Logistics projects – the ‘right’ objectives

ZielscheibeWelcome to part 2 of our series on success factors, challenges and pitfalls of logistics projects. Like we mentioned in the first part (logistics consultants), every project begins with a definition of its objectives.

In most cases, people start discussing performance figures such as the number of SKUs, stock turnover, throughputs, costs per pick, etc. way too early. It’s true that these numbers become relevant during the project, and some even at the beginning. But oftentimes, these logistical figures, if discussed prematurely, only obstruct your view of the real business goals.

Asking the right questions

Do you know which articles or categories are going to be your bestsellers in 3 or 5 years? How is the volume of sales going to change over the next 2 years, is it going to rise by 5%, maybe 15%, or is it even going to drop by 10%? Which services and delivery schedules are your customers going to expect from you in 4 years? How is your inventory going to look like in 3 years, the same as today or perhaps twice the size? Or will it still have the same volume, but turn over more often each year, partly or entirely? Which are your future sales channels and what is their share in overall sales going to be, and how much uncertainty comes with this projection?

Answering these questions helps you in two ways. First, you will be able to check whether your logistical performance indicators match your company’s long-term objectives and business strategy. Because the performance indicator “stock turnover”, for example, is not going to help you if the “rate of change of the inventory” is of much larger concern for you.

Second, by sticking closer to your company’s objectives, you’ll be able to recognize where target corridors come into play, and to what extent. This, by the way, does not mean that you should aim at the highest possible value for each indicator when planning a new distributions centre. This would be unaffordable and utterly unrealistic. Instead, you should make sure that the chosen solution is able to get you into the target corridor. At the same time, the necessary adjustments should be manageable and affordable, which is most likely if you incorporated them into the concept at an early stage.

Get ready for some honesty now: Flexibility comes with a price tag! A facility or a system, that has been optimised to operate at a certain level of throughput, also causes “optimal” costs. On the other hand, a system with a lot of inbuilt flexibility will cost significantly more. But, and this is another advantage of defining the objectives of the project with regard to your business, you will be able to assess accurately where you need flexibility and what you are willing to pay for it. And if you specify this in your bid invitation, you are going to receive offers for the right solution at a price you can afford.

However, a new distribution centre is not just affecting your logistical performance and your costs. We briefly talked about your customers before and are now going to treat this subject in more detail, before we approach the final area of interest, your employees.

What are your customers expecting?

3D-KonzeptThe ability to deliver is an objective closely connected to the time required for shipping. Do you still remember when mail order catalogues offered delivery within 24 or 48 hours at a surcharge? By now, fast shipping without surcharge has become a matter of course. Then again, the enormous increase of medical costs forces us to reconsider shipping to pharmacies several times a day, for example. Shortening delivery intervals is not always a one way street. At the same time, the costs for faulty deliveries increase in almost every industry. Because you not just have to handle returns and make additional deliveries, you also run the risk of losing the customer to the competition.

It is therefore important to plan the new distribution centre with the customers’ service requirements in mind. How long are customers willing to wait between placing an order and receiving the delivery? What error rates are still acceptable? Which additional services regarding documentation (i.e. tracking serial numbers in the distribution centre), customized packaging or inserts have to be provided? And above all, which developments can be expected in the coming years?

Efficient employees as an objective

Warehouse automation, alongside all the other objectives we discussed so far, usually also aims at increasing the efficiency of the staff. Or, to put it simple: fewer employees handle more deliveries than before and, ideally, with higher accuracy and additional services. But this is only possible when we define new processes and set up efficient workplaces. And this means that employees have to learn new things or even get a completely different job description.

If “costs per pick” becomes the only staff-related performance indicator, you would risk achieving this cost objective way behind schedule or not at all. The key to optimizing performance and costs of a distribution centre is process control. This, in turn, is a matter of staff qualification. It’s therefore wise to take this subject into account when the initial goals are laid out. How many employees, and with what kind of skills are necessary to operate the new facility? How much do we have to invest in training and how are we going to measure the results of this training? It does make a lot of sense by the way to track quality and productivity in conjunction. At the beginning in particular, quality should have a higher priority. First, make sure the processes run stable, and then start optimizing them. But this now leads us right to the next interesting subject, the start-up phase of a new or retrofitted automated warehouse. Because this topic is so important, we are going to cover it in a separate blog post.

A single post obviously has to focus on a few crucial aspects of a subject. In this case, these are logistics, customers and staff. Of course there are others as well, such as buildings, energy and maintenance. They however are less specific for warehouse automation.

Hopefully, this article gave you some practical ideas. We are looking forward to your suggestions and comments.

About Dr. Max Winkler

Dr. Max Winkler is the VP Solutions & Technology of SSI SCHAEFER PEEM, the leading supplier for logistics equipment and automation, specialized in order picking applications. He received a PhD in Mechanical Engineering from the University in Hannover, Germany, and has more than 13 years of experience in material handling systems across various industries. He started in the material handling industry at Mannesmann Dematic in Germany. Gaining experience in areas such as product design, manufacturing, QM and strategic business planning then led to the position of Operations Manager at Dematic's main European site in Offenbach, Germany. In 2003 Mr. Winkler became the Project Director for the baggage handling system of the extension of Dubai airport, with over 70 km of conveyors still the world largest baggage handling system. In 2006 he joined SSI Schäfer in Graz, Austria to manage product design and manufacturing. Since 2010 he coordinates the solutions and R&D activities within the global SSI Schäfer Automation group.
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