Worst-Case Scenario
Assessing the risk of supply chain
disruption and being ready to respond
can make all the difference.
A
fter 9/11, supply chain management professionals placed increased
attention on potential threats and disruptions to their supply chain.
They placed greater focus on the perceived threats of terrorism and worked
hard to prepare for any related disruptions. Then came Hurricane Katrina, and
the realization that Mother Nature could deal just as difficult a blow to the
supply chain.
All of this increased focus on managing supply chain threats was a good
thing, but after the initial frenzy, some of that focus has died down. Yet the
number and degree of potential disruptions to supply chains remains very
real and companies need to keep the focus on contingency planning as they
would any other task.
A recent survey by Zurich Financial Services Group of supply chain executives found that some 51 percent of their companies experienced a
weather-related disruption last year.
And some 17 percent of the respon“Most companies
dents reported that the cost of one
are not as aware of
the risks of global
trade as they
should be ….”
Dean Stack
continued on page 2
Information for Members of the
Warehousing Education and Research Council
March/April 2012
In this issue...
Harbor Maintenance Tax—
Headed for a Showdown?
A little tax is causing big controversy.
4
Official Notice
WERC announces proposed slate of
Board candidates
5
Cost Effective Staffing
Am I getting my money’s worth?
10
At WERC
Member news and events.
11
Realize Benefits
From a Viable
Slotting Strategy
Financial, operational and
cultural gains are all achievable
through a sound, focused
slotting initiative.
S
lotting is a best practice, yet it just might be one of
the most underutilized or overlooked. “Most facilities have some form of organization to their SKUs in
stock,” observes Steven R. Murray, principal consultant
and chief researcher, Supply Chain Visions, West Bountiful, Utah. “Over time, most will consider putting seldom
used items ‘in the back’ and place frequently used items
near the shipping area, but they do not often refer to
this as ‘slotting,’ and they do not perform these moves in
any regular, organized way.” Murray, who also serves as
an auditor for WERC’s Warehouse Certification Program,
notes, “During my warehouse audits, one of the two
areas I find generally to be most weak is the slotting
process.”
“While slotting is recognized as a best practice, its
use is limited to traditional picking operations and
the most sophisticated stock keeping or warehousing
continued on page 6
strategy
Worst-Case Scenario continued from page 1
incident totaled $1.3 million or more. It’s not a matter to
be taken lightly.
There are many areas of concern that companies
need to address when it comes to disruptions. Things
like earthquakes, floods, accidents and more can all
wreak havoc on the supply chain. How companies identify, prepare and react to these threats can make all the
difference in making it through the disruption successfully or unsuccessfully.
Not a new concept
Developing contingency plans and staying on top of
them is not a new trend, according to Ken Ackerman,
owner of the K.B. Ackerman Group, Columbus, Ohio. But,
he says, there is increased awareness of it today. “People
now realize how much adversity can hurt,” he says. “They
spend more time thinking of
“It takes discipline to what could happen and how to
get ready.”
set up a contingency
Dean Stack, a leader at D & B
plan, but it’s a Supply Chain Management
requirement for Solutions, Short Hills, N.J., says
that 2011 brought even more
successful operations.” attention to the importance of
Ken Ackerman
contingency planning. “If there
was one thing 2011 taught us, it
was to plan for the unexpected—from the devastation
seen in Japan and Thailand to debt and credit crises and
protests and uprisings,” he says. “There is a growing
awareness that supply chain risk requires a broader perspective to analyze political and economic risks for the
region where the sourcing originates. This approach
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WERC assumes no responsibility for unsolicited manuscripts
or other materials submitted for review.
Editor: Rita Coleman
Copyright © 2012 by the Warehousing Education and Research
Council. All rights reserved.
Reproduction in whole or part without written permission is
prohibited. Internet inquiries: www.werc.org.
Writers: Amanda Loudin and Joseph Mazel
2
/ MARCH–APRIL 2012
gives companies a bigger picture, a more comprehensive view of supplier health.”
Still, Stack finds that most companies are not prepared as they should be. “Most companies are not as
aware of the risks of global trade as they should be—
they don’t have time or resources to deal with the
challenges of knowing, planning and managing the
unpredictable risk associated with doing business globally,” he explains. He offers these statistics:
80 percent of companies have no process at all
10 percent have an outline, but nothing implemented
10 percent have a process so complex, so resource
intensive, that it is impossible to apply
Getting your ducks in a line
So where does a company begin? Ackerman suggests listing what potential threats exist and what their
worst-case scenarios are. “Then see how likely and how
severe they could be,” he says. “For instance, an earthquake could be devastating, but unless you are in an
earthquake zone, it’s not much of an issue for you.”
