GST continues to have significant, positive effects on supply chains, but that doesn’t mean they always come easy.
When speaking with a supply chain director recently, he explained some of the challenges his organization encountered during a recent warehouse consolidation design project. The conversation is just one of many we’ve recently had concerning new warehouse design.
“Legally, it is one warehouse. Physically, we will end up with two ‘warehouses’ under one roof. Financially, it is going to be two and a half warehouses. It is a cluster…”, the supply chain director stated. We’ll spare you the expletive he used to complete the sentence. Thanks to GST, the company decided to consolidate two of its existing warehouses (each run by two business verticals) into a single, larger warehouse. The last time they built a warehouse occurred when the mainframe was considered a modern gadget.
Under the “standard operating procedure” of designing a new warehouse, a real estate team was tasked with finding a location, then an architect firm was hired to design the new facility. Upon speaking to the managers of each business vertical, the architects created a design of two independent warehouses under one roof due to the, apparently, differing requirements. Around this time, the new supply chain director came on board and realised the problem.
One of the primary supply chain savings enabled by GST is the economies of scale factor via a reduction in the number of locations. While it sounds like an oxymoron, reducing the number of warehouses enables the construction of larger warehouses that allow for automation, full truckload shipments, higher utilisation of skilled labour pool, etc. Based on our experience, this strategy typically decreases the unit cost of operations in the range of 15-40%.
However, the financial savings are only half of the story. Multiple companies that we’ve supported with facility planning and design have also had this to say:
- We have too much (or too little) space: This issue pertains to storage areas, staging areas, office space, charging areas, aisle number and width, parking availability, entry/exit gates, and lunchrooms. A warehouse is truly like a city — there are a variety of areas, and the optimal balance is rarely achieved. The land areas chosen by real estate teams are too often selected without much or any consultation from supply chain teams. Even when consulted, some supply chain leaders lack any mathematical way of calculating the total area needed.
- The layout is not suitable for our processes: This is a funny one. If you have full control of the entire building process, how do you end up with a layout that dictates your processes? “How can you ask such philosophical questions?” an e-commerce fulfillment centre manager once asked us. A rhetorical question with self-directed sarcasm, we believe.
- We have not realised our MHE technology ROI: This one almost sounds like the company managing the warehouse is the victim. “MHE sales folks showed fancy demos and shiny slides. We fell for their sales pitch. Look at our situation now.” In reality, it is either the right machine in the wrong place, a lack of training or both. Mechanisation, automation, “autonomous-isation” (sorry, Shakespeare) — each is great for warehouse productivity, but only if they are designed, implemented, and used properly. Unfortunately, that’s a lot of “ifs.”
- Conveyors are hampering productivity: This is an easy one. When someone says that conveyors are slowing down, you know they were either installed in the wrong places or material flow was random before they were put in place. And it is now negatively impacted by the conveyors. The solution is to fix the free flow of material and implement structure.
- A consolidated warehouse is (or will be) costlier than our previous setup: This is where all the problems start to get identified. A company rarely takes up a project knowing the costs will be higher. The earlier this is identified, the better.
The later you are in your implementation timeline when these issues are identified, the harder it will be to find effective supply chain solutions. Thankfully the supply chain director mentioned earlier was fortunate to realise these issues before the warehouse broke ground. Not only were they able to avert a catastrophe, but they also reduced their CapEx by 18%. The estimated OpEx of the redesigned facility was 23% cheaper, and there was additional real estate available to increase usable space by 30%.
If your organization has a warehouse consolidation project on the horizon, utilizing the right resources and expertise of experienced professionals will ensure your company receives the desired outcome.
Vikas Argod is a Sr. Manager in the Supply Chain Operations competency at Chainalytics. Vikas specialises in warehouse design, process assessment and benchmarking, and service delivery processes in project-based business environments
Bennet Nelson Panikacherry, a Sr. Manager in Chainalytics’ Supply Chain Operations competency, has expertise in warehouse operations, 3PL operating model design, transformation program, and mergers & acquisition management.