The logistics operation in many organizations is often not included in decision-making processes that have a strategic impact on a company's sales and marketing success. The result is that while marketing, sales and manufacturing develop plans for the growth of the organization, the very department that can play a key role in helping the organization realize its goals finds itself in a reactive rather than a proactive position.
Can the process of strategic planning for logistics and warehousing operations contribute significantly to a company's bottom line? Yes it can, and a strategic planning frame of mind for logistics and warehousing specialists can have a significant impact in helping a company meets its business goals.
What's in a Plan?
Any successful business plan begins with a definition of who and what a business organization is in terms of what are its strengths and weaknesses and what business objectives the company has. Identification of difficulties in the marketplace that your company is looking to overcome is also a critical part of this overall business definition. This type of information is available from a variety of sources including company mission statements, shareholder reports and interviews you set up with your senior management to discuss your business model.
Once you have defined who and what your organization is, you need to define what philosophy or paradigm your company is based on. Are you known for high levels of customer service, product innovation, product line breadth, price point, product availability, and/or customization? Does what you are known as in the marketplace correspond favorably with how your management views the company?
The next step is to define your customer or customers. As a warehouse and logistics specialist, you have two customer bases. The first is the internal customer base. This customer base includes manufacturing and shipping personnel. This customer base receives its "products" directly from your warehousing operation. The other customer base is external. These customers may receive your company's products directly, through dealers, by mail order, e-commerce, or a combination of these methods.
Next, define customer expectations. How do your customers, both internal and external, expect to receive products? In pallets, cases or eaches? Do they expect kits, and if so are the kits simple, complex, large, or small? In what time frame do they expect products? Hourly, daily or weekly? Is there a better way to deliver your goods to meet your company's business objectives.
Once you've completed this process of information gathering, you will have the raw data you need to evaluate your present approach to storage and retrieval operations. You can then compare those operations with new material flow concepts and you'll be ready when management and/or customer expectations change.
Why Improve Materials Handling Operations?
The reason to improve materials handling operations is to help your company increase sales, and ultimately, its market share. Improvements in the throughput, productivity, accuracy, and general efficiency of any materials handling and storage and retrieval operation have a direct effect on the bottom line. Automating the storage and retrieval operation is often the fastest, most cost effective way to achieve this result.
Automating a facility is about the difference in cost per unit and sales. With a manual system, like shelving and rack, when sales go up, unit costs as they are related to shipping, packing and warehousing, go up incrementally. One person can handle only X number of SKUs per day. By automating, they can handle more SKUs in the same amount of time. Cost per handling of unit goes down, and profit increases as sales increase.
A typical warehouse operator spends up to 60 percent of his time traveling between locations to store or retrieve items. Manual systems are prone to mispicks, and industry estimates are that over 50 percent of mis-picked orders cost more than $60 each. There is also an accuracy issue. Over 35 percent error rate of 1 percent or higher.
Automating the operation can reduce these problems. What type of automation is right for your company? Develop a matrix to help in the decision making process. To construct the matrix, place your system criteria on the left. For example, you could include in your criteria list scalability, system flexibility, improved productivity, increased throughput, improved accuracy, fast installation, floor space savings, ergonomics, risk. On the horizontal axis place qualitative rankings such as not important, important, very important, must have.
Then, conduct research. Examine a variety of storage and retrieval systems including traditional shelving, conveyors, auto ID systems, vertical and horizontal carousels, A-frames, pick-to-light systems, vertical lift modules, inventory management and control software, and fully automated storage and retrieval systems. Evaluate each one using a graph that plots each system type by how it meets the selection criteria. Use a scale from 0 to 10 as the vertical axis and the selection criteria as the horizontal axis. Plot each system based on how well it meets your criteria. This approach graphically illustrates which systems can best meet your organization's storage and retrieval needs.
Proving in the System
Once you have selected a system, it's good practice to get a rough idea if it is realistically possible for your organization to purchase it. There are three major factors that influence price: throughput, space and budget. Each factor has a direct influence on the other. As the system purchaser you can usually control two out of the three points. The two contrasting scenarios would be a lights out totally automated high throughput system using very little floor space and its opposite is floor space consuming manually operated shelving and rack systems. Each scenario would have very opposite budget implications, but there is a lot of room in between.
Sit down with system vendors and use the three-choice approach to see if the type of system you have in mind will work for you. This process will help you refine the parameters of your choice and zero in on the system that fits your real world situation.
all cases, comparing the efficiency and operating costs of any automation project and determining the ROI/IRR (Return on Investment/Internal Rate of Return) is a must. General accounting practices say any investment with an internal rate of return over five provides immediate value back to the organization. Carousels and VLMs (Vertical Lift Modules) when applied correctly have internal rates of return well over five and often in the twenty to forty range.
KardexRemstar has made doing a ROI/IRR easy. By logging on to www.KardexRemstar.com/roi, you can quickly calculate your annual savings and payback potential when automated storage and retrieval systems are compared with manual operations. The KardexRemstar ROI/IRR Calculator is an online form that lets you enter data such as the amount of floor space occupied by current equipment, cost per square foot, the number of employees handling daily transactions, number of transactions performed daily, average labor cost and other information that affects system costs. You can also calculate the cost of alternative storage solutions by entering values for moving costs, leased space costs and the costs of constructing new facilities.
Using the calculator, you can automatically compute the daily cost of the current system and the daily cost of the automated system. The calculator computes dollar savings from reduced space requirements, cost savings from improved employee productivity, depreciation savings, and total annualized savings. From this information, the calculator helps determine the payback schedule for your specific installation. Calculations are expressed in terms of Internal Rate of Return (IRR).
Remember these four steps:
1. Understand your company's business philosophy.
2. Determine the criteria necessary to create a system that will help your company meet its goals.
3. Match material flow solutions to your criteria to determine the best solution.
4. Prove in your system to illustrate how it meets organizational goals.
By developing a strategic planning frame of mind, you can have a positive impact on your company's business goals.