Stack recommends establishing a clear, over-arching
view of suppliers, including non-tier one suppliers. “As
companies begin to outline supply contingency plans,
they need to be able to answer three questions,” he says.
1.How quickly can I access reliable information about
a supplier disruption or natural disaster?
2.How quickly can I analyze the information to
understand how the situation affects me?
3.How quickly can I make decisions about what to
do and act on those choices?
Speed and access to quality information is crucial,
Stack points out. “Supporting ground work such as
prioritizing suppliers based on criticality, identifying
alternate sources of supply and establishing a ‘reaction
team’ that’s ready at a moment’s notice are key to
making sure a contingency plan will operate smoothly
when put into play,” he explains.
Ackerman points to an Ohio company with concerns
about tornadoes as one disruption to operations. “They
built two campuses, 10 miles apart,” he says. “The
likelihood that both facilities could be damaged by a
tornado is very small, so they ensured they had a backup facility if needed.”
To establish the best plan for disaster, Stack says that
companies need to plan for the unplanned. “This is
something that is both a science and an art,” he says, “and
requires a very different set of skills and information than
lowering costs.”
He contends that companies need to:
Anticipate issues with much less lead time flexibility
Manage categories or risk that are well out of
their control
Have mitigation plans ready in wait. Best-in-class
companies take this approach and are competitively
positioned to rebound faster than those without
backup plans.
Identify where risk lies, which suppliers are most critical to operations, where alternate sources are, and
how to get that supply, and who in the company is
responsible for monitoring the risks.
All of these pieces must be in place to successfully
design a contingency plan.
Who and how often?
When establishing contingency plans, companies
must look both within and to the outside, to supply
chain partners. “You should get all the department heads
together to look at possible risk scenarios,” says Ackerman. “Each department should be clear on exactly what
their role would be in the case of disaster.”
He points out that this exercise should be performed
regarding each and every possible disruption. “Outline
who will take charge and what they will do,” he says. “You
need this group to get together and say ‘what if.’”
Stack echoes this and adds that planning needs to
extend beyond the company itself. “Businesses need to
extend responsibility for mitigating supply chain risks to
include all stakeholders in the supply chain, i.e., those
who are in the best position to monitor the conditions
that affect the stability of suppliers, including design,
sourcing and manufacturing,” he says. “Supply chain disruptions are not just procurement problems; they have
an impact on the entire operation of a company. Individuals at all levels of the company, from the plant floor to
the boardroom need to have a clear understanding of
what a supply chain disruption would mean to the company and each of their roles in lessening the chances of a
disruption and addressing one should it happen.”
How often should companies revisit their plans? Ackerman says it depends on the company and its particular
situation. “You should look at your plans at least every
two to three years,” he says. “But it does need to be
reviewed regularly, because things change.”
Stack says that companies need to understand what
success means for them and what factors can hinder that
success. “This should be an evolving process—one without a stop or a start—that cannot be completed annually
S i d e b a r 1:
Ten Ways to Beat Disruption
JP Morgan Chase has summed up a 10-step plan for ensuring
that your supply chain can avoid disruptions. Take a look and see
what your company can incorporate into its plans:
1. Assess risk. When deciding where to buy or manufacture
product, or where to locate DCs and which ports or other
transportation options to use, keep these risk factors in mind:
political and labor issues; physical and geographic risks, including weather and logistics/utilities infrastructure; and economic
and market risks, including fuel prices, currency and inflation.
Run scenarios in your organization to initiate thinking about
how to respond when one of these risks becomes a threat.
2. Create a response team. You don’t want people acting and
reacting on their own, without thinking through possible
consequences. Establish a team that will be responsible for
making decisions during a crisis, and communicate their
responsibilities through the supply chain.
3. Give yourself options. Establish and maintain relationships
with alternate suppliers and logistics networks. Use multiple
carriers, ports and transport modes.
4. Test your plan regularly. Besides testing and exercising your
own contingency plan, demand contingency plans from your
suppliers and logistics providers, then review and update these
plans regularly.
5. Keep documentation up to date. Make detailed processes and
authorizations readily available for the alternate and backup
brokers and suppliers you use in the event of an emergency.
6. Track current events. Continually monitor the countries or
regions impacting your supply chain for threats or trends
including weather, labor issues, fuel prices, inflation or political
changes.
7. Stress cross training. Develop a cross-trained workforce that
can react quickly and be moved to a variety of functional areas
within your operations.
8. Be knowledgeable and prepared. If you are in a hurricane
zone, keep an eye on the weather forecasts and understand
alternative transportation options and rates.
