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Build a Business Case – The Sixth Step in Selecting the RIGHT WMS

By Ian Hobkirk | 08/06/2018 | 4:46 AM

Business CaseBuilding a coherent business case will allow your company to confidently make a go/no-go decision with regards to investing in the purchase and implementation of a new Warehouse Management Software (WMS) system. The last five blogs in this series have outlined all the steps necessary to gather the information needed to develop a business case:

  • Perform detailed discovery
  • Define the current state
  • Define the future state
  • Project future savings
  • Estimate implementation costs

This blog focusses on how to build the business case itself.

EXAMINE THE VARIOUS OPTIONS

Once the cost savings and other benefits have been dollarized, and the cost of new software has been estimated (as described in the last two blogs in this series: Project Future Savings and Estimate Implementation Costs), then it is possible to compile a well-rounded business case which examines the various options available to a company. In most cases, at least three, possibly four scenarios should be considered:

  • Do nothing: Keep the current software and make no changes to it
  • Customize current software: Continue to customize the current software by modifying the source code as required
  • Upgrade: Perform a formal upgrade of the current software system to the current release
  • Replace: Implement a WMS system from a new vendor

CRITERIA TO CONSIDER

There are a variety of criteria to consider when evaluating each of these possible scenarios. Some of the major factors include:

  • Operational benefits: cost savings, scalability, supportability
  • Capital investment required to implement the software
  • Level of effort required internally to implement the software
  • Degree of customization and overall IT complexity required
  • Degree of risk involved if the implementation does not go as planned

All of these factors must be properly analyzed and compared for each scenario. For some scenarios, there will be a range of potential outcomes. For example, a new WMS from a Tier 1 vendor may be very expensive but not require as much customization as a solution from a mid-tier vendor which could be less expensive but less feature-rich.

If a strong business case for a WMS exists and your company decides to proceed with a new WMS, then a full WMS Vendor Selection Study is required to determine the optimal software partner to work with.

 

Related Reading:

White Paper: How to Choose the Right WMS – Part I: Distribution Center Process Optimization

White Paper: The Ultimate WMS Preparation Guidebook

White Paper: Selecting the Right WMS

White Paper: Six Ways to Postpone – Or Eliminate – Your Distribution Center Expansion

Estimate Implementation Costs – The Fifth Step in a Proper Warehouse Management Software Selection Process

By Ian Hobkirk | 01/29/2018 | 3:54 AM

IStock_000061311356_MediumBefore new warehouse management software (WMS) can be advocated, a company must first know the business implications associated with adopting it. This involves projecting future savings and estimating the implementation costs. In the last blog I outlined how to identify and dollarize the key areas where financial savings can be achieved.  This blog covers how to estimate the WMS implementation costs.

 

Determine the Solution Budget

Now that the company has a sense of the potential savings which are available, they must next determine how much they are willing to invest to achieve those savings. A good starting point is to ask what payback period is acceptable on the investment. Multiplying this payback period by the projected annual savings can establish a rudimentary budgetary figure for the maximum the company wants to spend on a solution. Companies shouldn’t forget ongoing costs as well – most WMS providers charge anywhere from 18% to 22% of the software license fee as a recurring annual support cost to keep the system current and rectify problems.

 

Solicit Feedback from Potential WMS Vendors

The cost of implementing WMS software can vary tremendously based upon factors like operational complexity, degree of customization, and user and site count. Experienced resources who have participated in multiple implementations over many years can often help estimate the general costs associated with the project. However, in order to get an estimate that is precise enough to satisfy most internal financial review processes, it is usually important to have dialogue on some level with actual WMS vendors. At this stage of the process, it is not usually advisable to embark on a full vendor selection study which can take many months of work. However, conducting an abbreviated “feasibility” analysis process can often be effective at this phase. The major steps to a feasibility analysis include:

 

Create a Challenging Functionality Matrix

In software implementations, the Pareto principle often applies: 80% of the problems are caused by 20% of the process requirements. In order to have any degree of confidence in a vendor’s costing quote, the vendor must be made well aware of “the 20%” and factor this into their pricing estimate. To facilitate this, list the processes which the company believes will be the most challenging for a new WMS to accommodate. This is not the full Detailed Process Specification, but a small subset of ten or twenty key process at most, which are expected to be most difficult to achieve from a software perspective. These are compiled into a small spreadsheet which lists them in a concise format, called the Challenging Functionality Matrix.  Next to each line item of functionality, vendors must indicate whether this feature is available as standard functionality, or whether it requires extensive configuration or customization to achieve.

 

Identify Vendors

The company next identifies five or six potential WMS vendors to share the Challenging Functionality Matrix with. If the company chooses to proceed later with a full WMS vendor selection process, they will not be limited to only use the five or six vendors chosen for the feasibility analysis. These vendors should represent a range of vendor types, from Tier 1 to mid-tier vendors, as well as specialty vendors who may have a focus on the particular industry type in question. It is important to understand the basic pricing and functional capabilities that each vendor can provide.

 

Vendors Complete the Challenging Functionality Matrix

Vendors review the Challenging Functionality Matrix and indicate where their software must be customized to accommodate this functionality. Vendors complete a Budgetary Request for Proposal and indicate approximate cost of their software with implementation. It is important to remember again that this is not a full WMS Vendor Selection Study. Vendors should spend no more than a couple of days completing this information, not the weeks of time which will be required later on.

 

Don’t Ignore Current Software

The same Challenging Functionality Matrix should also be distributed and reviewed with the support team for the existing software platform. If one of the options under consideration is retaining or upgrading this software, then it will be important to have an estimate of the cost and level of effort required to do this.

