BUYER’S REMORSE

Apr 01, 2003 10:30 PM  By

Would you buy a conveyor at what seems like a fabulous discount? Of course you would. It’s a great deal, and the machine should work just fine, right? The problem is, it may not. Some companies buy conveyors, tilt trays, and pick-to-light systems the way they replenish light bulbs and toilet paper — the guy with the lowest bid gets the deal. This less-than-comprehensive approach may be cause for chagrin down the road.

“The bid method is not the best way to buy warehouse automation,” says Juergen Conrad, president and CEO of viastore systems Inc., a distribution equipment and systems provider based in Stuttgart, Germany. “Because companies like ours sink enormous amounts of time and money into development, you can’t expect to get a great product for a low price. When you buy material handling equipment you’re also purchasing the expertise of the company providing that product, so you really want more than just another supplier — you want a partner who will help you maximize your throughput and get the most out of your investment. That will cost you, but without a relationship, you’re looking at a long learning curve, and that will cost you even more.”

The cost of mistakes can run into millions of dollars. Here are some proven ways to spend less without sacrificing quality:

KNOW YOUR VENDOR

While getting the right stuff is critical, it’s at least equally important that you select the right vendor, someone who can be relied upon for business advice, technical assistance, and general counseling before, during, and after the sale. “There are many ways to get to know material handling products and the people who sell them,” says Jim DeVeau, senior vice president of logistics at Footstar Inc., an integrated retailer of footwear in West Nyack, NY. “When you get serious about a product or a vendor, get trade references from other retail operations to which the company has sold, visit their installation sites, and kick a few tires. After that you will want to check out the supplier in greater detail. It’s a good idea to do a financial check with Dun & Bradstreet to make sure the guy can do what he says he can do.”

Trust is an important component of all of this, and the toughest piece of the process to measure, DeVeau adds. Many operations have problems with equipment vendors simply because they neglect to ask the right questions. There are tricks to the trade that can adversely affect the bottom line. Some suppliers add “change orders” during implementation when new requirements surface that were unforeseen in the spec phase. Others guarantee their work for a flat fee. They eat change orders, even when it costs them hundreds of thousands of dollars.

Prix Fixe
Equipment Cost in $
Rider pallet jack (8,000-lb. cap.) 10,000-11,500
Counterbalanced truck (4,000 lb. 3- or 4-wheel) 24,000-26,000
Narrow aisle reach truck (4,500-lb. cap.) 28,000-35,000
Double deep reach truck (3,000-lb. cap.) 26,000-34,000
Carton clamp lift truck 7,000-9,000
Side-shifter lift truck 1,200-2,000
AGV unit-load carrier with roller deck 200,000-250,000
AGV tow trailer with powered roller bed 20,000-25,000
Powered roller conveyor (per linear ft.) 200-275
Gravity flexible/extendable conveyor (per linear ft.) 75-125
Cross-belt sorter (per linear ft.) 4,000-5,000
Sort chutes (per destination) 10,000-20,000
Source: Gross & Associates, “Rules of Thumb,” 7th edition, 2001

“Get your equipment vendor to ‘fess up about this stuff up front,” DeVeau advises. “In fact, it makes really good sense to address every conceivable problem in advance before any deal is made. Doing so will keep the relationship intact, and will save you stress and money when things go wrong. It’s a given that something will go wrong with your system sooner or later, however good the equipment may be or reliable the company that sells it to you. How the supplier handles problems will turn out to be extremely important, so you need to put that issue on the table right away.”

NARROW YOUR FOCUS

The price of even a single piece of material handling equipment can be astronomically high, but the business casualties resulting from its misuse can be higher still. Misuse can occur when a perfectly functional solution winds up in a working environment for which it is inappropriate. When that happens, much of the good that might otherwise result from the use of the equipment is canceled by bottlenecks and other problems stemming from trying to force a square peg into a round hole.

NewRoads, a third-party operations services provider headquartered in Greenwich, CT, has a SKU profile as varied as its customer list, says David Himes, the firm’s senior vice president of business process solutions. This has made it impossible for the company to adopt a mechanization strategy restricted to one type of product. Moreover, NewRoads has had to consider the likelihood of client change. Next year or ten years hence, new products may enter the warehouse, rendering the current material handling system obsolete. For this reason the company’s equipment acquisition scheme has always pivoted on a combination of flexibility and ROI.

