Can’t Touch This!

The patient, Mr. O.F., complained again today about a recurring dream. He says he dreamed once more that he was a boy. In the dream, he goes down into the cellar of his family home and finds on the wall a switch connected to a set of wires that lead to a box full of gauges and meters. “I’m really intrigued. I approach the apparatus and stare at it. All I can do, though, is turn the switch from off to on. I don’t really know what it does. I can’t really do anything but wait for the dials and gauges to move….”

I suggest that perhaps this is connected to his rather complex feelings about his mother. But Mr. O.F. keeps denying the connection. No, he says. It’s about something really complicated. His ambivalent memory of Uncle Sid and that experience with the castanets? I suggest. No, he says. Really, really complicated: handling volume spikes with my ERP system. I know what I need to do but somehow I just can’t get it done….

Most distribution consultants would agree that this kind of frustration with the new distribution technology is far from irrational. “We still haven’t gotten it out on the racetrack yet,” says Tom Guschke, managing principal of Keogh Consulting in West Palm Beach Gardens, FL. Guschke says that distribution has come so far, so fast in the past ten years that the industry still hasn’t learned how to use the powerful new information technology that it has at its disposal.

For example, ten years ago, Guschke says, the sales data would arrive in his offices summarized and on paper. Now, he says, he can get a year’s worth of transaction data down to the cash register level, and crunch it on his PC just using Access and Excel.

Coordinating the exchange of data is now a key challenge, says Harry Drajpuch, executive vice president and general manager for shared warehousing, order management, and delivery solutions at Kuehne & Nagel, a global contract logistics provider with a U.S. headquarters in Naugatuck, CT. “The biggest bottleneck for us today, believe it or not, is data exchange. How fast can the manufacturer in China give me the data, how fast can the retailer give me the data, in what format can he give me the data, and how quickly can I get it into my system so I can process it and develop a good work plan so that I’m meeting all the timelines?”

As a result of all this new information, many retailers are becoming much more aware of their demand spikes and seeing them in greater detail than before, according to Guschke. “The nature of the business being more real-time computer systems means that they’re seeing periodic spikes in the business that maybe they were aware of, but only peripherally, so it’s making it much more evident that their business has these spikes.”

At the same time, two other large trends seem to be exacerbating seasonal demand spikes. First is the increasing length of most supply chains. Supply chain consultants say that with so many products now coming from China and elsewhere in Asia, lead times are less forgiving. The second key factor is the retail world’s growing aversion to holding inventory or warehouse space that’s going to be used only a few months a year.

Managing in this new environment is complex — which is where Guschke’s racetrack analogy comes into play. Between lean supply, better data, and distribution centers that can scale up and down with more precision, today’s distribution center can get you where you’re going much faster than before — but whether that’s across the finish line or into a cornfield depends on who’s doing the driving. Overreact, and you’re in the ditch. Underreact, and you’ve lost a customer.

Unfortunately, only the rearview mirrors in this fast and furious machine have one-hundred-percent visibility. No matter how well you plan, something unexpected can happen, says Alan McDonald, a consultant for the Cincinnati-based distribution automation firm Forte Industries. “How you react to that is going to determine your success or failure in the long run,” he says. “The people who get in an unplanned situation and panic are the ones that are selling their conveyor six months later.”

You can generally handle spikes in one of two ways, counsel operations experts. First, by working harder — adding more people, adding some overtime. Second, by working smarter — understanding where the holdups are or might be, and finding ways to do things more efficiently. Today, there are modern variations on timeless concepts that have probably been used since the ziggurat-of-the-month club had to cope with the Saturnalia rush.

One tactic is to call in the reserves. Adding more bodies is a classic solution, particularly for short-term spikes. But how do you manage when you’re suddenly short of skilled help? When the going gets really tough, Kuehne & Nagel, which recently purchased USCO Logistics, doesn’t look for a better machine. It calls in the Kuehne & Nagel Reserves, a crack team of the company’s top 60 to 80 workers who travel at short notice to wherever the national distribution company needs help.

“It’s kind of an honor for this group of warehouse employees or clerical employees — they’re the best of the best, and they’re prepared to travel on very, very short notice for any kind of extended period of time,” says Drajpuch. Two to six weeks later, when the emergency is over, Kuehne & Nagel’s Superfriends head back home to their respective operations; they’re drawn from different Kuehne & Nagel operations all over the country, so as not to slow down any of the firm’s clients.

Understanding your peaks is another coping technique. The technology is so much better these days that it’s possible to design systems that respond to specific patterns rather than to modify an entire system. If certain lines tend to be more problematic than others, the system itself can be designed to accommodate that extra capacity, says Guschke. The challenge, however, he says, is to decipher where your volume peaks occur.

You can also find “one throat to choke.” Modern distribution systems often involve so many different companies and specialists that when the system breaks down, there’s no single person to call. “The interface between the warehouse management system and the software and the material handling system hardware is extremely important,” says Forte’s McDonald. “A lot of people just take it for granted that it’s going to work seamlessly, and it does not.” To prevent finger-pointing from taking the place of problem-solving, some experts suggest creating a single chain of command among systems consultants to solve problems down the line.

Bennett Voyles is a business and financial writer based in New York City. He can be reached at [email protected].

Kudzu Inc.

Southern Living at Home may conjure up a vision of gently rocking porch swings and lemonade, but for the distribution team managing its phenomenal growth in a warehouse south of Birmingham, AL, the pace has been less Driving Miss Daisy than driving at NASCAR.

A direct-sale home furnishings business that’s an offshoot of Southern Living, a regional home and garden magazine published by Southern Progress Co., an AOL Time Warner division, Southern Living at Home is a home-party business that has grown from zero to $120 million in annual sales in just three years — and created a colossal distribution challenge in the process, as daily shipping requirements grew from just a few hundred cartons a day to over ten thousand.

Walter La Grue of Custom Marketing, the distribution company that serves as the third-party logistics provider of Southern Living at Home, recalls that when the business started three years ago, its distribution operated out of 10,000 sq. ft. of bulk storage, with 3,500 sq. ft. for picking and packing. Ten employees took care of a few hundred cartons a day. Over the following two years, the operation expanded to 150,000 sq. ft. of warehouse space, with picking and packing performed manually by a crew of 350 pushing 250 shopping carts and running 76 packing tables. Today, they handle upward of 12,000 to 13,000 cartons a day. So what have they learned about life in the fast track?

  • Use interchangeable parts. Jerry Vink, the Forte Industries (Cincinnati) vice president of engineering who helped design the Southern Living system, says it’s built to carry the same inventory on each picking module, for easy shifting up and down.

  • Take care of your top performers. LaGrue says that Custom Marketing tries to keep pickers available at all times in case it needs to open a picking module.

  • Keep labor on tap. Custom Marketing has an outside temporary agency that works on-site. At peak times, when staffing is up to 275, temps are hired even for temps: A crew of 25 shows up at 6 a.m. to fill in for any no-shows.

  • Plan ahead. “You need to plan ahead of time the what-if which says, how do you handle this level of business when it increases 30%, when it increases 50%, and what are we going to do the next time it doubles and the time after that when it doubles?” says Vink.