Home » Supply & Demand Chain Executive » June/July 2006 Issue »…

   Home » Supply & Demand Chain Executive » June/July 2006 Issue » Magazine


www.sdcexec.com
More News From Supply & Demand Chain Executive
More From The June/July 2006 Issue
   Most Read    Most E-mailed      E-mail Article         Print Article

Final Thoughts
Optimization is a four-letter word
By Mick Mountz

Have you ever ordered a product online and chosen free shipping? It feels good to save
that $8 until you get the confirmation e-mail stating that your order will be shipped in
five to nine business days. That's optimization -- it almost always comes at the expense
of some other metric.

One type of optimization that is taking place in the order fulfillment and distribution
space has to do with picking and packing the order itself. In typical operations,
processing of customer orders is delayed by one or two days so that enough orders may
build up to feed the pick-pack optimization engine. Software programs literally run over
night to find the optimal picking solutions for the next day. This strategy is an example of
batch processing that is designed to increase productivity but which results in delaying
the customer orders by one or more days. Tradeoffs like this are a natural side-effect of
old-school material handling approaches.

Despite over 15 years of spending on supply chain optimization packages, demand
planning and forecasting tools, and real-time everything, these small tradeoffs still exist
throughout the chain, and they can add up to substantial customer angst. Until now,
investment has been focused on inventory questions like how much, where, when and
what kind. Now, with the relentless pressure of consumer expectations and e-commerce
growth, more companies are focused on how to actually move the inventory, and many
have begun automating the distribution center to reduce and eliminate the hidden tradeoff
of batch picking.

Imagine clicking "Submit Order" on your Internet page or restocking application and
having equipment in the distribution center jump immediately into action to deliver items
to operators preparing your shipment. That is how real-time material handling automation
breaks the batch paradigm. By eliminating the time-consuming activities associated with
finding and fetching inventory, automation allows the operator to focus on the value-
added processes associated with packing the order. Instead of waiting for a batch of
orders, the material handling equipment takes actions in real-time on your order the
moment it is submitted. The first and only e-mail you should receive from this merchant
is "Thank you for your order, it has now been shipped," and this should hit your inbox
only moments after you submit the order.

Not surprisingly, the correct automation can pay for itself quite quickly. Distribution
centers are, by their nature, located within close shipping reach of the customer base, and
the direct labor required to run those facilities is becoming more scarce and more
expensive each year; you cannot move your distribution center to China. It is also well
known that 60 to 70 percent of an operator's time can be consumed with non-value-added
walking and searching activities in classic pick-pack operations, while correctly designed
automation eliminates that waste. In addition to direct labor savings, automated material
handling increases quality, improves order speed, reduces the days-on-hand of inventory
and can even increase the flexibility of the distribution center in some cases.

These cost reduction factors alone create the return on investment for automated material
handling in the distribution center, and when you layer on top the customer-facing
service-level benefits, it becomes clear that the top line stands to grow as well -- while
your competitors' customers are left muttering four-letter words when they are forced to
make those optimization tradeoffs.

About the Author: Mick Mountz is CEO and founder of Kiva Systems, provider of the
Kiva Mobile Fulfillment System for automated real-time material handling in the
fulfillment center environment. More information at www.kivasystems.com.

   E-mail Article     Printer Friendly