 

Stay tuned. The next blog in this series, Build the Business Case – The Sixth Step in Selecting the Right WMS, will outline how to compile a well-rounded business case which examines the various options which are available to a company. Can’t wait? Read the white paper, How to Choose the Right WMS – Part I: Distribution Center Process Optimization.

 

Related Blogs:

Getting to Know Your Distribution Center – The First Step in Selecting the RIGHT WMS

Define the Current State – The Second Step in a Proper Warehouse Management Selection Process

Define the Future State – The Third Step in Selecting the RIGHT WMS

Project Future Savings – The Fourth Step in a Proper Warehouse Management Software Selection Process

Project Future Savings – The Fourth Step in a Proper Warehouse Management Software Selection Process

By Ian Hobkirk | 12/08/2017 | 7:42 AM

IStock_74978461_SMALLBefore new warehouse management software (WMS) can be advocated, a company must first know the business implications associated with adopting it. This involves identifying and dollarizing the key areas where financial savings can be achieved.

Labor Savings

A key area where most companies cost-justify a WMS purchase is in direct labor savings. To this end, it is important to properly allocate labor, or, determine the amount of labor required to perform each task in the distribution center. There are many methods to do this. Perfect precision is usually not required here, so companies will generally not need to resort to engineered time studies at this stage. The goal is to determine in a typical day the number of man-hours required to execute each major type of transaction, based first on the current state processes.

Then, in the same manner that labor was allocated to current processes, labor also needs to be projected for the future processes. The same spreadsheet approach is often sufficient here as well. Estimate the amount of future labor which is required to execute each task. Sometimes it can be helpful to model pick travel paths and assess the amount of labor required in a typical day with the new processes compared to the old. Some third-party pick-path modeling tools are available that can construct a rudimentary model of this data that is less precise than a true time-study, but more than sufficient for these purposes.

Estimated labor savings can often be “sanity checked” by looking at industry benchmarks in areas which lend themselves well to comparison across companies, such as “lines picked per hour per worker.” Projected savings from process re-engineering can be compared to typical productivity rates which other companies have realized, and a realistic estimate of labor savings can be achieved.

Accuracy Savings

It is also important at this stage to try to quantify the savings which can be achieved from improved customer service. What is the true cost to rectify a miss-shipment? How often do these errors lead to lost business? If a company ships to major retailers, how much do they spend annually on charge-backs due to non-compliant shipments?

Space Savings

A less common area where WMS systems can lead to operational savings is in the area of space utilization. WMS systems can help companies improve their slotting and “right-size” bins in the warehouse. This can often lead to compressed storage footprints and more efficient use of space. Under some circumstances, it makes sense to include space savings in the financial justification for a new WMS. In my opinion, however, these savings should only be included if (a) they are directly attributable to the new WMS, and not some other technology, and (b) the space which is saved can be directly monetized, i.e. by reducing the need to pay for outside storage space or delaying a facility expansion.

Inventory Savings

A case can also be made that WMS system can help reduce inventory in some instances. Often the additional data that a WMS can collect on handling steps and the number of times a product is touched during its lifecycle in the distribution center can be used to raise awareness of true inventory carrying costs and can help build the case for more efficient inventory management processes. All of these factors must be taken into account for each area of the warehouse which is being considered. The output of this step is a projected annualized operational savings for each category.

Other Financial Considerations

Of course, not all companies deploy new WMS systems with the primary goal of achieving operational savings. Other common reasons for implementing a WMS include:

  • Scalability: Enabling new processes which will allow the company to grow more quickly than otherwise would be possible.
  • Revenue growth: A new WMS system may allow the company to offer new services such as e-commerce distribution which would have been difficult to do without technology.
  • Supportability: Many companies may have functioning WMS systems that support the business needs, but which are legacy systems that are no longer easily supportable. They may have been internally developed, and the resources who understand the code base and architecture may be growing fewer every year. Implementing a new WMS may be critical to an ongoing risk-mitigation plan.

While these other considerations may be harder to “dollarize,” they should be factored into the financial justification for a new WMS in some way.

Stay tuned. The next blog in this series, Estimate Implementation Costs – The Fifth Step in Selecting the Right WMS, will outline how a company can determine how much they should invest to achieve the projected savings. Can’t wait? Read the white paper, How to Choose the Right WMS – Part I: Distribution Center Process Optimization.

Related Blogs:

Getting to Know Your Distribution Center – The First Step in Selecting the RIGHT WMS

Define the Current State – The Second Step in a Proper Warehouse Management Selection Process

Define the Future State – The Third Step in Selecting the RIGHT WMS

Define the Future State – The Third Step in Selecting the RIGHT WMS

By Ian Hobkirk | 11/02/2017 | 1:53 PM

IStock_000079193459_XXXLargeWarehouses depend on optimized business processes to ship product out on time and with a minimal amount of labor cost. Perhaps nowhere else in an organization are business processes more unique to a company than within the four walls of the distribution center. This is why designing the processes which will be used in the future state of the distribution center is key to selecting the right WMS, and both an art and a science.

This blog series, “How to Choose the Right WMS,” outlines the steps of a proper WMS selection process. This post explains step three of this process, "Define the Future State."

Data Analysis

The solution to certain process issues may seem obvious; in other cases, further research must be done to identify the best way to rectify problems. A review of summary operational data is usually warranted at this stage. For example, in order to determine if a company should implement high performance distribution processes like cluster picking or batch picking, the company must thoroughly analyze key order metrics such as average lines per order, line item commonality, and pick-to-put ratios. Only then can complex solutions be properly evaluated.