9. Save time and avoid congestion. Where possible, use customs
facilities that enable you to obtain and finalize clearances at a
location other than the port of entry.
10.Back up your files. Ensure that all trade-related documents are
backed up and saved in electronic format at an off-site location.
continued on page 9
/ MARCH–APRIL 2012
3
transportation
Harbor Maintenance Tax—
Headed for a Showdown?
A little tax is causing big controversy.
The seemingly innocuous Harbor Maintenance Tax (HMT) on U.S. imports is turning out to be not so innocuous.
Established in the 1980s, the tax of .125 percent on the declared value of imported merchandise is currently the target
of a Federal Maritime Commission (FMC) inquiry into whether or not the HMT
puts United States’ ports at a competitive disadvantage.
The FMC is first assessing
At the heart of the matter is whether or not the HMT influences the diverif the HMT does indeed
sion of cargo from U.S. West Coast ports to ports in Canada and Mexico.
put U.S. seaports at a
Senators Patty Murray and Maria Cantwell of Washington state voiced their
concerns about just that in a letter to the FMC, asking that the agency examine
disadvantage, and if yes,
the issue.
determining what to do
It turns out that containers that enter the United States via truck or rail
about the situation.
through a Canadian or Mexican seaport are not subject to the HMT. As such,
the volume of shipments through these access points has grown, while volume
through West Coast seaports has shrunk. The FMC is first assessing if the HMT does
indeed put U.S. seaports at a disadvantage, and if yes, determining what to do about
the situation.
Nix the HMT?
When the government first established the HMT, its purpose was to generate funding for the U.S. Army Corps of Engineers harbor maintenance projects, which include
dredging. Today the fund has a multibillion dollar surplus, which not surprisingly, has
come under fire. Critics are calling for the excess to be applied to reducing the federal
budget deficit instead of paying for needed waterways improvements.
Right now the tax generates an average fee of about $84 to $137 per 40-foot container. When it comes to high-value cargo like auto parts, that fee can go as high as $300.
While the HMT has been around for some 20 years, it has only been in recent years
that ports in the Pacific Northwest have begun to notice a drop in containerized traffic,
which the ports blame in part on the HMT. Between 2005 and 2010, the amount of
containerized traffic that passed through Seattle and Tacoma has dropped from 18
percent to 16 percent. At the same time, market share for British Columbian ports has
grown by 4 percent, from 8 percent to 12 percent.
Port interests claim that a land-border loophole is giving shippers incentives to
avoid U.S. ports and are requesting that the government change the laws to eliminate
the incentives.
Another View
While the port interests of Washington state remain steadfast in their belief that the HMT is partly to blame for the
drop in port traffic, others disagree. Shipper groups, retailers, and the Coalition of new England Companies for Trade all
take a different view.
These groups claim that the drop in U.S. West Coast port traffic can be attributed to the fact that ports in British
Columbia are just closer to Asia, by as much as a day and a half. They also point out that rail service from these ports to
the U.S. Midwest is faster and more affordable than that from the U.S. West Coast. These groups maintain that eliminating the tax will have no impact on traffic volume into the West Coast ports.
Some of the debate also centers around the HMT system and whether or not it needs to be updated, regardless of
its impact on U.S. West Coast ports. Many organizations claim that the system is broken and needs a fix. These groups
say that the HMT’s surplus, along with the fact that it is assessed on all U.S. ports even though not all ports require
dredging, demonstrate that it is no longer the solution the United States needs.
4
/ MARCH–APRIL 2012
The History of the
Harbor Maintenance Tax
The Harbor Maintenance Tax (HMT) was enacted by
Congress in 1986 to recover a portion of the cost of
maintaining, not improving, the nation’s deep-draft
navigation channels. The amount of tax paid by the
shipper was based on the value of the goods being
shipped. In addition, a cost-share formula was implemented for improving (widening and deepening)
harbors and channels, with local port sponsors
paying a part of the cost and the Federal government paying a portion.
Congress decided to fund 40 percent of maintenance
costs from the HMT. An ad valorem tax, rather than a
tonnage tax, was chosen to minimize the impact
on U.S. exports, particularly price-sensitive bulk
commodities.
In 1990, Congress more than tripled the HMT to
recover 100 percent of maintenance dredging
expenses.
The U.S. Supreme Court issued an unanimous decision in March 1998 finding the HMT unconstitutional
as applied to exports. The decision states that the
HMT is a tax, not a user fee, because the ad valorem
tax is not a fair approximation of services, facilities or
benefits furnished to the exporter.
