Inactive suppliers: HR had approximately 3000 different suppliers, only about 1000 suppliers were used. Suppliers’ management was inefficient. The inactive resulted in waste of resources including human resources, files management, Information system overload, etc. Inactive SKUs: HR had approximately 500,000 SKUs, only about 50 per cent were active at any given time. Huge inventory carrying costs happened when almost 50% inactive SKUs stayed in the DC or warehouse. Dull and Repeating Work for Employees: staff spent a lot of time on the phone expediting shipments to stores, and confirming and adjusting previous orders with suppliers. Employees’ career development would be retarded by the dull job. It would made the high turnover rate and it would be costly to hire and train the new employees. Suppliers’ Mismanagement: Suppliers just delivered the products to the DC without prior notification. We were not able to anticipate what to expect daily.
It would cost time and human resources to confirm and adjust the orders with the suppliers. Lack of Communication with Merchandiser: staff did not get any information from merchandiser. They were constantly pushed by stores to follow up on orders delivery and transportation service providers. The unsmooth communication and unequal information increased the staff burden and made them involved in a vicious cycle. Unclear Purchasing Process: The receiving staff did not know what merchandises would arrive with quantity and quality. The unclear process made the staff confused what they were going to do, which lower their morale. They would be likely to shirk their responsibilities when ad-hoc happened. Disordered DC: Inventories were in everywhere in the DC – underneath the conveyers and scattered across aisles.
It was hard to find rooms for unload trucks and process merchandise. Also it was difficult to find the right merchandise. The disorganized DC would decrease the productivity directly. It seemed overloaded and needed the overtime or temporary staff, which affected the morale of the employees. The misplacing inventories could have potential hazard to the employees. Stock outs at stores: Store managers constantly complained the stock outs was caused by the DC. Customers cannot get what they need on time and will most likely to lost sales and possibly lost customers. The fashionable products would be outdated and probably return to the secondary warehouse to increase the inventory cost.
How can HR redesign the DC layout and improve process flow to solve the congestion in two warehouses so as to reduce the warehouses costs and to make great profit? Analysis:
Strengths – HR belongs to Wittington Group headed by Canadian business leader Galen Weston who is listed as the second wealthiest in Canada with an estimated net worth of $US 8.9 billion. The parent company can support HR to complete the improvement. Weaknesses – The problems of the business process, DC layout, warehouses congestion, human resources, stockouts caused high expenditures. Opportunities – The fashion demand would be increase as the increased tourisms would eager to purchase the luxury products in Canada. Threats – The competitors like Saks Fifth Avenue could threaten to HR within the following years.
For HR, how to work out some solutions to redesign the DC layout and improve process flow to solve the congestion in two warehouses had been put forward on agenda. We would consider the following factors.
1. Merchandising Process? (belongs to logistics?)
Merchandising is a specialized management function within the fashion industry. It is the business that moves the world fashion from designers’ showroom to retail sales floor and into the hands of consumers. It is the internal planning that takes place within HR in order ensure adequate amount of merchandise are on hand to be sold at prices that the consumers are willing to pay to ensure a profitable operation. These processes involve in the followings: 1) Analysis: is required because HR needed to understand the needs and wants of our target audience. 2) Planning: It is necessary to plan since the merchandise to be sold in future must be bought in advance.
It contains sales forecasts, merchandise budgets, and model stock plans. 3) Buying: Merchandise to be sold in HR, needs to be procured from others. It still needs the process like industrial procurement including supplier evaluation and selection, negotiation, and ordering. 4) Distribution: It is vital to determine where merchandise is needed and ensure that the merchandise reaches the required location at the right time and the right condition. It consists of transport, receiving, markings, and handling. 5) Control: As the function of retailing involves spending money for acquiring of products, it necessary to control the amount of money spent of buying. It comprises stock turnover, financial management, and operational control.
2. DC or warehouse
Warehouses emphasize the storage of products and their primary purpose is to maximize the use of storage space. In contrast, distribution centers emphasize the rapid movement of products through a facility and thus attempt to maximize throughput (the amount of product entering and leaving a facility in a given time period). Since the incoming goods were to be immediately processed and shipped to the stores, DC was designed reasonable. HR’s secondary warehouse was designed to remain the merchandise until shipped to Last Call. Merchandise was returned again to the secondary warehouse until satisfactory arrangements for disposition were made. Whether closing the secondary warehouse depended on the cost, space utilization in DC and so forth.
3. DC process flow
Cross-docking can be defined as a process where a product is received in a facility, occasionally married with product going to the same destination, then shipped at the earliest opportunity, without going into long-term storage. The 80,000 square-foot DC was designed as a flow-through warehouse. If we combine DC and warehouse, the cross-docking could be designed to resemble a motor carrier terminal—rectangular, long, and as narrow as possible or could be on one wall or placed at 90 degrees to one another.
4. DC layout design
Before we reconfigurae DC layout, merchandise should be studied in terms of its special properties. We also should pay more attention to the trade-offs. Many trade-offs are inevitable when designing the structure as well as the arrangement of the relevant storage and handling equipment. Some trades-offs could be considered according to HR’s situation.
1) Build out versus build up
It is cheaper to build up than build out. Building out develops horizontally and requires more space. However, as one builds higher, building costs decrease, while warehousing equipment costs tend to increase.
2) Fixed and variable slot locations
A fixed slot location refers to a situation where each SKU has one or more permanent slots assigned to it. We probably could store inactive SKUs or the merchandise from the secondary warehouse if we decided to combine DC and warehouse. Fixed slot systems may result in low space utilization and generally need to be larger than a variable slot facility. Whereas a variable slot location involves empty slots being assigned to products based on space availability. We could apply it to the merchandise in DC.
3) Conventional, narrow, or very narrow aisles
Compared to conventional aisles, narrow aisles can store 20% to 25% more products, while very narrow aisles can store 40% to 50% more products. Yet the handling equipment like forklift would be special designed.
4) Order-picking versus stock-replenishing functions.
When order pickers and stock replenishers are allowed to work in the same area, fewer managerial personnel may be needed but it may also lead to congestion due to the number of workers in a relatively limited space. One suggestion is for the two sets of workers to use different aisles for their activities, but this requires a superior information system.
5. Human resources allocation
We had 2 shifts in DC, and 2 supervisors and 10 hourly employees. The human resources strategies would be changed if closing the secondary warehouse. Dealing with the 12 employees should comply with the Contract Law and other regulations.
6. Stockouts and congestion
The improved merchandising process and the resigned DC would solve the issues correspondingly.