Benchmarking

Conducting a basic benchmarking assessment early on is a good way to determine the level of improvement which may be attained, and the degree to which processes should be re-designed. Companies that are already best-in-class in many categories may decide to only make minor modifications to their processes rather than the riskier wholesale re-engineering that laggard companies may need to do. Companies should list the important metrics which define success in their distribution center, and then research how their performance compares to that of other companies.

The Value of Outsider Perspective

It can be immensely helpful at this stage to gain some outside perspective into what best-in-class companies are doing to address similar situations. Supply chain consulting firms can have a tremendous breadth of experience from seeing hundreds or thousands of other distribution operations. Experienced advisors can help with the all-important task of separating what is possible from what is practical. There are numerous sources where lists of industry “best practices” can be found. However, not all companies need to implement best practices in all areas of their operations. To do so may be prohibitively expensive, and may not be cost justifiable in all situations. Experienced advisors can help sort out the changes which make the most sense for a given operation. 

Perform Future Visioning

As important as it is to properly define and re-engineer the current business processes, failing to take into account future changes can hamstring an organization for years to come. To properly assess the potential impact of these changes, it is important to conduct a Future Visioning Session. Attending this session should be the entire Project Steering Committee, the Executive Sponsor(s), and C-level executives from various functional areas who are involved in long-term business planning. Some of the key questions which should be asked during the Future Visioning Session are:

  • What levels of organic growth are projected?
  • What will be the nature of this growth? Will it involve greater sales of the same SKUs to the same clients? Greater sales of the same SKUs to new clients? Greater sales of new SKUs to new clients?
  • Are there other sales channels the company is exploring? Will the company begin to sell to larger retailers with vendor compliance mandates? Is the company planning to begin or ramp-up a direct-to-consumer channel?
  • What is the trend with regards to order profiles? Are customers placing smaller, more frequent orders?
  • To what extent does SKU proliferation affect the enterprise?
  • Is the company contemplating any mergers or acquisitions that will have a material impact on the operation?
  • Is the company planning to target new geographic markets?
  • Is the company planning to source product differently?
  • What pending regulatory changes will affect the operation?


The operations group must then consider the potential impact of any of these changes on the distribution center processes. The key changes anticipated in the Future Visioning Session should then be incorporated into the Detailed Process Specification, Future State.

Create the Business Process Review Committee

Once the data analysis, benchmarking and future visioning have been performed, and outside perspective has been obtained, it is time to start the work of designing the new processes. A vital first step here is to create the Business Process Review Committee. This group should be made up of executives, managers and supervisors, and at least some of the rank-and-file workers who will be responsible for actually using the new processes. Executives can often bring vital perspective to the table: rather than thinking in terms of “this is how we’ve always done it,” some executives or even managers and supervisors may have experience with best practices at other companies and can help the group understand other ways of doing things. It is also vital that the workers themselves feel vested in the process. It will not be possible to please everyone with every process design, but if workers are genuinely listened to and made a part of the process, then they will tend to be more supportive of the changes, even if some of the new processes are not designed exactly as they would have chosen.

Create the Detailed Process Specification, Future State

Using the same spreadsheet format as for the current state documentation, re-create the business processes as they will occur in the future state.

  • Re-design inefficient process
  • Leave good process intact

If the exceptions to the rules have been thoroughly accounted for when defining the current state, then they can serve as a useful guide to ensure that nothing has been overlooked when designing the future state. When the documentation is complete, each step should be reviewed, discussed, and approved, line-by-line, by the Business Process Review Committee.

Determine Integration Strategy

Thus far, this phase has primarily involved operational resources. However, once the operational requirements have been defined, it is important to involve the IT group to begin to map out the more technical characteristics of the solution which is pursued. The IT group will be responsible for integrating the new software with the company’s existing software systems, as well as maintaining and supporting the solution internally. WMS systems must often interface with a number of different host systems, including ERP, MRP, POS, TMS, and accounting software, as well as any material handling control systems like Warehouse Control Software (WCS) and Warehouse Execution Software (WES) systems.

Related Content: WMS vs WCS – Sorting out the Truth from the Hype

Some of the key questions for the IT group to consider at this phase of the project are:

  • What operating system is preferred? (Windows, Unix, I-series, etc.)
  • What deployment architecture is desired? (Client-server, Web-based, Software-as-a-Service, etc.)
  • What database is preferred? (Oracle, DB2, SQL, etc.)
  • Does the IT group desire a solution with open source code to allow them to make extensive modifications? (many WMS companies do not allow this)
  • Is the IT group ready to take on the task of creating a series of interfaces between their host systems and a 3rd-party WMS? How much effort do they feel this might entail?
  • What other IT projects are scheduled for the next 24 months which may divert resources from this project?
  • Does the IT group prefer to implement a WMS which is a module of their ERP system in order to minimize the amount of interface work that is required?
  • How will the system ultimately be supported? Will the IT group take responsibility for creating new workflows as these are needed, and making code changes when required? Or will they depend on the WMS provider or third-party integrator to perform these tasks?

Building Bridges Early

Many companies experience a significant disconnect between the IT and Operations department, and this disconnect can create problems during a complex software implementation. Bridging some of these gaps early in the process can be vital for the future success of the project. Involving the IT groups up-front in this phase is a good way to achieve this internal cohesiveness.