Source: www.aapa.org
Fixes?
Should the FMC find that the HMT does in fact
impact the volume of traffic through the West Coast
ports, things could get even more interesting. The Puget
Sound groups are pushing for an “equitable fee” to all
U.S. bound cargo. They argue that an HMT or equivalent
should be applied to international cargo passing from
Canada by land across the U.S. border.
A move like this, however, could obviously ruffle some
feathers in Canada. The country is already tuned into the
HMT argument and has stated that should a universal fee
go into effect, it would consider imposing a similar tax on
cargo arriving into Canada from the United States.
Not only do Canada’s policies need to be considered,
but those of the World Trade Organization’s General
Agreement of Tariffs Taxes and NAFTA as well. Should
the United States decide to expand the HMT, it could face
penalties and sanctions through both of these agreements.
No matter what direction the United States decides to
take with the HMT, one thing is for certain: there are lots of
players in this game and finding a solution that makes
everyone satisfied will be easier said than done.
Official Notice
In accordance with the bylaws of the Warehousing Education and
Research Council, notification is hereby made to the following:
Notice of Annual Meeting: Pursuant to Article VI, Section 1 of
the bylaws, the annual meeting for the Warehousing Education
and Research Council will be held May 8, 2012, at the Atlanta
Marriott Marquis in Atlanta, Georgia.
Notice of Proposed Slate of Candidates: Pursuant to Article IX,
Section 5 of the bylaws, the nominating committee has proposed
the following slate of candidates for the officer positions of the
Warehousing Education and Research Council. Election of the
officers will be held on Tuesday, May 8, 2012.
Michael J. Mikitka
Chief Executive Officer
WERC
PRESIDENT-Elect
Gregory J. Javor
SVP Supply Chain Operations
Global Logistics
Starbucks Coffee Company
VICE PRESIDENT
Michael B. Wohlwend
Vice President
SAP Americas
SECRETARY-TREASURER
Paul M. Avampato
VP, Catalyst
Kraft Foods
* The bylaws stipulate that at the annual conference the current
vice president shall automatically assume the duties of the office
of the president until the next conference.
www.aapa-ports.org/Issues
/ MARCH–APRIL 2012
5
processes
Realize Benefits from a Viable Slotting Strategy continued from page 1
distribution facilities,” states Sandy Stephens, principal,
Johnson Stephens Consulting, Inc., Smyrna, Ga. “Recent
budget cuts and staff reductions have limited the availability of support staff to perform the finer details of
operations, even though many managers recognize the
value of slotting as regularly scheduled maintenance.”
Meanwhile, Dan Basmajian, president, Optricity,
Research Triangle Park, N.C., shares, “Slotting practice
today is still thought of as a ‘nice-to-have’ rather than a
‘need-to-have.’” While he understands that the critical
tasks of shipping and receiving product “can be done
without paying much attention to slotting, the labor
required to do so is most likely more costly than when a
slotting strategy is defined and maintained on a regular
basis.”
Slotting’s benefits noteworthy
Warehouse slotting is defined in WERC’s Warehousing & Fulfillment Process Benchmark & Best Practices Guide
as “the strategic placement of products within a warehouse facility. Its objective is to maximize the efficient
use of a warehouse’s available cube space, improve storage and picking processes, and
…most advanced reduce warehouse handling costs by
optimizing product location and balslotting solutions ancing workload.”
Moving stock around is always
have the potential to
non-value-added work when it is
yield rapid payback.
done, according to Murray. “But it
Dan Basmajian
will more than make up for the
investment during regular operations when items to be picked are properly positioned,”
he explains. Another benefit “that does not show on the
books is the cultural improvement associated with simply recognizing that the facility operates smoothly.”
Basmajian believes that DC management “needs to
be motivated and perhaps financially incented to maintain a good slotting strategy.” He advises that most
advanced slotting solutions have the potential to yield
rapid payback, and offers the following examples:
Increased picking productivity:
Due to reduced travel times, plus 10 percent;
For break pack operations, plus 15 percent.
Increased replenishment productivity:
Full case operations, plus 10 percent;
Break pack operations, up 12 percent;
Reduced damages, 40 percent.
Indirect benefits achieved through the use of
advanced slotting software include product grouping,
ergonomic improvement leading to enhanced safety
6
/ MARCH–APRIL 2012
and efficiency, reduction in operating and capital expenditure costs, improvement in order quality, reduction in
inventory damage, and enhanced service readiness.
Slotting strategy key
Strategies and rules must be developed for each
operation and be formally defined and communicated
to the DC staff, says Murray. Slotting strategy can depend
upon many elements: movement; type of pick (each,
case, pallet); type of product; weight; size; value; hazardous status; and shelf life, among others.
