– Supply Chain Insight –
Three ways an effective slotting optimization process drives financial results throughout all seasons of the year
We discuss seasonality a lot on this blog, and for good reason. Seasonal changes (whether in reference to SKU variety, shipping volumes, or both) can present major challenges to the average distribution operation, regardless of sector or industry.
Here’s a simple graph that plainly illustrates what most warehousing and distribution professionals were dealing with over the past 48 months through the COVID-19 pandemic: as demand went up, margins went down.
Now, for many, this was a necessary evil to maintain service level, especially if you were in the grocery business.
Other industries were not immune to the cost pressures, however. The closure of many retail stores, either as a result of government regulations or because of a shortage of staff, put a strain on many e-commerce channels – and that was only IF the company was lucky enough to convert its retail sales to online sales.
Now, of course, we’re talking about unprecedented circumstances here. Most operations did what they could to get product through the door and keep up with demand at the time but let’s make no mistake about it, the trend above is not sustainable for any business. As we continue through the recovery phase, cost control is the name of the game. Unfortunately, with service level expectations continuing to grow, distribution executives have to be more and more creative with how they hit their distribution budgets without compromising service level. Most of the time, this means increasing direct labor efficiency. Direct labor is one of the biggest variable costs in a distribution operation and efficiency is one of the reasons why it’s so variable. It’s not always the easiest to reign in, however.
Efficiency is dictated by numerous forces within your operation, but probably none more than seasonality. When I say seasonality, I mean seasonal peaks and lulls in SKU variety, shipping volumes and inventory on hand. We could also include proliferation of SKU variety – the addition and subtraction of active items throughout a given season or year – but let’s just keep it at the peaks and lulls for the purpose of this discussion.
Now, dealing with seasonal changes in active SKU variety, inventory on hand, and shipping volumes, usually fall into the hands of inventory control or slotting personnel. Item slotting is the best way to combat the negative affects of seasonality and maintain a steady efficiency level but not all slotting processes were created equal, and not all processes drive the value it should.
Here are three ways an effective and value-driven slotting optimization process drives labor efficiency and, ultimately, financial results throughout all seasons of the year, in no particular order.
Creates opportunities to reduce selection travel
Order selection makes up just over 50% of an average distribution operation’s direct labor costs, and a lot of that is travel. At it’s most impactful, a value-driven slotting process is one that’s geared towards minimizing selection travel by ensure all active items are not only consistently slotted in their most productive pick slot but making sure slower moving products are not unnecessarily elongating the pick path, essentially adding time to every order that goes through the building. Of course, we don’t expect that layout changes or even rack profile changes are made every week or even every quarter but a value-driven slotting process will help you refine your requirements so that you can operate within the most productive and waste-free layout year-round. Having a value-driven slotting process is not just about consistent optimization, it’s also about having the right data at your disposal when you need it in order to be agile when you need to be.
Creates opportunities to increase inbound pallet productivity
On the opposite side of things, some operations may choose to overlook the more tactical opportunities like pick path reduction through layout optimization and focus more on reducing labor handling inbound pallets. While pick path reduction represents the biggest financial opportunity for most, it’s not always the most feasible – or popular – option.
Inbound pallet optimization typically looks at a specific inbound labor task – like pallet putaway – and places emphasis on reducing that activity. In this case, the emphasis would be placed on reducing the number of pallets putaway. This not only potentially frees up dock congestion during busier periods of the year but it lessens forklift hours and even potentially increases pallet position capacity.
Inbound pallet optimization – boiling it down to the most simple explanation – begins at the PO level, and is often done proactively by matching up inbound pallet heights with available pick slots of the same size, reducing downstacking of cases / layers wherever possible. This is an impactful tactic in its own right and is especially helpful when combating changes in inbound volumes and/or vendor pallet configurations.
Creates opportunities to maximize capacity utilization and minimize seasonal constraints
Lastly but sometimes most importantly when it comes to managing efficiency through seasonality, a value-driven slotting optimization process helps you maximize capacity utilization – both in terms of pick fronts and overall operating capacity. With the right process in place, through seasonal peaks, slotting can be adjusted to free up pick fronts and/or overall operating capacity by recommending the best re-slot candidates for a specific goal.
For example, let’s say you just found out that through the holiday rush, you’re taking in 300 new SKUS and only discontinuing 130 from your existing selection, leaving a delta of 170 items. Not only do you need to find pick positions for 130 new items, you can also expect an increase inbound pallets. In situations where this increase is seasonal and temporary, an effective value-driven slotting process can help you ensure high-priority items are slotted productively while, at the same time, highlighting opportunities where low priority items can be moved to smaller pick slots to free up much needed capacity.
While we’ve highlighted three benefits to a value-driven slotting process, there are many more. They also extend beyond helping to combat seasonality. The reality is, a value-driven slotting process should be in place year-round.
If you believe you’re falling short in this area, or are unsure of the value your existing slotting process is driving downstream, a Strategic Opportunity Assessment can not only tell you where you stand but how much opportunity you’re leaving on the table.