 

Stay tuned. The next blog in this series, Project Future Savings – The Fourth Step in Selecting the Right WMS, will outline how to identify and dollarize the key areas where financial savings can be achieved with WMS. Can’t wait? Read the white paper, How to Choose the Right WMS – Part I: Distribution Center Process Optimization

Related Blogs:

Getting to Know Your Distribution Center – The First Step in Selecting the RIGHT WMS

Define the Current State – The Second Step in a Proper Warehouse Management Selection Process

Define the Current State – The Second Step in a Proper Warehouse Management Software Selection Process

By Ian Hobkirk | 10/01/2017 | 10:24 PM

IStock-629296842The selection of a suitable Warehouse Management Software (WMS) system is a key objective for many companies today. Properly fitting the correct software solution to the operation is critical, more so than for many other types of software. Perhaps nowhere else in an organization are business processes more unique to a company than within the four walls of the distribution center.

As I have seen, the majority of sub-optimal WMS implementations can be traced to a failure to properly define operational requirements up-front in the race to get a solution implemented. This blog series, “How to Choose the Right WMS,” outlines the steps of a proper WMS selection process. These steps make it easier to not only identify the right WMS – they also form a foundational framework for your WMS project that can save time and mitigate risk during implementation.

Step two, “Define Current State,” involves documenting the learnings from step one, “Discovery,” in a way that allows them to be used in subsequent phases. The detailed descriptions of operational requirements serve as the foundational building blocks which are used in numerous aspects of the project, right through software go-live, including: developing a Request for Proposal (RFP) for software vendors, ensuring functional alignment during implementation, developing and executing test scripts, developing and implementing a training program, and performing mock go-lives and data conversion.

Related Blog: Getting to Know Your Distribution Center – The First Step in a Proper Warehouse Management Software Selection Process

USE FLOW CHARTS JUDICIOUSLY

Many companies choose to use flow-charts to document their business processes. Flow-charts can provide very useful representations of the interrelationship of process steps and decision points at a high level. However, it is important to acknowledge that there are also many limitations to flow charts. Flow charts cannot easily represent granular details of how processes work: when too much detail is input into a flow chart, it becomes busy, hard to follow, and requires a very large piece of paper if the flow chart is printed!

Flow charts make very poor living documents. Many of the people who need to review and interact with the flow charts may not be proficient in using the flow charting software, and when processes must be added or modified, it can be challenging for multiple users to try to format the various bubbles, shapes, and arrows in a consistent way.

It is fair to point out that a purely text-based narrative of an operational process flow can also have limitations and may be hard to follow. Relationships between steps and logic branches can be hard to describe. Many companies find that the right balance here lies in creating a general outline of the major processes and logical branches using a flow chart with numbered boxes. Then, a more detailed text-based write-up can be created which references the flow chart and uses a consistent numbering scheme.

CREATE THE DETAILED PROCESS SPECIFICATION, CURRENT STATE

Because of the need to re-use these process descriptions for so many purposes, I firmly believe that they must be documented in a format that lends itself well to editing, evolving, and re-purposing. I have had good experience using a spreadsheet format where every detail of each step is assigned to a line on the spreadsheet. Most business workers have some degree of proficiency in using spreadsheet applications, and spreadsheets can be easily supplemented or modified without the need for extensive formatting changes. Spreadsheets can also be more readily adapted for other purposes (such as the creation of test scripts) when compared to flow charts or other types of documents. I recommend that the following tasks be performed when defining the current state:

Create detailed descriptions of current processes using a Detailed Process Specification spreadsheet:

  • Standard processes: Define the “normal” ways that the processes work 80% – 90% of the time.
  • Exception processes: Define all of the various “exceptions to the rule” which take place. Where most WMS systems end up having functionality gaps is usually in the area of exception handling, so it is vital that these be properly documented.
  • Common operator errors and resolution paths: Define the most common mistakes which currently are made in the distribution center, and the paths which are followed to resolve these today.

Review current processes and flag discussion items:

  • Line-by-line audit: This audit is typically performed offline by process owners with a high degree of detail.
  • Approval required by each business process owner: Each process owner must initial each line item on the Detailed Process Specification spreadsheet, and indicate either their agreement with it, or specify any changes or corrections which must be made.
  • Discussion items are flagged: Any areas requiring further discussion are highlighted and flagged.

Review processes and finalize the Detailed Process Specification for current state:

  • This step takes place in a group setting in a conference room. All discussion points which were flagged in the offline process reviews are discussed in a group, and the group agrees on the final wording of descriptions for each step.

NOTICE INFORMATION FLOW

 

As this process unfolds, it is important to pay special attention to the manner in which information flows to and from users:

  • Do users have to read data off of a paper document?
  • Must they look it up in a fixed computer terminal?
  • Is it available on a wireless mobile device?
  • Do users confirm tasks visually?
  • Do they make written notes?

Be sure to capture the work behind the scenes if administrative staff have to key data into software systems after the warehouse work is done. Once the Detailed Process Specification spreadsheet is complete, revisit the exceptions again! Circulate the document to key staff members and ensure that no exception, no matter how small, has been left off.

 

Stay tuned. The next blog in this series, Define the Future State – The Third Step in a Proper Warehouse Management Software Selection Process, will outline how to design the processes which will be used in the FUTURE state of the distribution center. This is one of the most critical phases of the entire process. Can’t wait?  Read the white paper, How to Choose the Right WMS – Part I: Distribution Center Process Optimization.

 

Getting to Know Your Distribution Center – The First Step in a Proper Warehouse Management Software Selection Process

By Ian Hobkirk | 08/13/2017 | 3:34 AM

IStock_000067146697_MediumPerhaps the most important way to ensure a successful Warehouse Management Software (WMS) project is to begin by thoroughly understanding the operational requirements. This may sound like a self-evident statement, but most failed WMS implementations can be traced back to a team of project leaders who only had a surface-level understanding of the needs of the distribution center, and were either unwilling, or unable to do the hard work of digging into the details of how things really work on the “other side of the wall.”