Stephens recommends that slotting strategy be
divided into two phases: initial setup and maintenance.
“Initial setup is best achieved as a formal practice related
to seasonal or catalog cycle assignment of SKU locations,” he explains. “Maintenance is a smaller scale
endeavor performed on a schedule.”
Before embarking on a maintenance initiative complete a cost-benefit analysis to model the expected labor
hour and service time reductions. “The positive impact
must be compared to the cost of the analysis and the
cost of the maintenance moves,” Stephens notes. “Larger
facilities with more constant and complex product mix
will have the greatest potential for improvement.”
“One of the most important steps to implementing a
slotting strategy is to keep the strategy and the process
as simple as possible,” according to Basmajian. “At the
same time, any slotting tool in use must accurately
depict the DC operational capabilities and generate slotting recommendations that are useful and useable. The
activity can be formally defined even if the ongoing
maintenance of a slotting strategy is done weekly,
monthly, quarterly, seasonally, or annually.”
Slotting tools still evolving
Slotting technology ranges from basic to sophisticated. There are spreadsheet templates, stand-alone
software tools, modules within WMS systems, in-house
managed solutions, “Cloud” or other third-party hosted
solutions, and consulting services which can assist in
creating and managing slotting solutions, according to
Murray.
“Almost any inventory management system will
track transactions in a way that you can determine how
frequently an item is picked,” he explains. Using this data
and product characteristics you can create a spreadsheet
that helps to determine what to move and where. More
sophisticated WMS systems can prepare tasks to command workers to move the stock to available locations
as needed.
S idebar :
Defining Slotting Strategy Objectives
Warehouses and DCs, over time, experience operational
issues that to differing degrees may adversely impact process flow, resource allocation, and performance measures.
Often the solution is found in the development and
implementation of a viable slotting optimization strategy.
“Warehouse slotting optimization strategy is based on
achieving and maintaining a number of defined and continuously communicated slotting objectives,” maintains
Dan Basmajian, president, Optricity, Research Triangle
Park, N.C. Among the objectives he cites:
Improve putaway, replenishment, and picking productivity by reducing travel distance by increasing
proximity of faster movers to receiving and shipping
docks.
Improve picking productivity and reduce labor costs by
reducing travel distances to pick slots by slotting
slower moving items at the end of the pick path.
Improve picking productivity by reducing reach distance to items in pick slots by slot profiling faster
moving high velocity items in the “Golden Zone”
(between the order picker’s hip and shoulder).
Increase top-line revenue growth through improved
customer service, quality and productivity.
Minimize overtime and reduce labor costs by improving putaway, picking, and replenishment productivity.
Increase warehouse space utilization by improved pick
“Inclusion of slotting as a companion of Tier 1 WMS
offerings elevated the status of the practice,” Stephens
maintains. “Today, powerful tools with optimization
engines and graphical presentations of results are affordable and effective.” Data can be input automatically from
ERP and WMS systems for analysis, which can be performed by internal staff, corporate staff, or outsourced.
For example, consulting firms such as Johnson Stephens
Consulting have slotting tools to perform the analysis
and develop action plans for clients.
Basmajian maintains new slotting technology is
available that can find optimal and near-optimal slotting
solutions across a much wider landscape. “Where it was
initially common to see the use of slotting software in
low margin/high turn operations, it is now recognized
that similar (or better) benefits can be derived from
using the latest technology software in other types of
environments, including high SKU count/low turn environments as well as low SKU count/super high turn
and reserve slot assignments to reduce capital expenditures and minimize need for outside warehouse
space and/or facility expansion.
Effectively handle new, seasonal and promotional SKUs
having significant fluctuations in volume.
Efficiently meet shipping volume and order fulfillment
cycle schedule requirements by maximizing picking
productivity and throughput.
Minimize pallet building and in-transit product damage through proper sequencing of items in pick slots
(crushables, case heights, case densities, liquids, glass,
bags, odd shapes, etc.).
Improve customer service and order quality through
increased picking accuracy (like item slot assignments,
reduced miss-picks and short ships, etc.).
Reduce employee injuries by slot profiling heavier
items in the Golden Zone slots and lighter items in top
or bottom slots.
Reduce employee safety, inventory storage, and facility
risks by properly locating items (aerosols, hazardous
materials, flammables, oils, etc.) in special areas.
Improve customer/retail receiving and stocking productivity and reduce labor costs by configuring the
warehouse in a layout similar to the retail store.
