Capacity, Too Much or Too Little

So how much space do we "need"? A typical industry response would be that at it's fullest point, a DC needs to be at 85% capacity. So what does that actually mean? Does that number have to do with reserve capacity, or active, or both? In my experience, 85% is a good number as long as we are only talking about reserve locations (secondaries). When a DC gets tight on space, putaways end up going to some really far away points in the warehouse. By far away, I mean nowhere close to the active location. Most systems have a progression that starts with right above the active and ends with "out in the parking lot". Also, nobody wants to pay for storage trailers. Can you have too much reserve capacity? Well yes, too much reserve capacity can create an opportunity to house too much inventory. With the costs however, associated with too little space, most building engineers would likely tell you that they would rather err on the side of too much reserve, than too little.

When figuring active capacity, most distribution professionals simply just divide the number of assigned locations by the total number of configured actives. So basically, if you have 100 active locations, and 80 of them are assigned, then you are at 80% capacity. For the sake of simplicity, I believe that this the best way to discuss active capacity, particularly with logistics analysts and inventory analysts, who are predisposed to creating as much Inventory waste as they possibly can. But this number is also important for the slotter. If he is in the middle of the busy season, a slotting supervisor can create capacity in a large area by moving the slower moving SKUs to an area with smaller locations. Another way to increase capacity is to de-slot SKUs that are not in the building at the present time and have no outstanding purchase orders against them. If an item is out of season, or on clearance, then it definitely does not need to be occupying that valuable real estate, not when it is busy, but not even when it isn't. When the busy season ends, the SKU count will often drop by as much as 20%. If during that time you leave those SKUs spread out across say ten aisles, instead of reducing that path to eight, you are making a huge mistake, but one often made by DC Operations. Remember that slotting is all about reducing travel time and creating dense picking. A "spread out" DC accomplishes neither of those goals. So does that 85% number apply to active locations? In my opinion, no. At your busiest time, the time when your SKU count is the highest, your active capacity should be between 95 and 100. That's right, and when that SKU count decreases, the number of aisles/areas that you pick out of should also.

A lack of capacity can be costly, in terms of re-work, double handling, and outside storage. But too much capacity is equally as dangerous, in my view. I have said it for years, and it irritates the heck out of many that hear me say it, but too much space is the enemy of productivity. I believe an effective operation is one that operates in as small a space as possible. Lots of room hides things like inventory waste, and creates transportation waste, and the waste of motion. A spread out warehouse is easier to manage, but easy is often a synonym for inefficient. If you have an order filler that is running at 100% productivity, and you decrease his pick path by 10%, assuming that 60% of a picker's productivity is travel time, in theory that individual should now be hitting 106%. If you have 50 bodies filling orders, now you only need about 47. Another way to shorten steps is to create smaller actives more suited to the amount of inventory you normally have on hand for that SKU. For example, if all you have are carton flow locations that hold about 20,000 cubic inches of inventory, and half of your SKUs never have more than 10,000 cubic inches onhand, then you need to get rid of half of those flow racks, and put up some shelves. Shelving, in this instance, could reduce the amount of space needed by as much as half, maybe more. All of that empty space in those flow racks, is, you guessed it, waste.

Capacity is a touchy subject. Everybody knows how expensive it can be when a DC runs out of room, but going to the other extreme and building a runway is not the answer. Also, when that busy season dies down, you must resist that temptation to relax and take it easy. No, if the SKU count decreases, the footprint should also. Running a lean operation should never be easy, but then again, easy should never be the goal.

Is Slotting Software Really Worth The Purchase?

"People should not be subservient to technology."- Jeffrey Liker from "The Toyota Way".

The question reminds me of Toyota Way Principle 8, which states, "Use only reliable, thoroughly tested technology that serves your people and processes." In fact, the subject brings to mind several of Toyota's principles, most notably 7, 9, and 12.