 

It is appropriate, therefore, that our first step in the process of selecting a new WMS begins with “Discovery” – or, in some cases, “re-Discovery” of the day-to-day requirements of the distribution center.

 

An effective discovery process consists of the following tasks:

 

1. Kickoff Meeting: This involves assembling all key stakeholders to review the project tasks, timetable, and roles and responsibilities. Another key component of the project kickoff is a thorough “future visioning session” to document the various changes which could impact the business over the lifecycle of the software system which is being selected.

 

2. Personnel interviews: These interviews are often most effective when conducted in an organized way in a conference room as opposed to on the warehouse floor, where notes can be more easily taken and through documentation can be created.  The following key staff members should generally be interviewed:

 

    • Warehouse manager
    • Receiving manager
    • Shipping manager
    • Transportation/logistics manager
    • Inventory control
    • Manufacturing/production manager (if applicable)
    • Procurement/purchasing

3. Detailed Process Observation: This task involves taking the detailed descriptions of processes from the interview stage and comparing them to how the processes are observed to work in the distribution center. This task involves actually watching processes like picking and packing, and sometimes following an inbound and outbound order through its lifecycle in the warehouse. This observation often affords an opportunity to talk to workers who may have additional details of how processes work, and exceptions to the rule which must be accommodated by the software.

 

4. Document IT architecture and infrastructure: This task involves discussing the various software systems in use and their relationships to each other. It is important to document which systems and versions are in use, and what key functionality is handled by each. Interface points should be mapped (what data elements are exchanged between systems, how frequently, and in what format). Preferences that the IT group may have for databases, programming languages, and operating systems should be noted.

 

5. Analyze operational data: This task involves reviewing key operational data and identifying patterns which will help in subsequent steps when improved processes must be designed. Key data reports which are often reviewed at this time include:

 

    • Outbound order volumes, average and peak
    • Typical order profiles by order type
    • Typical inbound purchase order profiles

Subsequent blogs will outline the steps that follow Discovery in a proper WMS selection process.

Better Transportation Management: Three Factors that can have a Big Impact

By Ian Hobkirk | 01/27/2017 | 6:16 AM

Private: Better Transportation Management: Three Factors that can have a Big Impact

January 27th, 2017

 

For many companies, better transportation management is an area of significant savings potential.  While there are dozens of ways to attack transportation cost reduction, this blog focuses on three factors that can have the biggest positive impact on a company’s ability to manage freight:

 

  • Improved ability to source competitive rates from carriers
  • Improved ability to optimize loads,
  • Improved ability to more easily select the right carrier for each load

This blog will discuss these three factors and highlight areas where companies have used improved processes and enabling technology to reduce rates and improve service levels.

 

Carrier Contract Procurement

Managing the carrier bidding process can be a daunting proposition – so daunting that many companies do it infrequently or simply rely on spot rates. Why is rate procurement so challenging for many companies? To begin with, the sheer volume of data to be managed can be intimidating. Companies must first analyze their historical freight spend, scraping together what data they have from freight bills and their internal systems. They must then identify trends and make predictions for future business levels in various regions. Then, they must take this massive forecast and transmit it to dozens of carriers for bidding…and for many firms, the hard part hasn’t even begun yet.

 

When the bids are received, comparing and analyzing them all can test the limits of many data analysts’ abilities. Most companies logically strive for uniformity amongst bids – the proverbial “apples-to-apples” comparison. While a uniform comparison is vital when analyzing multiple bids, it can often stifle the carriers’ ability to offer creative discounts. When carriers offer to drop rates when certain lanes can be bundled together, or create other conditional scenarios, a shipper needs to be able to weigh these possibilities against other bids. Spreadsheets are often stretched thin when it comes to these tasks.

 

Many companies have found that the solution lies with bid management tools. These tools are sometimes – but not always – contained in their company’s Transportation Management Software (TMS) system. Newer TMS systems often have web-based user interfaces to manage the requesting and submitting of bids. TMS providers who offer their solution in an “on-demand” format often have access to a rich database of rates, since all of their users manage loads on the same server. Some of these TMS providers have begun offering “community bench-marking” services to help identify situations where all of the carriers may have bid high on some lanes. They can even suggest alternate carriers who may be able to offer lower rates than the core bidders.

 

One area where many TMS providers can lag behind however, is in the ability to offer so-called “expressive bidding” capabilities to carriers. This technology still largely falls in the domain of Online Procurement software providers. These companies offer web-based bid management tools that allow carriers to submit “if/then” statements that relate to specific conditions under which they can offer discounts; if the shipper is willing to meet the conditions, their price structure will change. Online Procurement providers also offer the ability to analyze these expressive bids side-by-side with bids from other carriers and play “what if?” When complex scenarios can be evaluated and compared with other bids, then the balance between uniformity and creativity is reached and the shipper benefits.

 

Trans Blog

 

 

Load Optimization

For many traffic departments, transportation execution means simply selecting the best carrier and effectively tendering loads. Little in the way of true dynamic load optimization takes place on a day-to-day basis. The reason? Dynamic load optimization with manual tools is only possible when shipment volumes are low enough for shipping analysts to examine each load on a case-by-case basis. High-volume optimization requires the use of a complex analytical engine usually found only in the optimization module of a Transportation Management Software system. There are four key types of load optimization that most companies contend with:

 

MODE OPTIMIZATION

Many companies rely on basic rules of thumb such as weight cutoffs to determine when a load gets shipped via a parcel, LTL, or truckload carrier. However, while these rules may be correct eighty or ninety percent of the time, there are still a high number of instances where a sub-optimal mode gets selected. The only effective remedy is the ability to dynamically rate shop multiple modes and carriers for every load. Only then can the complexities of each carrier contract be taken into account, and regional anomalies be considered.