“Inclusion of slotting
as a companion of
Tier 1 WMS offerings
elevated the status of
the practice.”
environments,” he explains.
Newer slotting technology
includes the ability to precisely
model real world operating
Sandy Stephens
environments across many
warehouse scenarios, yielding
usable results that can save significant amounts not only
in labor costs but also in space utilization, which may
result in deferring a warehouse expansion through better slotting/profiling.
Slotting practices at work
Velocity is often used to describe the basis for slotting analysis. Measures of velocity include picks, hits,
cubes, units, cartons, pallets and restocks. “Costs for each
move related to a SKU must be considered to truly optimize slotting,” says Stephens. “Stocking may be
continued on page 8
/ MARCH–APRIL 2012
7
Realize Benefits from a Viable Slotting Strategy continued from page 7
performed in pallet quantity or case quantity, with picking performed in pallet, case, or unit quantities. The costs
for each movement are very different and picks and hits
can vary greatly.”
The visit, or travel time, to the slot may require more
time and effort than the actual pick from the location.
“The factors must be considered in granularity to achieve
optimization, says Stephens. “Analysis and classification should be
“Practical slotting based on cost to operate rather
or simply proper than solely on SKU velocity.”
Automated systems, such as
placement of
carousels, vertical lift modules, and
products will always other “goods-to-worker” systems
consider ergonomics can minimize the work content
and employee safety/ associated with picking and stockwell being.” ing. “The location assignment for
automated systems is not as imporSteve Murray
tant as the MHE unit, zone, or pod to
which the item is assigned,” explains
Stephens. Items which always ship together should be
assigned to the same pod of carousels but ideally to different carousel units. This allows each carousel to
function properly by moving to location while an item is
picked from another carousel in the same pod.
SKUs of similar velocity which do not ship together
should be spread equally across the pods to balance the
workload among the workers, he says. “The justification
of maintenance moves in an automated system is more
difficult to achieve since the minimized labor content
also minimizes the opportunity for improvement,” Stephens maintains.
Lots to consider
Murray explains, “Practical slotting or simply proper
placement of products will always consider ergonomics
and employee safety/well being.” Other considerations
are related to how products are placed in cartons (loose
pick) or on pallets (case pick). Heavier and larger items
should be picked first and placed on the bottom, therefore they should be slotted in a way that allows for this to
happen.
“Intermediate and slow-moving items may be slotted in a different area of the warehouse or a separate
building, or could be located on a higher level of the
racking within a common zone,” he offers.
8
/ MARCH–APRIL 2012
“Golden Zone” rules typically have the fastest of the
fast items slotted at a height between the shoulder and
the waist. “The challenge is determining the trade-off
between ‘bend-and-reach’ ergonomics and productivity
versus the opportunity to reduce horizontal travel down
the aisle,” says Basmajian. “A clever solution is the productivity wedge. Two productivity wedges may be
combined to form a ‘productivity diamond’ for use in
those situations where a selector has been assigned a
zone to pick, that zone usually consisting of two or more
contiguous bays.”
Productivity diamond rule
The productivity wedge/diamond slotting rule considers the trade-off between bend-and-reach and
horizontal travel by a selector. It applies the rule to assign
items to slots based on that trade-off. “One extreme
trade-off,” says Basmajian, “is that bend-and-reach always
costs less in time than horizontal travel.” In this situation,
one might assign all levels of an entire bay the same
selection productivity value, with the next bay down the
aisle having lesser productivity value, and so forth.
The other extreme trade-off is that horizontal travel
always costs less in time than bend-and-reach. In this situation, he explains, “One might assign an entire level or
levels between the shoulders and waist the highest productivity value, with lower and higher levels given a
lower productivity value.” If the trade-off between the
two is considered, then the productivity wedge/diamond takes shape.
“The pick path must be maintained regularly in order
to benefit from the productivity based slotting,” he
advises.
“My advice to the warehouse/DC community regarding slotting is not to wait for some sort of ‘magic bullet’
which can cure all of your problems,” Murray says. “Start
with what you have, even if it is only a usage report in
Excel. Develop a sound strategy based on your facility
and products, and get control of the situation.”
Copyright @ 2012, WERC. All rights reserved.
Steven R. Murray, Supply Chain Visions, www.scvisions.com
Sandy Stephens, Johnson Stephens Consulting, Inc.,
www.johnsonstephens.com
Dan Basmajian, Optricity, www.optricity.com
Worst-Case Scenario continued from page 3
S i d e b a r 2:
or quarterly,” he says. “Instead, supplier risk and contingency
planning needs to be built into the culture of an organization so that risks are constantly vetted and assessed.”