“Our multi-client orientation bars us from building a fulfillment facility specifically designed for books, cosmetics, or any other single product group,” Himes says. “We need wider conveyors, and tilt trays don’t work for us because of the potential diversity of our product mix. Our facilities are configured for both third-party logistics and single shipments to individual consumers. We do more consumer shipments than anything else. Last year we did 25 million single-order shipments, not counting the 50 or 60 million pieces of sales literature we also sent out. The nature of our business limits the number of equipment vendors we can deal with to companies that have experience in multi-client fulfillment. We don’t send an RFP to the whole world. Instead, we use a ‘request for information’ form that also asks for detailed information about the company. It’s really important that we get to see the equipment working in environments nearly identical to our own.”

THE NITTY-GRITTY

Purchasing material handling equipment has many stages, whether you are improving an existing system or building one from scratch. Fundamentally, the process involved in material handling equipment acquisition is the same as it is for any other capital asset. Initially, there’s an ROI check addressing all purchasing options, and the payoff anticipated in each case. ROI is not strictly about money. Other areas touched upon will probably include the control, safety, and efficiency implications of buying the new equipment.

After the ROI check, a design/build requisition is put out into the marketplace, attracting the interest of equipment vendors who may or may not be qualified to do the job. A narrowing process follows, during which the list of qualified suppliers slims to two or three candidates. Final selection will be based on many variables, including price, brand, and quality of equipment. Vendor quality will also factor significantly into the equation. Implementation commences when all the business, technical, and logistical minutiae are put to bed. The whole shebang may take only a few months or drag on for year or more. While every fulfillment operation takes its own slant on this process, the sequence remains essentially the same from company to company. Many firms hire consultants to coach them through the process.

Hal Wilson is senior vice president of distribution and transportation services for Big Lots Inc., one of the nation’s largest closeout retailers, with 1,400 stores in more than 40 states. According to Wilson, the first step in outfitting a new warehouse for the Columbus, OH-based company is to determine what the facility’s future requirements will be based on a five-year projection: How many stores will be served with how many SKUs, and how many new products are likely to be introduced over the five-year time frame? The answers to these questions will affect the type, sophistication, and extent of automation a warehouse elects to deploy.

In phase two, the warehouse’s material handling flow is laid out and its equipment options are considered, Wilson says. The system is also cost-justified, optimizing total operating expenses. Factors entering the equation include the price of the material handling equipment and IT, the cost of labor, and the amount of space required to implement both. Warehouse planners typically refer to this phase as “conceptual planning.” It is followed by a step known as “detail planning,” wherein the material handling system is sketched out relative to the layout of the facility. Points under consideration here include the facility’s aisle dimensions, door locations, and so forth. Next to last are the creation of performance specs, which identify the material handling solutions selected and their proposed locations.

“It’s at this point that proposal requests are sent to the manufacturers and suppliers,” Wilson says. “The suppliers are selected based on their knowledge of the industry, the amount and quality of coverage they get in industry trade publications, and referrals. The candidate companies return spec sheets, which are designed so that one vendor’s reply is easily comparable to all others, making them much easier to evaluate in terms of price and product offering. Once you’ve narrowed the playing field to one or two suppliers, have them make a final presentation, and check out trade references on the phone and in person. It’s important that you visit the sites personally because you’ll want to see how the equipment operates on a day-to-day basis. Selection is the final step, and with that an agreement on implementation. That’s essentially the whole process in a nutshell.”

Geoffrey Davis, executive vice president of ES3 Llc., a third-party grocery logistics supply chain management firm in Keene, NH, echoes these sentiments. In 2001, ES3 broke ground on a new fulfillment facility near York, PA. This warehouse or “tower” was constructed on a 250-acre site intended for a total of eight towers of roughly equal size. The first went operational in 2002. It measures 441,000 square feet, stands 110 feet high, and holds more than 140,000 pallet positions. The structure was built vertically as a space-saving measure, Davis says; otherwise, it would have stretched out approximately 1.2 million square feet. It is completely automated and outfitted with state-of-the-art material handling equipment.

“Understand the environment and workflow your operation will experience, and plan accordingly,” Davis advises. “Sometimes you’ll need a bar code scanner with a range of 15 feet, at other times the range will be three or four feet. Equipment specs costs can drag your costs, so know them in advance. It’s also important that your voice communications equipment be foolproof, because in an automated environment you don’t have the luxury of downtime. Make sure you plan for spares as well. If you’re specced for 18 forklifts, get a couple of extras to cover you when one of the 18 breaks down. Anticipation is an important part of the process. You should, for example, find out what the mean time before failure is for every piece of equipment you buy. This breakdown ratio will tell you in advance how long it will be before you have to repair it. Calculate the cost of maintenance programs into your acquisition planning process, and bottom line, make absolutely certain that you deal solely with manufacturers and suppliers who stand behind their products.”