 

CONSOLIDATION OPTIMIZATION

As shipment volumes creep up, it can become more challenging to identify and combine multiple loads which are scheduled to ship to the same destination on the same day. It can be even more difficult to identify shipments scheduled to ship on the following day to the same destination, and determine if they can be pooled while still meeting the customer service objective. A robust TMS – relying on accurate data entered in the Order Management System – can often identify these shipments and weigh the cost/service tradeoffs.

 

POOL-POINT OPTIMIZATION

When companies have a number of suppliers in some distant region, it may make sense to pool inbound loads in a remote location and then make a full truckload shipment to their final destination. In this instance, even more complex decisions must be made as to when it makes sense from a cost and service perspective to follow this strategy. TMS systems equipped with a load optimization module can perform pool point optimization based on pre-defined business rules.

 

MULTI-STOP TRUCKLOAD OPTIMIZATION

This form of optimization creates loads where a single truck can leave a distribution center full, and make multiple deliveries. While multi-stop truckloads often can save money, they can be very challenging to create. How much can fit on a truck before it is full? How long will it take to make the multiple stops, and will each load arrive on time? Are the savings worth the complexity? Only an advanced optimization engine can weigh these decisions in a high volume environment. Not all TMS systems offer this functionality, and those that do must have the system fine-tuned to accommodate each company’s business rules.

 

Carrier Selection & Tendering

The remaining steps in a winning transportation management strategy are selecting the best carrier for each shipment and tending the load to that carrier. However, without the ability to rate-shop against multiple carriers, and to manage a tiered tendering system, companies tend to rely on rules of thumb to prioritize carriers in particular regions. The process can get complicated when the primary carrier is unable to accept a load, and secondary carriers must be used. Furthermore, the staff members responsible for selection and tendering may be influenced by outside factors – they may prefer to give loads to carriers that they have a personal relationship with, or they may avoid rating loads with multiple carriers simply due to the time required to do so.

 

Without the ability to easily rate loads against electronic contracts, the traffic department spends much of its time calling carriers, getting quotes, and then calling back the “winning” carrier to tender the load. The result is a traffic group mired in mundane, repetitive transactions, and unable to focus on improving efficiencies.

 

A TMS can rapidly rate each load against an electronic rate table and determine the first, second, and third choice carriers for each. This ranking can be based on pre-defined business rules rather than an employee’s personal affinity for a particular carrier. In this way, a company-wide transportation program can be executed against, even if there are many facilities planning loads. Additionally, more advanced criteria can be used to select carriers other than simply the lowest cost. For example, to achieve optimal rates, a shipper may have had to make certain capacity commitments to carriers in specific lanes. An advanced TMS can monitor performance against these commitments and direct loads to lanes where the shipper may be falling behind.

 

When it comes to load tendering, an effective TMS system can work wonders to reduce the administrative workload of the traffic department. Rather than getting bogged down in a cycle of voice mails and call backs, the TMS can be set to automatically tender loads using defined procedures. For example, the load can be tendered to the first-choice carrier, and if that carrier rejects the load, it is then tendered to the next carrier in succession and so on. Alternately, a load can be “blast tendered” to multiple carriers at once, and the first responder receives the load. When capacity is severely constrained, many TMS systems offer spot bidding capabilities, where shippers can post loads on a spot board and carriers can bid on it.

 

A key to making these tendering processes work is effective electronic carrier communications. A growing number of carriers are able to communicate via EDI, using direct system-to-system communication. However, for many shippers, their best rates come from smaller carriers who are unable to use EDI. For these, web portal communications can be the best way to interact. Loads are auto-tendered via email, and the carrier clicks on a link within the email to view the load and respond. Responses are keyed directly into the TMS by the carrier themselves, eliminating manual data entry and decision making by the shipper.

 

Other Areas to Target

In addition to the three largest areas discussed in this blog, many companies have experienced significant cost reduction by targeting other areas such as: 

  • Improving tracking and tracing of shipments (improving customer service levels and reducing administrative load)
  • Improving visibility of inbound loads (leading to distribution optimization and improved fill rate)
  • Improved ability to audit and pay freight bills (leading to reduced freight spend and administrative costs)

Trans Blog 2

 

 

 

« 10 Ways to Achieve E-Commerce Distribution Success, Part 10 of 10 - Improve Wave Management

By Ian Hobkirk | 10/17/2016 | 6:05 AM

By Ian Hobkirk
Managing Director of Commonwealth Supply Chain Advisors

Under increasing pressure to work faster, better, and smarter in today’s omni-channel and e-commerce business environment, companies need help getting their distribution operations up to speed with customer demands and expectations. To help, Commonwealth Supply Chain Advisors has identified 10 key tactics that successful companies are employing in order to make a graceful transition to higher levels of e-commerce in the distribution center.

 

In Parts 1 through 4 of this ten-part blog series, I covered the four Basic Tactics: Create a Forward Pick Area, Setup Effective Replenishment, Determine Overall Pick Strategy and Determine the Optimal Pick Methodology. Parts 5 through 7 focused on the Intermediate Tactics: Practice Real-Time Warehousing, Optimize Packing, and Manage Parcel Shipments Effectively. Parts 8 and 9 covered the first two Advanced Tactics: Pick-to-Shipping Container and Goods-to-Picker Systems. This blog, the final blog in our 10 part series, is about improving wave management, the third Advanced Tactic.

