Patch or Scratch?

Jun 01, 2004 9:30 PM  By

When Steve Bolin gets to work each day, he has the usual sorts of duties and assignments to handle. But Bolin, facilities director for the DC of business process outsourcing firm ClientLogic in Columbus, OH, has an overriding concern among his day-to-day activities. When he walks the building, when he talks to staff, when he checks maintenance records, he’s always keeping an eye on the facility’s material handling equipment — because Bolin not only has to make sure it’s working, but has to help determine when it’s time for the multinational supply chain management company to replace or retrofit that equipment.

“What Steve wants to do, what we all want to do, is to extend the life of the equipment as long as possible,” says Bob Alamshah, the facility’s director of fulfillment operations. “The longer we can make it last, the better off we’ll be. But we also know that there are concerns about safety, about productivity, and at some point we’re going to have to invest and buy new. And that’s what we’re always looking for, too.”

What concerns ClientLogic should also concern warehouse officials, fulfillment executives, and distribution center managers throughout the industry. Material handling equipment is expensive and complicated, and replacing it before it’s really necessary to do so can be as messy as keeping inadequate or obsolete equipment around too long. It’s a fine line between knowing when to replace or retrofit, but it’s also a fine line that can be navigated successfully with the proper precautions.

“There are two or three things to keep in mind in this process, but first and foremost is to determine whether the equipment and systems are still meeting your requirements,” says Tom Guschke, managing principal at Keogh Consulting, supply chain specialists in Cleveland and Palm Beach Gardens, FL. “You don’t want to change just to change. You want to change because you need to, because you’ve changed what the equipment needs to do.”

GETTING AN OVERVIEW

Talk to warehouse and distribution center managers, as well as consultants, and the picture that emerges is one that takes into account the company’s needs, the client’s needs, and changes in technology — and that keeps those three things in a perspective where no one part is bigger than the whole. Changing for technology’s sake probably won’t accomplish much except to irritate the CFO, says Guschke. Changing to accommodate new customers, if there aren’t actual new customers to accommodate yet, can also present serious difficulties.

All in all, it’s not unlike the decision to trade in a used car for a new one. How many miles are left in the old car? Does it make financial sense to do the deal? “Ask yourself, ‘Does what I have work OK?’” says Jeff Ross, a senior associate for ESYNC, a supply chain consulting firm in Toledo, OH. “Will it work OK if you maintain it better? Or is keeping it around more of a hindrance than a help?”

The decision to replace or retrofit revolves around three business-related events. First, has your company grown (often through acquisitions or mergers) enough to warrant the investment? The tray sorters that were adequate when the business handled one volume may not be enough when the new volume is 20% or 30% more. Second, has your product line changed? Can your old equipment handle the new products?

Third (a scenario that is often overlooked, says Guschke), has your customer base changed? Are you working for customers whose needs are different from those of previous customers? For instance, a wholesaler who typically sold to small retailers will almost certainly have different needs if it now deals with large retailers or Internet retailers. The former require shipping to fewer stores or distribution centers; the latter require shipping directly to consumers.

For example, Ross notes, a company that switches from mail order to retail will almost certainly face significant material handling equipment decisions. “If the makeup of orders changes, the equipment that once facilitated high productivity could now interfere with productivity,” he says. The mail order company that ships 20,000 orders per day with an average of 1.5 lines per order needs a different setup than a retailer that does 15 to 20 orders per day with a range of 1,500 to 2,000 lines per order. This is where change to take advantage of improved technology makes the most difference. Again, it’s not change for change’s sake — the analogy that Guschke uses is that if Windows 2000 is doing the job, don’t switch to Windows XP just to switch — but change dictated by circumstances.

“Many companies can benefit from these technological advances either through updating the material handling equipment system already in place or by completely replacing it,” says Ross. “If the major hardware components of the system are still functional and meet the company’s needs, the introduction of better means to capture data and manage the system is often a worthwhile investment at a much lower cost than replacement of the entire system.”

At ClientLogic, new customers with different needs provide incentive to upgrade equipment to take advantage of new technology, whether it’s the latest in radio frequency scanner technology or integrating new conveyor and sorter equipment with the WMS. Says Alamshah: “The equipment that we use and the technology behind it affects the type of business that we do, and who we can do it for.”

MAINTENANCE AND UPKEEP

Another part of the equation is the cost of maintenance. Obviously, older equipment is more expensive to keep working, and the oldest equipment is the most expensive. A brand-new, high-speed shoe sorter is much quieter and much faster than the one you might be using, says Guschke, but if the old noisy one doesn’t have consistent mechanical problems, there’s no reason to upgrade it.

At what point do maintenance costs become so high that it makes sense to buy new? That answer, say the experts, depends on the situation, but there are guidelines. With proper maintenance, most equipment will work well for 10-15 years (lift trucks excluded). But since so much lead time is necessary to design, manufacture, and install new systems, you can’t wait until the system is completely worthless; you should replace it when it still has value.

That logic also applies to choosing new equipment. Often, companies don’t do enough planning, tracking, and investigating — don’t know exactly what they need, why they need it, and who can best provide it. But this is as necessary as tracking maintenance costs to determine when it’s time to replace equipment based on downtime and repair costs. Rather, says Guschke, too many companies buy new equipment without doing their homework. They see the tip of the iceberg, he says, without understanding that two-thirds of the situation is under water and out of sight.

“That’s the biggest mistake we see,” he explains. “They do a cursory look, they get overwhelmed by all the hundreds of suppliers who can provide what they need, and then they buy the first thing they see without even being sure if it’s exactly what they need or if it will work with what they have. It’s like going to a new car dealership and buying the first car you see without kicking the tires. No one does that when they buy a car. They always shop around, go to other dealers.”

SHORT-TERM SCRAMBLE

Also overlooked in the replacement process: the effect that the new equipment will have on operations in the short term. In the long term, everyone knows the new equipment will be cheaper to maintain, improve productivity, and allow the company to attract new business. But what happens in the short term, when business is disrupted to install the equipment and train employees on how to use it?

“I don’t think enough people realize all the changes that are involved any time you upgrade or replace material handling equipment,” says Guschke. “You have to change the picking system. You have to train employees. There is a culture change involved in trying to understand what’s going to be the same and what’s going to change.”

Figuring that out is one of the things on Steve Bolin’s mind when he goes through his day in Columbus, keeping an eye on a $40,000 forklift. “That’s a three-ton piece of equipment with hydraulics,” he says with a laugh. “We just can’t replace it to replace it. I know Bob won’t let me do that. We can only replace it when we must replace it.”

Jeff Siegel is a Dallas-based freelance writer whose articles have appeared in Forbes, American Way, and many other magazines.