It took nearly a year to buy the equipment for the Pennsylvania warehouse. Vendors were selected carefully and through a highly flexible program utilizing bids, corporate standards, and any other criteria that could help ES3 achieve its acquisition goals, meet its specs, and get the best deal for its money. Projection was the most difficult part of the process. According to Davis, the idea was not simply to outfit the warehouse with top-of-the line equipment, but to do so in a way that anticipated expansion and improvement.

Service is also an important component of equipment purchasing, says Barry Issberner, vice president of vertical markets for Symbol Technologies Inc. in Holtsville, NY. “It’s important to know who’s really providing the support — the manufacturer or a value-added reseller. Find out whom you’re dealing with in either case, and make sure he has qualities relevant to your business. Say, for example, you are a multinational company, and need a vendor that can take care of you at international locations. Does your supplier have people on staff that can speak Spanish? French? Farsi? The vendor you chose to do business with should also encourage live testing of the equipment he proposes to sell you, and by that I mean rugged testing. He should be willing to allow you to test the stuff aggressively, even to drop it from the roof of a three-story building if that’s what it takes to satisfy you. You will want to evaluate the equipment on-site, not from the boardroom. You won’t get an accurate picture of how the system really works in the boardroom, because in the boardroom everything works perfectly.”

D. Douglas Graham is a freelance writer based in St. Louis, MO. He can be reached by e-mail at mahakala@charter.net.

Getting Into Gear

Rap McBurney is vice president of alliances for Atlanta-based Manhattan Associates Inc., providers of supply chain execution technology. McBurney says that a warehouse material handling solution can be implemented for as little as a few thousand dollars or as much as several million, depending on type, quality, and sophistication. Here’s his at-a-glance summary of the current state of material handling technology:

On the low end are simple gravity-powered and mechanical conveyors on which products move from the warehouse to the truck. Next are so-called smart conveyors equipped with sortation devices for the automatic transport of cargo to specific areas of the warehouse. This is accomplished through the use of bar codes or RF tags, which interact with the devices and direct product to its destination. High tech comes in with the introduction of a warehouse management system (WMS), which enables product to flow automatically from place to place.

Conveyors are priced according to their “intelligence” and the quality of their materials, which can range from fabric belts to metal rollers to chain. Per foot, a common conveyor may go for as little as 20 bucks, while an aristocrat can net several hundred dollars. Ironically, highly automated conveyors tend to be less flexible across products than their poorer relations. Thus, the more varied your inventory, the less desirable a “techy” conveyor.

Carousels are storage and retrieval systems that bring product to the picker and are commonly used in environments where items are small, high-priced, or both. The price of a carousel, like a conveyor, is determined by its sophistication. A simple system with maybe 500 stations can be had for as little as ten grand. Bells and whistles cost more — a lot more in extreme cases.

The most sophisticated material handling equipment is also the most pricey. This category includes automatic guided vehicles, which transport products along a programmed route via a grid system in the warehouse floor. A more advanced version moves through a local positioning system rather than along a floor track. Robots are commonly employed for highly repetitive jobs. In a warehouse environment they can be put to work on tasks like shrink-wrapping a pallet or even on highly complex assignments such as picking stock and putting it away. AGVs and robots have variable price ranges, starting in the thousands and ending somewhere in the stratosphere.
DDG

Monkeying Around

The decision to automate should rest not solely with management but also with the people most affected by its implementation, the warehouse workers, according to Michael Hugos, CIO of Network Services Company, a Mount Prospect, IL-based cooperative consisting of 75 firms that distribute paper goods and janitorial supplies. Hugos is the author of Essentials of Supply Chain Management (Wiley, 2002), a handbook that takes a holistic view of its subject.

“Right now our membership is looking at ways to become more productive, and it will come down to more warehouse automation,” Hugos says. “It’s easy to make the decision to deploy this stuff, but it’s tough to get ROI from it, unless you win over the warehouse staff. This is not an easy thing to do. Most employees have a knee-jerk reaction against automation because they’re convinced it will force them to work harder than they do already or render them obsolete.”

Political and organizational issues, not faulty technology, stall automation efforts, Hugos claims. Employees learn to work around unpopular equipment, or find subtle ways to insert wrenches in the works to make it appear as though the equipment has malfunctioned. This is understandable given the natural tendency of humans to view with suspicion the new, the foreign, and the untried.

“Technologists are often politically blind and deaf,” Hugos says. “They live in a world remote from the day-to-day grind of the average warehouse worker. They aren’t thinking of them when they come up with material handling solutions but they should, because the workers are the people that will be using this stuff. We make a big mistake when we program computers to deal with complex contingencies but treat people like trained monkeys. Computers should be stuck with the drudgery and people should do the work for which brains are required. People are smarter than machines, after all.”
DDG