
Clarify what will take place during the transition period. Ask your customers
about their concerns and worries, and be sure to address them in your
transition planning.
Start by developing a plan to determine what products you'll stock at each
location by reviewing customer demands and usage patterns. Strive to provide
the best service possible while keeping your inventory costs down. For some
customers, stocking and shipping from a single location may be the best choice.
Align the sites by customer needs. If a site is dominated by a few customers,
look at how you can optimize the flow of orders at each site. For example, you
may focus one facility on pallet level fulfillment and another on case- and
unit-level fulfillment.
If you deliver to the same customer from more than one location, your customer
will naturally compare service levels. If these are not the same, you could run
into trouble. Fix any service imbalances quickly. Be sure that you understand
your customers’ requirements and have a plan in place to address their concerns.
Also, when you add a new facility you will need to review -- and possibly
renegotiate -- your customer agreements. Some agreements will require more
inventories if you serve your customer from multiple locations. For example, it
is common for retailers to require their orders to be shipped form a single
location or on the same truck. To meet this requirement you may need to hold
your compete product line at all locations. This drives higher inventory or it
may require the transfer of product between distribution centers. If you can
compromise with the customer to modify this requirement, your inventory cost
can be significantly reduced.
Maintaining knowledge and common
processes
Obviously, it is more difficult to manage multiple DCs than just one -- especially
when they are spaced apart by long distances. The biggest challenge is to keep processes
common across all sites. Using formal documented processes and training will
help.
When documenting your processes, include as much of the "tribal knowledge"
in the process as possible. Remember that when you hire new employees you will
need to train them from beginning to end, and processes often fail to cover all
the possible responses to situations that experience brings. Capturing this
knowledge is important. Once that’s done, establish a formal change process and
include reviewers and approvers from each site. Be diligent in documenting
changes to processes, as informal or undocumented processes will affect
performance and cannot be maintained across multiple sites.
Next, develop formal training plans. Include both new and current employees in
the training rotations. Capture any concerns your employees have with the
current process and follow up with a review. Modify the process if needed and
retrain.
You might also want to consider the exchange of key employees between your
sites. This will facilitate the transfer of knowledge, improve communication
and develop a web of resources. Recognize that there is often a difference in
employee turnover from site to site and adjust training to support this.
Information technology
It is crucial that your information systems are capable of supporting a multi-location
environment. Therefore it is essential to make a complete assessment of your
information technology before you take the multi-site DC plunge.
Some processes such as procurement, planning/forecasting, and order management,
may be centralized. But you will still need to be able to access them, in real
time, from each site.
Order management systems must be able to allocate inventory across multiple
sites, and, providing your customer allows it, should allow shipments from any
location in your network. Being able to view order processing information in
real-time will allow the order management team to provide information to
customers quickly.
Similarly, your inventory management and fulfillment system must also be
multi-site capable, and should be able to support inventory leveling between
DCs. Forecasting algorithms need to support forecasts at the companywide level,
as well as at the site level. Companies need to review and modify variables
used in their programs. These variables will have to be monitored for some time
as the additional facility usage data becomes available.
Managing performance
Common reporting and review of key metrics is also important when moving to a
multi-site model, so you need to develop a performance management plan that
supports multiple facilities as well. First, you must enforce common metrics
across sites – because if the metrics are not equivalent, the management team
will make erroneous decisions. To do this, define your metrics and document how
each is calculated. When possible, gather data from the same systems using
identical methods.
Ensure that improvement projects include all locations. Assign employees from
each location to the improvement team. Open communication is required to
support performance and improvement programs. Establish regular review meetings
and facilitate peer-to-peer support networks.
Managing multiple DCs also requires added diligence to manage operating costs.
Some cost tradeoffs will be necessary because each site will have differing
labor, facility, and transportation costs. Tracking and understanding these
costs will be essential. Measuring on a per-unit, per-order or some other
common basis will help in the review.
Some of the most significant cost impacts incurred when adding a new facility
are related to inventory and transportation costs. Adding a second site could
boost inventory levels by 30% to 40% (in part due to forecasting errors),
therefore it becomes more challenging to balance inventory across sites. You
must have a review process in place to assess the costs associated with the
balancing inventory. Be sure to explore all options before you put product on a
truck. Also keep in mind that reallocating inventory includes more than just
the cost of transportation – there’s the cost to pick the product, pack it,
load and unload it, receive it, as well as the cost to put it away.
For many companies one of the factors driving the decision to add a facility is
the reduction in lead-time – and with this often comes a reduction in outbound
transportation costs. But inbound transportation costs and the cost of managing
multiple deliveries from suppliers may not have been assessed. Review the
impact to receiving labor, transportation and procurement costs that split
supplier orders may bring about.
Kate Vitasek is the founder/managing
partner and Steve Symmes is a principal of Supply Chain Visions
(www.scvisions.com), a Bellevue, WA-based consulting practice specializing in
supply chain strategy and education.
Managing Multisite Distribution
