Distribution Churn Good For Material Handling & Logistics Industry

By Tom Andel
Editorial Director
Questex Communications

Rapidly changing supply and demand shifts may cause distribution managers stomach aches, but for material handling and logistics solution providers they’re just what the doctor ordered.

Distribution isn’t just a chapter in a material handling and logistics book these days. It’s a survival strategy. Ask the Marines.
“The tracking of material through the supply chain is applicable everywhere, and we’re trying to do a better job of it,” says Col. Alan Will, logistics modernization officer for II Marine Expeditionary Force.

“We had problems with assets clogging up at particular points in the pipeline during Operation Iraqi Freedom. The main supply effort was out of Kuwait, and there’s a long supply chain up to Baghdad. Keeping distribution nodes free of clogs came down to distribution management.”
Will is responsible for making sure the Marines have a better field of vision into its supply chain. That requires a common operating picture of its assets and resources. Readiness is another issue.

“I may have 25 trucks but ten disabled by bombs,” he hypothesizes. “I have to determine my high priority assets and use my available resources to move those. A common operating database means everyone can look in and see the same picture and see when an RFID (radio frequency ide ntification) tag was last interrogated at Navistar, which is a base on the road to Baghdad. RFID helped us with frustrated cargo, which is cargo that gets put aside. We were able to locate some critical items that were located in Turkey.”

RFID’s Security Promise
Indeed, RFID is a technology that holds much promise in securing the safety of civilian distribution networks as well. Randall Lutter, associate commissioner for policy and planning for the U.S. Food and Drug Administration (FDA) says RFID’s track and trace capabilities make it important to the drug supply chain. “It offers, in principal, a low cost means of providing authentication and electronic pedigrees to increase the certainty that drugs being delivered to retail pharmacists and to patients are the genuine FDA approved articles and not fake medications,” he says.

The FDA is focusing on drugs right now because the Prescription Drug Marketing Act requires distributors to maintain pedigrees. However, Lutter says what’s happening in the pharmaceutical chain will have an impact on global distribution of all products. “RFID is likely to eventually offer a way for distributors and manufacturers to keep track of their products in real time throughout the distribution chain, which should offer significant savings in controlling the cost of their inventories,” he says. “From FDA’s standpoint it offers a key benefit in terms of reducing the risks of counterfeiting, making it more difficult for opportunistic criminal elements to introduce fake drugs into the drug supply.”

Attention to the security and integrity of the distribution chain has certainly become a major part of Tan Miller’s job. He’s senior director for logistics at Pfizer, Morris Plains, N.J. Miller says these attributes are becoming the key differentiating factor in winning retail business. “The value of superior logistics and distribution capabilities will continue to become clearer and clearer, particularly in commodity type industries,” he says. “Retailers recognize the value of working with manufacturers who have superior distribution capabilities. This can translate into improved profitability for both the retailers and manufacturers. Those firms will be able to better differentiate themselves from other competitors in the future. Those are the firms investing more time, money and resources in such concepts as business continuity planning and implementation right now.”

Not Dad’s Distribution Network
Companies relying on the conventional distribution wisdom of a decade ago will only differentiate themselves in a bad way. In the 90s, single-sourcing and fewer, larger warehouses were the megatrends discussed at logistics seminars and conferences. September 11, 2001 changed all that. Availability is now key.

“Everyone was talking about LEAN in the 90s,” says Edward H. Frazelle, Ph.D., President & CEO, Logistics Resources International, Atlanta. “Lean has a new meaning today: Ludicrously Enamored With Always and Never. My point is there are no absolutes. There’s no model that will work best in the future. What’s needed are strategies to make supply chains more flexible. That means flexible material handling configurations inside distribution facilities -- racks that can be easily reconfigured; layouts that aren’t so set in stone. It means multi sourcing, using third party logistics services more aggressively. It means having a workforce that is cross trained and can move from one function to another.”

Flow, Not Stow
Distribution is becoming more about flow-through than storage, and about store-ready shipments. James Tompkins, president of the Raleigh, N.C.-based consulting firm Tompkins Associates, says that trend is sending ripples throughout international supply chains. “A lot of the picking and kitting functions are being pushed back to Asia,” he says. “We’re bringing in product ready to flow through. That has had an impact on the material handling side of the world because now you need more highly sophisticated dock receiving, and more shipping and sortation conveyance than you did in the old receive, store, pick ship mode.”

Tompkins cites the case of a ladies’ apparel company with more than 800 stores. Eighty percent of its products are brought in, processed through a put-to-light system and shipped out the same day. “In the old days you’d get 10 white size 6 blouses and 10 white size 8 blouses in a package, they’d be stored, then picked a blouse at a time,” he says. “Now DCs are getting a rainbow of colors and sizes in a pack that can be put to different-size stores.”

According to this scenario, stores will get anywhere from one to three packs of these rainbow arrays. These packs will then be boxed and sorted to the appropriate dock door. At the end of the day, even if there’s only half a box for a particular store, it’s shipped anyway. At this DC, only 20% of the product goes to storage. The rest never sees a rack. It’s gone within 24 hours.

“It’s a great time to be in the automated material handling business because more applications are going this way,” says Tompkins. “It’s because of the flow concept. People are now really trying to use their warehouse management systems [WMS]. It’s not just the receive, store, pick ship functions, but it’s the ancillary functions like yard management, dock scheduling, directed putaway, task interleaving, and slotting. These secondary functions are now bringing a return on the investment. That ties into visibility, allocation, and getting our vendors to pack the product correctly for us.”

Store Ready, Next Day
For retailers like Zellers/Hudson’s Bay Company, Brampton, Ontario, Canada, packing orders for its stores is critical to its distribution success. HBC was established in 1670, and is Canada’s largest department store retailer and oldest corporation. The Company’s retail channels include almost 500 stores led by the Bay, Zellers and Home Outfitters chains. Julian O’Connell, director of marketing, says his company is now shipping to stores in case pack sizes instead of master packs. It has introduced a system called 25/24, meaning 25,000 skus delivered to a store within 24 hours.

According to this program, picking orders for these 25,000 skus are generated from the purchase orders by 7 pm. Labels are generated in the DCs and they’re available for picking at 2 am. By mid morning all of these labels are applied to the cases, the cases are put on conveyor systems and they’re out of the warehouse by early afternoon. “If a retailer’s rate of sale is two or three items a day, or a case a week, they don’t need to bring in 96 or 120 or a gross of product in their back door,” O’Connell says. “Today merchandise is shipped to stores in sixes, twelves and 24s instead of 48s and 96s.”

The New Hot Spots
In addition to more frequent shipments, according to Ed Frazelle, the new distribution network is characterized by more DCs located closer to customers. The distribution hot spots in the U.S. will also change, he predicts. “A lot of the traditional distribution locations are so crowded now you can’t find people to work in the warehouse, it’s hard to find drivers, and the roads are congested,” he says. “That means if you’re going to keep or improve customer service you need more DCs to meet the requirements and if the interest rates remain low, it won’t be so expensive to carry the incremental inventory.”

All these changes in distribution strategies should bode well for material handling hardware and software providers. “Any time there’s flux or churn in a distribution network, it’s good for the material handling industry,” Frazelle concludes.

<< Back to news articles