One company that successfully pulled this off back in
the ‘80s was Kmart. The company had a one million square
foot DC that housed aerosol cans, among other things. The
facility caught on fire and that fire spread quickly because
of the cans.
The fire took place in the middle of the day, and all the
DC workers were able to escape unharmed. However, the
facility was destroyed. Because of Kmart’s contingency plan,
however, the company had back-up facilities that were able
to take over the capacity. No customers were any the wiser
and business continued on without interruption.
That’s the kind of result that all companies should be
after when designing their contingency plans. “There’s no
question that contingency planning is a painful exercise,”
says Ackerman. “Americans are optimists and don’t like to
face potential problems. It takes discipline to set up a contingency plan, but it’s a requirement for successful
operations.”
Copyright @ 2012, WERC. All rights reserved.
Ken Ackerman, K.B. Ackerman Group,
www.warehousingforum.com
Dean Stack, D & B Supply Chain Management Solutions,
www.supplymanagement.dnb.com
What Gives Execs Gray Hair?
Accenture recently put together a survey of supply
chain executives asking what threats of disruption they
worried most about. Interestingly, three of four companies reported having a disruption over the past five
years. Below, the threats the surveyed execs say will
likely increase in the near future:
Volatile fuel prices
60%
Supply of raw materials or parts
50%
Cost of labor/materials due to
currency fluctuations
44%
Supplier planning/communication issues
40%
Manufacturing capacity
39%
Port operations and customs delays
36%
Service failures due to longer
supply lines/lead times
36%
Delivery/quality performance of
supply chain partners
36%
Geopolitical instability
35%
Reduced accuracy of forecasting/planning
34%
Logistics capacity and/or complexity
33%
Inflexible supply chain technology
33%
Natural disaster
31%
Terrorist infiltration of cargo
30%
Nine Critical Components of a
Successful Contingency Plan
Certain considerations are important when facing a deviation from plan over a longer period of
time; others become especially important when in a crisis mode. These nine components must
be reviewed in a contingency situation no matter what triggered the requirement. In developing your contingency reactions, ask the following questions:
1.Facilities. Will you have enough physical support? Are your warehouses and offices located
in the right places?
2.People. Will you have enough people with the right core competencies to carry on the work?
What will be the burnout time for people who must work around the clock?
3.Information. Do you have enough facts to make decisions? How risky is it to initiate actions
on what information is available? Are you able to get the information you need?
4.Time. How fast must you react to the situation before it gets even worse?
5.Image. What must you do to protect the public perception of your company?
6.Technology. Can you leverage technology as a replacement for time or people?
7.Tools and Equipment. What special tools or equipment are needed to carry out your mission? Where and when
will the tools and equipment be needed?
8.Leadership and Managership. What leadership and managership behaviors are needed to instill the confidence
of the public in your company?
9.Assumptions. What assumptions have failed, requiring you to take action? What is the antidote for these
best guesses you have made about your business?
Source: http://www.brightermindspublishing.com
/ MARCH–APRIL 2012
9
people
Cost Effective Staffing
Am I getting my money’s worth or getting what I am paying for?
By Tom Landry, Principal, Allegiance Staffing
W
hen you purchase any capital equipment a
very well thought out process takes place.
This process is specific in design with the sole outcome
of maximizing value for the dollar. This is standard
business practice (“Total Cost of Ownership”) in any successful operation where efficiency is everything. The
question is do you use that same process for everything?
What about staffing services? To evaluate if we receive
the desired outcome let us review a real situation and
see if the process delivered.
Company A is a large retail DC in a major metro area.
It handles dozens of lines and hundreds of SKUs. Much of
their product line is seasonal causing several small spikes
during the year and a large one before the holidays.
Accuracy in picking is critical. Client charge backs for
errors are high, along with the associated cost rework.
They utilize supplemental temporary help to keep the
labor cost as much of a direct variable to sales as possible. Quality of the temporaries is vital to quality control.
The equipment purchase
Two years ago a decision was made to purchase a
pick to light system to improve efficiency, speed up the
pick rate and improve accuracy. The entire “C” suite was
involved as well as facility management. A capital investment of $500,000 was made and the system delivered as
promised. Accuracy and speed improved, efficiency was
increased and the company saved several hundred thousands of dollars. The process worked. The “C” suite had all
their issues answered, the operations team had all their
requirements met and the purchase was a success.
Now two years later Company A acquires several
new large clients and expands rapidly. The seasonal
demand is two fold and the need for extra labor drastically increased. The current supplier can’t fill the need
and more providers are brought in to supplement.
