Four Signs It’s Time to Optimize Your Distribution Center

By Richard Koch | Associate Director, Logistics Growth is good for a business. But growth can severely strain an outmoded distribution center (DC), hampering productivity and fulfillment capabilities. In...


By Richard Koch | Associate Director, Logistics

Growth is good for a business. But growth can severely strain an outmoded distribution center (DC), hampering productivity and fulfillment capabilities. In this two part blog series, I’ll offer some thoughts on the best way to optimize your existing and future DC to meet growing demands.

It should be noted that a DC optimization should be a part of a comprehensive supply chain network optimization process. It’s is a necessary step for many growing businesses that are currently stretching to meet growing fulfillment obligations.

To begin your DC evaluation, it is vital to understand both your current growth requirements and your company’s goals for future growth. These insights will allow you to form the foundation to plan for an ideal, more-efficient DC.

Four Signals That Indicate It’s Time For A Change

For many companies, the DC optimization process starts with recognition that their business is facing one or more of the following challenges or opportunities:

1. A Changing Business Environment

A changing environment creates an opportunity to effectively restructure supply chain networks and consolidate facilities. Organic growth, or growth through acquisition, new product introductions, or changing customer demands may force a refresh of the current facility design.

2. Pick Location Inefficiency

Picking inefficiencies may make it difficult to properly support active stock keeping units (SKUs). For example, each SKU is stored in a unique DC location. If there are sub-optimal pick locations to service demand during peak volumes, or if pick locations can’t be replenished efficiently, it’s probably time for a change.

3. Excessive Resource Usage 

Increased labor costs and stagnant throughput levels can indicate it’s time for a change. This signal can often emerge as a DC attempts to compensate for an increase in product volumes, often forcing workers to double handle products. As the company runs two or three shifts, the last is often dedicated solely to replenishment. Likewise in times of exponential growth, staffing demands may outweigh current margins.

4. Reserve Storage Continually Runs Near Or At Capacity

An optimized DC facility will ideally utilize less than 85 percent of reserve storage space during normal operations. If the DC is consistently utilizing more than 85 percent of reserve storage capacity, perhaps easier accessibility of products for put-away and replenishment, as well as additional capacity for peak periods may be needed.

Time to adapt, build or both?

By analyzing the trigger points above and factoring in any anticipated future growth, you will be better equipped to establish the best course of action to optimize your DC.

Naturally, most companies want to extract the maximum useable value from a current facility. The following questions should be considered when determining how long an existing DC can realistically support current and projected growth rates:

DC Structure & Location
  • Is there room on the property for a potential expansion?
  • Will horizontal and/or lateral space be required?
  • Are load-bearing walls or offices in the way?
  • Is your property landlocked; if so, how will that affect your overall supply chain design or future optimization requirements?
Current Materials Handling Equipment (MHE) & Systems
  • Are current assets designed to enable your physical expansion?
  • Are current assets aligned for the physical building’s orientation?
  • Can alternative materials handling options improve your capacity?
  • Does the cost of overcoming the current facility’s challenges far exceed that of developing a new facility?
  • What are the associated costs of reconfiguring the existing facility?
  • How would that affect possible fulfillment disruption?
  • Would this cause a general reduction in efficiency due to operating out of an under-construction DC?

Companies often opt to adapt their existing facility for short-term efficiency, while planning a new facility—in a concurrent approach to ensure business continuity. Other incremental improvements to an existing DC facility can include purchasing/installing a new piece of equipment that can be transferred to a new facility in the future, implementing more-efficient handling processes and practices, and enhancing the current layout.

In my next blog post, I’ll dive into the three stages of DC optimization that ensure a company reaches their best DC outcome.

Chainalytics has undertaken numerous DC optimization engagements with companies spanning the consumer packaged goods (CPG), healthcare and food industries, to name a few. If you need more information on how to make your distribution center work harder for you, simply contact us using the form below.

Richard Koch is Associate Director for Chainalytics’ Transportation practice, where he supports the firm’s continued growth in the Asia-Pacific region. Richard has over 25 years of supply chain consulting experience, including facility design and engineering, outsourcing and third-party logistics and supply chain network optimization. He is also highly experienced with software evaluation and selection as well as operations management, with particular emphasis on freight and transport optimization.


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