 

 

TACTIC #10: IMPROVE WAVE MANAGEMENT

The forms of material handling automation covered in Part IX can create tremendous labor savings in the order picking process, largely through the creation of very large pick waves. Rather than accessing the same pick face several hundred times to pick a fast moving item, the entire supply of that item may be picked at one time and then separated by order using either a manual put-to-store process, or automated unit sortation technology such as a tilt-tray, cross belt, or bomb-bay sorters. These processes and technologies can contribute to ultra-high pick rates, but can sometimes create an unintended consequence.

 

Cluster picking and batch picking work best when a large pool of orders is built and combined into a pick wave. These large waves can take a long time to pick – sometimes several hours. This can have an impact on a company’s order cutoff time – the latest time a consumer can place and order and expect it to ship the same day it is placed. Order cutoff time is a function of the parcel carrier’s last pickup time, and the total order processing time. With a four-hour wave-pick processing time and a parcel pickup time of 7:00 PM, a company must have an order cutoff time of around 1:30 PM.

 

By having such an early cut-off time, a company may place itself at a disadvantage compared to its competitors who may be smaller in size but able to offer later cutoffs. Furthermore, they may miss an additional opportunity to up sell consumers by offering faster service for an expediting fee. If the company had a way to quickly process a smaller percentage of orders and pick them faster, the company might be able to offer later cutoff times for those orders where an additional fee is paid, but keep the same standard cutoff time for non-expedited orders. The challenge with this strategy in a highly automated system is that in many cases, the entire large pick wave must first be processed before any additional orders can be processed.

 

“Wave-less” Picking and Other Variations

In recent years, advances in wave management have allowed for the ability to dynamically insert high-priority orders into a large wave without having to wait for wave completion. This capability is sometimes referred to as “wave-less” picking, since the traditional concept of a pick wave is altered considerably with this approach. It should be pointed out that with this concept, the benefits of picking in large waves – grouping similar orders together and picking SKUs in bulk – are still preserved. However, a much greater level of flexibility is available to allow orders to be prioritized on the fly without waiting for a wave to complete. There are also overall efficiency benefits, as the wave ramp-up and ramp-down periods – with accompanying productivity declines – can be smoothed out.

 

This concept has been largely pioneered by developers of warehouse control software (WCS). This software acts as middleware between a WMS and the machine-level controls of the material handling system. It manages the orders in a particular wave and directs the picking process and manages the material handling equipment (MHE). This capability – while not inexpensive – can sometimes be implemented without replacing either the MHE or WMS in the distribution center.

 

 

It’s Time to Hone Your E-Commerce Distribution Strategy

This concludes our series on e-commerce. The proliferation of e-commerce affects all companies across the entire consumer goods supply chain, whether they are large or small, manufacturers or retailers. Even if a manufacturer has not chosen to develop their own e-commerce channel, it may be driven into the fray by having to fulfill e-commerce orders on behalf of their retail customers. With proper foresight and the courage to take the first few steps, companies can embrace e-commerce as a competitive differentiator that can drive higher profits and ensure that the enterprise is well positioned for the future.

 

Related Reading: Whitepaper: “E-Commerce in the Distribution Center, Making a Graceful Transition.”

10 Ways to Achieve E-Commerce Distribution Success, Part 9 of 10 - Employ Goods-to-Picker Systems

By Ian Hobkirk | 10/05/2016 | 7:14 AM

October 5th, 2016

Under increasing pressure to work faster, better, and smarter in today’s omni-channel and e-commerce business environment, companies need help getting their distribution operations up to speed with customer demands and expectations. To help, Commonwealth Supply Chain Advisors has identified 10 key tactics that successful companies are employing in order to make a graceful transition to higher levels of e-commerce in the distribution center.

 

In Parts I1 through 4 of this ten-part blog series, I covered the four basic tactics: Create a Forward Pick Area, Setup Effective Replenishment, Determine Overall Pick Strategy and Determine the Optimal Pick Methodology. Parts 5 through 7 focused on the Intermediate Tactics: Practice Real-Time Warehousing, Optimizing Packing, and Manage Parcel Shipments Effectively. Part 8 embarked on the first of the three Advanced Tactics: Pick-to-Shipping Container and this blog, part 9, explores Goods-to-Picker Systems as the second Advanced Strategy.

 

 

TACTIC #9: EMPLOY GOODS-TO-PICKER SYSTEMS

Eventually, if piece-pick requirements increase to a certain level, then goods-to-picker systems may make sense as a means of reducing pick labor (and improving space utilization). While good cart-based systems can produce pick rates of between 100 and 200 lines per hour, goods-to-picker systems have been known to allow rates of 400–600 lines per hour.

 

Goods-to-picker systems are available as many different forms of technology. A company’s choice of a system should be driven by:

 

•    Throughput requirements

•    Product makeup

•    Order profiles

•    Space requirements

•    Budgetary limitations

•    Flexibility needs

 

Some of the major forms of goods-to-picker systems include:

 

Horizontal Carousels

These systems produce very high pick rates but are not as space-effective as other technologies. Creative use of mezzanines and lift tables can extend the working height of these systems and make better use of cube. Successful horizontal carousel systems require that multiple units be grouped in a pod, where a single picker works multiple machines at the same time. This necessitates the use of sophisticated software to plan and execute each batch of orders that are picked. Unfortunately, over the last several decades, the mechanical designs of horizontal carousels evolved at a faster rate than the requisite software capabilities, and as a result many horizontal carousels systems were installed in the 1980’s and 1990’s, which failed to meet expectations. Some supply chain executives have a bad taste in their mouths from this situation; these individuals can take comfort in the improved software capabilities that have arisen in recent years. There are many, many examples of successful systems in a wide variety of industries.