The hiring process
Was the same process followed as in the equipment
purchase? No. Human resources was tasked with finding
the extra help. Operations was left out of the process
because they were too busy. Prospective staffing suppliers were given basic information of pay rate, base job
description, shift time etc.—nothing related to job performance metrics, KPIs, or successful skill sets. The result
10
/ MARCH–APRIL 2012
was five services, supplying bodies. Turnover was out of
control, accuracy was affected, case count dropped and
overtime went up. Labor Cost as a percent of DC cost
was way out of balance. Supplemental help spend was
now costing over three million dollars.
The result
The CFO sees the spend and labor cost ratios and
demands savings. Procurement gets the task and sets
out to save the company money. An RFP is sent to every
large staffing company in the area. However, there is
nothing in the RFP that addresses the desired outcome.
There is no KPI standard, no case count expectation,
just: How many branches do you have? Can you supply
reports? Do you have a computer? Are you minority
owned?
In addition the suppliers can’t talk to any of the
stakeholders in operations, HR or finance to find out
what the company is really trying to accomplish. So
forced to guess, the suppliers quote as low as they can
and the decision is made based on the company with
the lowest markup.
Procurement says we saved 10% by cutting the
markup, the CFO says great, and operations asks who are
these guys? Turnover is excessive, accuracy is down and
more people are needed to keep up the case count. End
result: the $300,000 savings in markup gets used in
increased cost of overtime, training, chargebacks,
reworks and added head count.
What happened?
The entire company was involved in purchasing the
pick to light system but few got involved in the ongoing
cost of staffing. Where do you think the largest potential
savings are: One-time of $500,000 spend vs. every year
cost of $3,000,000?
Doesn’t the “C” suite want to know with whom they
spend three million dollars? Shouldn’t operations share
the performance metrics with the supplier and hold
them accountable? Why doesn’t procurement speak to
the stake holders? Why aren’t prospective suppliers
given the opportunity to speak with everyone involved?
If you are currently unsatisfied with your staffing
solution, maybe you should review your procurement
process and buy staffing like everything else: consider
the Total Cost of Ownership.
Tom Landry, Allegiance Staffing, www.allegiancestaffing.com
At WERC
Here are some things to
keep you up-to-date on
what’s happening at WERC
WERCouncils are smokin’
All WERC & Some Play
WERCouncils across the country are offering a variety of programs in the coming months. Check out the website for
complete information and registration.
Just because you can choose from over 70 educational
presentations at the WERC conference doesn’t mean that
you can’t have some fun too! Join us in May at the Atlanta
Marriott Marquis for four days of quality programming and
time to connect with your peers at receptions, meals and
the opening session. Check out all the sessions at
www.werc.org and save with the EARLY BIRD fee.
North Texas
March 1
Kohler Facility Tour
11:30 am – 1:00 pm
March 29
Henry Schein Facility Tour
11:00 am – 12:00 pm
Utah
March 7
Associated Foods Facility Tour
10:30 am – 1:00 pm
Southern California
March 8
New Balance Facility Tour
9:00 am – 11:30 am
Chicagoland
March 15
Making Sustainability Sustainable
in the Distribution Chain
5:00 pm – 8:00 pm
April 18
Pampered Chef Facility Tour
1:00 pm – 3:30 pm
June 13
Testa Produce Facility Tour
10:00 am – 1:00 pm
Another One!
Serve as a conference volunteer!
It’s fun. It’s easy. It’s rewarding
Serving as an ambassador or helping out at the registration
desk are great ways to take an active role in the WERC
conference. Volunteer for one or both! Contact Ellen Pendola
at 630.990.0001 or [email protected].
Registration Desk
Welcome people to conference,
register them, hand out materials and answer questions.
Ambassador Program
Conference offers a friendly
atmosphere and ambassadors
help make that happen. You’ll
answer questions about
conference and about WERC
and assist staff in directing
attendees to sessions and
events.
WERC proudly recognizes the
OHL facility in Dallas, TX,
as a WERC certified facility.
Logistics now has its own
TV show!
WERC’s Warehouse Certification Program is proud to be a
sponsor of Move it!, a new online television series highlighting the people, technologies, equipment, and strategies that
are instrumental in keeping the nation’s supply chain running
smoothly. Starring Emmy® Award winner Steve Thomas, former host of PBS’s “This Old House,” Move it! is now available
for viewing at www.MoveItShow.com.
www.werc.org
/ MARCH–APRIL 2012
11
Periodicals
Join your peers at these must-attend events.
Early Bird
Registration
ends
March 27!
For complete program and up-to-the-minute conference information visit www.werc.org