How to Avoid Under-Sizing Your New Distribution Center

Warehouse/Distribution Center, Operations and Fulfillment, distribution center, fulfillment center, picking and packing, retail order fulfillment, ecommerce order fulfillment, DC automation, retail, ecommerceDeciding to move into a new warehouse is no easy task and certainly brings about a level of planning that many companies are not accustomed to. All too often, buildings don’t last as long as expected, so you really need to put on your swami hat, screw your eyes shut and point at your ears.

Under-sizing a new distribution center can have negative consequences on strategy and service. Here are 9 important factors to consider when planning your new DC.

SKU and sales growth

How will your product assortment change in the next three to five years? Work with your suppliers to get the best estimates; this is a key partnership. I don’t mean this negatively, but they often don’t have a very good idea of this on a 3-5-year horizon. You’ll have to accommodate the assortment in future years.

How will these SKU estimates change the number of pallet rack bulk locations and forward pick faces required? Does this change the types of storage needed? Are there automation requirements? Consult your company’s sales plan and forecast – are sales increases resulting from price point increases, or will more units be stored and sold?

All this translates into decisions about the number and type of product storage locations.           

Inventory management and turnover

Turnover is a key factor in planning space. Product assortments which turn more quickly require less space. If merchants keep inventories lean in terms of slow moving, obsolete or dead product, this reduces space requirements. Work with senior management and the merchants to agree on turnover rates.

Think cubic space rather than just building footprint

Sometimes management looks at space first in terms of its cost, rather than the potential capacity in cubic feet. Will your clear stack height be different in a new building? If so, how much vertical storage will this give you? Think in terms of how many pallet locations are required.

The shape matters

We have consulted with clients on multi-floor facilities in inner cities; on a V-shaped building; and on a building 1,000 feet long and 200 feet wide with 400 feet of expansion capacity in length. All buildings can work but they may have serious efficiency downsides. How will the shape affect your layout and flow?

Dock doors

Especially in smaller DCs, there often aren’t enough dock doors. How many do you need? Adding them later is generally cost prohibitive. Will you be loading outbound trailers while receiving inbound shipments? The number of doors and how the space is configured for inbound and outbound is a key consideration.

Material Handling Exchange (MHE) and automation

Work with the integrator to understand the footprint of your new anticipated systems. Do changes in MHE have greater or lesser space requirements (e.g. standard aisle versus narrow aisle, etc.)?

Layout and processes

How will the new DC be used in terms of work and product flow, MHE use and automation? Three areas that typically need more consideration are inbound receiving, QA and staging; returns processing and refurbishing; and the size of forward-pick locations to hold at least a week’s worth of stock to cut down replenishment trips. What new functions are supported such as kitting or value-added services?

Building expansion

As your business grows, how can you expand the new facility to meet your needs? Take into account product flow, entrance and exit for trucks, number of parking spaces, etc.

History and data projections

  • To calculate bulk and forward-picking storage locations: SKU count, dollar inventory average and peak, turnover, planned SKU growth and obsolescence
  • For inbound receiving space, QA tasks and space awaiting put away: incoming shipment profile, average and peak, number of cases, pallets and containers received
  • For outbound shipping space: the number of shipments per month (peak and average), the type of shipment (small package, pallet, LTL, etc.) and carrier. What space is needed to aggregate for specific carriers?
  • For sizing staging areas for store shipments: the number and type (e.g. small package versus pallet), outbound shipment frequency and volumes.

Laying out the space

Consider laying out the space in rough form before making the final decision.

In summary, be sure to spend the upfront time analyzing all facets of your business before buying, leasing or pursuing build to suit for a new DC.

Curt Barry is president of F. Curtis Barry & Company

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