 

Vertical Carousels     

Vertical carousels typically do not produce the same high pick rates as their horizontal cousins, but can still often exceed rates from cart-based systems. Vertical carousels excel when space utilization is the dominant design factor. The full height of a building can be typically utilized for storage while the picker remains on the floor level. Like horizontal carousels, software and system design are key to ensure that operators can pick from multiple units at the same time. It is also important that the parts stored in vertical carousels be somewhat uniform in size and height.

 

 

Vertical Lift Modules

From the outside, Vertical Lift Modules (VLMs) appear very similar to vertical carousels, but their operation is very different. A big advantage that VLMs have in this case is their ability to accept items of varying sizes and heights. VLMs are not quite as space efficient as vertical carousels due to the large extractor shaft in the center of the unit as well as lost space from the access window, but these disadvantages start to lessen as storage heights increase. Like vertical carousels, VLMs should be considered in areas that are space-constrained.

 

Automated Storage and Retrieval Systems (AS/RS)

AS/RS is an entire category of its own, and comprised of a variety of products which each work slightly differently. The major categories include pallet-handling and case-handling systems, with many varieties even within these categorizations. Common characteristics involve an extractor device of some kind retrieving a load and bringing it to an operator for picking.

Related Reading on how AS/RS can save space: “Six Ways to Postpone Your Warehouse Expansion.”

 

In the next and final installment of this ten-part blog series we’ll discuss the third Advanced Topic: Improve wave Management.

10 Ways to Achieve E-Commerce Distribution Success, Part 8 of 10 - Pick-to-Shipping-Container

By Ian Hobkirk | 10/05/2016 | 5:16 AM

10 Ways to Achieve E-Commerce Distribution Success, Part 8 of 10 – Pick-to-Shipping-Container

September 28th, 2016

Under increasing pressure to work faster, better, and smarter in today’s omni-channel and e-commerce business environment, companies need help getting their distribution operations up to speed with customer demands and expectations. To help, Commonwealth Supply Chain Advisors has identified 10 key tactics that successful companies are employing in order to make a graceful transition to higher levels of e-commerce in the distribution center.

In Parts 1 through 4 of this ten-part series, I hit on the four basic tactics: Create a Forward Pick Area, Setup Effective Replenishment, Determine Overall Pick Strategy and Determine the Optimal Pick Methodology. Parts 5 through 7 focused on the Intermediate Tactics: Practice Real-Time Warehousing, Optimize Packing, and Manage Parcel Shipments Effectively; with this blog, part 8, we embark on the first of the three Advanced Tactics: Pick-to-Shipping Container.

 

 TACTIC #8: PICK-TO-SHIPPING-CONTAINER

 

As discussed in Tactic #6 (Part VI – Optimize Packing), picking to the shipping container can greatly reduce handling requirements in the packing area. In order to execute on a strategy like this, there are several pre-requisites:

  1. Accurate product dimensions and weight must exist
  2. Scan-verification at time of picking must take place
  3. A cartonization system must be used to calculate the correct size shipping container
  4. A capable WMS system must be in use

 

Product Dimensions

For companies with a large number of SKUs available for e-commerce orders, capturing the measurements of each item can seem like a daunting task. However, automatic cubing devices can greatly speed this process. An automatic cubing device uses ultrasonic technology to ascertain the dimensions of an item. An operator places the item on the cubing device, presses a button, and within seconds, the length, width, height, and weight of the item are captured.  A SKU number is entered (or scanned from a bar-code), and the information is recorded in a database.

Image Source: Cubiscan

 

Using this technology can be a fast and accurate way to capture cubic dimensions of items. A variety of such devices are available, so companies should choose carefully. Minimum and maximum product size plays a role in device selection, as does the frequency of irregular parts (items that are not shaped like a rectangle). Cubing devices can usually be purchased or rented for short term engagements.

 

In high-inventory-turn environments, many companies find that an effective approach to cubing is to capture the cube of all inbound product at receipt, when it must be handled anyway. Then, after the bulk of the SKUs have been cubed, the remaining items are cubed as needed by selecting them from their bin locations.

 

Even with cubing technology, the effort is still very labor-intense, as ultimately, each SKU in the DC must be handled. In view of this, careful planning should go into the effort to ensure that all of the necessary data is collected. It is vital to distinguish between different pack sizes of the same item. For example, an item may come in a pack size of three. It is important to know if the unit of sale in this case is one or three. If the saleable unit is at the “each” level, then the box must be opened and the individual unit cubed. If the unit is sold in multiple pack sizes, it can be helpful to capture each individual pack size separately. In some cases, vendors may be able to provide data on product dimensions, but the same care must be exercised to ensure that the pack-size issues are communicated properly.

 

Although time-consuming, gathering cube data can be extremely useful for a number of distribution initiatives, including:

 

  • Picking to the shipping container
  • Slotting
  • System-directed put-away
  • Check-weighing
  • Pre-manifesting

 

Related Content: Planning a Warehouse Layout with Imperfect Data

 

In the next installment of this ten-part blog series we’ll discuss the second of the three Advanced Tactics: Employ Goods-to-Picker Systems.

 

 

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Ian Hobkirk

Ian Hobkirk

Ian Hobkirk is the founder and Managing Director of Commonwealth Supply Chain Advisors. Over his 20-year career, he has helped hundreds of companies reduce their distribution labor costs, improve space utilization, and meet their customer service objectives. He has formed supply chain consulting organizations for two different systems integration firms, and managed the supply chain execution practice at The AberdeenGroup, a leading technology analyst firm.



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