JEM Retail Consultants providing services in buying and merchandising, Programme Management, IT services and Logistics & Warehousing.

Thursday, 9 January 2014

Does Your Distribution Operation Have The X-Factor?

Over the last 7 years I have been asked to consult over a number of ailing distribution centre operations that required a variety of different solutions. Here are some ideas as to how to recognise if your DC is in need of some TLC.


Not surprisingly I have never been asked to get involved with a Distribution Centre operation that already had a reputation for being well run, highly productive and consistently providing an excellent level of service. Here are 5 questions to ask to establish what is wrong and suggest some ideas as to what can be done about it.

What are your first impressions?

You generally know within 30 seconds of walking through the door whether or not the building is well maintained and if the team take a pride in their environment. In truth businesses may have to take the lead here. 5 "S" initiatives can achieve a lot but I have worked in DC's that have suffered from years of neglect. If the roof leaks like a sieve and the welfare areas are woeful there is a limit as to what you can expect from people.

The second thing indicated at first glance is the attitude to work. As my colleagues John Wilde and Peter Woodward (Productivity Solutions Limited) explain performance is the outcome of pace, utilisation and method. People obviously shouldn't be running around but neither should they be standing about and a certain amount of hustle should be obvious. If it isn't then looking at the resource level and how it is used is a high priority. If you're not sure then benchmark with a Rated Activity Sample (RAS). I'm sure John would be happy to help!

How do the team plan their activities and communicate with the rest of the organisation?

Generally speaking warehousing and distribution is a people business. However sophisticated your system platform work still gets done because there is ultimately a pair of hands doing it. This makes resource planning a key activity to support both service and productivity and planning depends on information. If there isn't a strong relationship in place between the DC team and the more commercial parts of the Company this isn't going to work.

What does "good" look like?

Recognising good performance is as key to motivation as identifying under achievement is to continuous improvement but this means that the team must have an understanding as to what is important (and why it is important) that is endorsed by key stakeholders. There must also be a robust way of measuring it otherwise "performance" becomes very subjective and key performance indicators fall into disrepute. I asked this question of a team I worked with recently and was told that they knew they were doing well when their Director didn't shout at them. Strangely they didn't find the avoidance of pain particularly motivating especially as they had no clear understanding from one week to the next what was expected of them.

Are costs properly understood and reported?

DC wage costs fall into 4 main types: Direct; Indirect; Consumables; and Facilities. The last two of these are usually pretty clear but I am constantly amazed about the reporting of wage costs and the lack of understanding of these two very different things. "Direct" costs are variable and flex to volume as they pay for the people actually doing the work. More work, more cost (the opposite should also be true but, sadly, sometimes isn't). That is why the only way to properly understand this spend is in the form of a cost per item / unit. "Indirect" costs are fixed and consequently should be understood as a cash spend.

I am always infuriated when FD's castigate hard working DC teams for overspending (in cash terms) on direct costs when volumes are higher than forecast. What did they expect to happen? When the team have worked their socks off to achieve a great service level at a cost per item at or below budget despite having a highly inaccurate forecast, do these people have any idea how demotivating it is to then be asked to justify this "overspend"? I could rant for some time on this topic but it would become boring!

One final word on costs: I have never really understood why people tell me that achieving a higher level of service will cost more money. Generally speaking the opposite is true as eliminating waste (look for departments that start with "Re" or "Mis") is a prerequisite for both efficiency and service. Do things once and do them right and you won't have much to worry about.

Do the team always say "Yes"?

This is a big red flag for me. I have a very clear understanding that warehousing and distribution is a service industry but having a "can do" culture has become almost a macho thing in some operations. Part of the "service" we provide should be to point out when things don't make sense and will ultimately result in either an unacceptable level of cost or, worse, damaging the reputation of the business by providing poor customer service. This doesn't mean being negative but we need to recognise how, and when, to negotiate. Separating interest from position is also key as frequently what the business wants to achieve can be done but the way they have asked you to do it ought not to be attempted.

Is that all there is to it?

In a word "No". I could talk at length about organisation structures, value added process design, and space utilisation amongst other things but a) my colleague Jane told me to be brief and I do as I'm told (most of the time) and b) you wouldn't really expect me to put the experience gained over nearly 30 years into a blog would you?

Written by Mike Gamble: Director JEM Retail Consultants

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