Introduction
The growth of a business, the pursuit of cost optimization, faster deliveries, and improved current supply chain processes can trigger the need to expand, relocate, or redesign a Distribution Center. Additionally, issues such as storage space saturation, increased order fulfillment times, operational bottlenecks, and failures to meet target service levels are clear signs that it is time to consider a change.
One of the biggest mistakes that can be made is failing to view this process as a strategic decision for the company. It is essential to start by answering what the purpose of the facility is, which market it aims to serve, with what portfolio, and what service objectives will be established.
A Distribution Center must balance the efficient use of space, maximize operational staff efficiency, enable the organization’s target service levels, and ensure the capacity to support future business growth.
Methodological Approach to the Solution
To ensure the success of a Distribution Center redesign process, it is essential to approach the situation with a methodological process that allows us to identify the main operational challenges and generate solution alternatives aligned with the business objectives.
- Diagnosis Phase
In this initial phase, a comprehensive evaluation of the current operations of the Distribution Center is conducted. This includes an in-depth analysis of workflows, storage capacity, warehouse layout, processing times, and operational costs. The goal is to identify critical areas for improvement, inefficiencies, and bottlenecks, as well as to understand the impact of operations on the business strategy. To ensure accuracy, process mapping tools, data analysis, and interviews with operational teams are utilized.
Warning Signs Indicating the Need for a Redesign
- Frequent Picking Errors
Constant mistakes in picking processes and an increase in returns due to incorrect or damaged products, exceeding 2% discrepancies in fulfilled volume, impact negatively the operational costs and overall customer satisfaction. - Lack of Flexibility
Operational difficulties in adapting to demand peaks and seasonal increases can lead to lost sales and shortages exceeding 10%. - Unnecessary Movements
A disorganized storage strategy can result in excessive internal movements to fulfill orders and make product location difficult. - Inventory Imbalance
A high quantity of non-moving products occupying unnecessary space and an inventory surplus exceeding 10% of capital indicate opportunities for improvement in inventory systems and management policies - Low Operational Performance
Long processing and order shipping times, compared to business goals and industry standards, are common indicators of inefficient workflows. - Lack of Expansion Capacity
Insufficient storage space, with warehouse saturation above 85%, overcrowded areas, and difficulty accessing products indicate the need to reevaluate the distribution center infrastructure.» - Frequent Bottlenecks
Recurring issues in specific work areas and processes within the distribution center flow lead to delays in operations and overtime hiring to meet demand. - High Operating Costs
Misalignment between the distribution center costs and the budget can indicate an unsustainable operation in the long term. - Inefficient Technology Utilization
Operational inefficiencies caused by poor integration of warehouse management systems (WMS), software, and technology with the distribution center requirements. - Accidents and Safety Risks
A high number of accidents or safety issues may suggest that the space design is inadequate for the safe movement of goods and personnel. - Employee turnover
While employee turnover can be considered a human resource management issue, it is also an indicator that operational processes and workflows are inefficient, overloading the team, causing burnout, and reducing job satisfaction.
Once the main constraints have been identified, it is important to establish clear and measurable objectives that align the needs of the Distribution Center with the strategic goals of the business. These may include optimizing storage capacity, reducing cycle times, improving inventory reliability, or lowering operational costs. This phase is critical to ensuring that actions are focused on generating value and delivering tangible results in terms of return on investment.
- Solution Design Phase
Technical and operational solution alternatives are proposed to achieve the established goals. This phase may include redesigning the layout to maximize space efficiency, optimizing workflows, implementing new technologies, and redefining critical processes, roles, and responsibilities. Each proposed solution must undergo a feasibility analysis, which includes evaluating its operational viability and return on investment.
Solutions Implemented to Overcome Common Challenges
- Automation of Storage and Handling: Implement automated storage systems and autonomous mobile robots to improve the movement and management of products within the warehouse. However, the investment could be up to 9 times higher.
- Inventory Management Systems (IMS): Integrate advanced software that provides real-time visibility into inventory levels and facilitates precise control during replenishment processes.
- Automated Picking Technologies: Adopt systems such as pick-to-light or voice picking to guide employees during product selection, streamlining the picking process and reducing error rates.
- Demand Planning: Use predictive data analysis tools to plan future demand, project required inventory levels, maximize service levels, and minimize stockouts.
- Optimization of Storage Space: Reorganize available space to ensure more efficient access to products based on their size and turnover levels.
- Modular Structure: Implement a modular warehouse design that allows for quick adjustments in response to changes in demand, seasonality, and operational needs.
- Layout Redesign: Design of the warehouse layout, its infrastructure, and required mobility equipment to optimize workflow operations and maximize performance, reducing travel by 20%.
- Process Design and Management Model: Develop process flows, define responsibilities, create KPIs, establish service agreements, and implement management routines to standardize operations and minimize errors in the distribution center operations.
- Planning and Implementation Phase
In this stage, an action plan is established and executed, detailing the main milestones of the implementation and key performance indicators. Activities in this phase include creating a detailed timeline, appointing a project leader, allocating the required resources (both human and technological), and identifying potential risks. It is essential to maintain continuous monitoring of operations during the implementation stage to identify areas for improvement and make necessary adjustments.
Conclusion
Redesigning a distribution center is a strategic decision that goes far beyond being merely a logistical and operational optimization matter; it is a comprehensive process that enhances efficiency and productivity, reduces costs, and enables flexibility.
Guiding the redesign process with a proven and structured methodology is key to ensuring that each proposed solution is aligned with the strategic goals of the business and supported by a profitable business case.