No, I am not saying that all slotting software is junk, or that slotting tools do not have any use. What I do want to do though, is challenge the thinking that causes one to consider purchasing a slotting tool. What are your expectations? In operations, we tend to love new technology. I know this because the free logistics periodicals I read each month would not be free if somebody were not purchasing the fancy gadgets advertised on every other page. Again, why are you considering purchasing, or why did you purchase slotting software? What did you expect from it? Did you really think that you could put a person, any person behind that computer monitor and expect them to work magic? 

I have used, or attempted to use software, and I have to tell you, as an operator, I don't trust it. I was once being interviewed by a gentleman who was proudly explaining to me how well the software his company had purchased would work. He told me how the box would change colors when it was time to move the product. I asked a simple question. "What if there is an outstanding PO on that SKU?" The question left him perplexed. Apparently, the people who built that software had never worked in a warehouse. 

I realize that some of these slotting tools have some really good reporting, and can be configured to do some really cool things, like maybe consider inbound POs. But can a company not, with a good logistics IT team, create that same reporting themselves? It has been my experience that most can write better, more customized reports. If your company is sold on slotting software, please remember, that all you are purchasing is a tool. You are not purchasing a person that understands the seasonality of your company, it's product mix, it's swings in inventory, event pushes, etc. Also, remember that this tool you are purchasing, likely has the word optimization in it's title. Think of optimization as a nice coat of wax on a new car. You can shine that thing all you want, but it's still a Yugo. Are all of those in and out of the "golden zone" moves really value added? Slotting done well, is all about things like "right sizing", reduction in travel time, reduction in replenishments, grouping by type, reducing touches, improving flow. Do those things right, and you'll have a Lexus. Even if you don't get around to waxing the thing (optimization), it's still a Lexus. And by the way, that shiny Yugo is still a Yugo! I have met several people who have worked in slotting at some point in their career. A few of them have had the "pleasure" of using some sort of slotting software. I have never heard one, not one, brag about how awesome it was. Most, told me how they had to stop using it. That has been my experience.

In closing, if you are interested in "helping" your team do a better job, ask those individuals what they need from you, how you can help them. That will likely get a much better result than purchasing some expensive software that you think they need. 

What This Website Is About

"The master of all trades is seldom good at any. Concentrate all of your efforts on one chief aim."- Napoleon Hill.

Back in 2001, I decided to take my History and Political Science degree to work as a picker in a distribution center. Eventually, I moved "up" to replenisher, and from there I took a job as a mover, reporting to the Manager of Slotting. As a mover, I began to understand the importance of slotting and profiling in a DC. When my boss asked me to come into the office and help out with the clerical work, that understanding grew and eventually evolved into a philosophy. That philosophy, by the way, is still evolving today. Presently, I am one of two network Slotting Analysts for a successful Fortune 500 retailer. My colleague and I oversee slotting for six (about to be 7) distribution centers, and one import center. In addition to slotting and profiling, we also manage each SKUs dimensions and item attributes. Our current operating system is Manhattan 2010.

While I consider myself capable of wearing many different hats in a distribution center, and have in the past, slotting is my passion. The reason I love slotting so much, is because I believe that slotting affects everything. You can not receive a trailer if it is not slotted. You can not pick efficiently and effectively if slotting is not done well. Slotting can either reduce replenishments or increase them. Slotting affects your ability to manage your inventory. Slotting can positively or negatively affect what your industrial engineer is trying to accomplish. If your Slotting department maintains SKU data, then shipping and transportation are heavily impacted by slotting.

Regardless of what position you are hiring for in the DC, you should always inquire as to what that person knows about slotting, what their philosophy is, and how lean principles influence that philosophy. From Order Fill supervisor to General Manager, leadership needs to have more than a basic understanding of slotting.

The intended audience for this website is the logistics professional. Hopefully, my posts will not read like a homework assignment, or something out of a textbook. My intention is to be heavy on the personal experience, and light on theory.

Thank you for stopping by!